Impact investing—debt or equity investments in social ventures that provide both positive, measurable social impact and a financial return—is gaining increasing attention. Depending on whom you ask, impact investing is an asset class in itself or an investment strategy. Either way, it seeks to address seemingly intractable social or environmental problems while creating value for business owners and investors, along with jobs for local people.
Business schools have seen very high student interest in courses that cover or integrate social entrepreneurship and the notion of multiple bottom lines.
Social entrepreneurs work under the fundamental assumption that there can be market-based solutions to many of the world's problems. But they need financial "breathing room" to get their ideas to market and to financial sustainability. Ventures focused on social and environmental projects, such as providing ambulance service in rural areas, designing innovative solar power projects or delivering fresh water, often require investors to wait a longer period for profitability and may have a relatively low expected return once profitable. Yet if they succeed, in aggregate, the potential of this new sector of social entrepreneurs to strengthen economic results in many countries and regions is significant.
Social venture firms often require a hybrid structure over time. Grants and interest-free loans (along with pro bono legal support and other charitable assistance) are vital during the startup phase, but mezzanine capital can be attracted and share issuances are possible once the idea has been proven and there is a path to scalability and profitability.
Governments, multilateral institutions, the private sector and business schools have all taken notice. In a joint report, J.P. Morgan and the Rockefeller Foundation suggested that impact investing could grow from roughly US$40 billion worldwide today to US$1 trillion by 2020. The United Nation's Global Compact Leaders Summit has studied ways to bring impact investing to scale by increasingly involving for-profit companies and mainstream investors. A slew of studies providing strategic input and technical guidance in the field has followed, including Acumen's comprehensive report From Blueprint to Scale: The Case for Philanthropy in Impact Investing.
So many more of today's young business leaders are determined to combine profitability with social progress, to do good while doing well. This approach bodes well for the world, and I'm proud that we can do our part to support it.
Mike Smith, Partner, New York
For example, Harvard Business School's Social Enterprise Initiative has seen tenfold growth since its founding, with other top schools experiencing similar demand.
Pro bono legal support plays an important role during the early stages of social enterprises. Determining the proper legal structure, protecting intellectual property and negotiating from strength with counterparts can make or break these startups, which often cannot afford to pay for guidance.
From Ethiopian chicken farms to ventures in London
Thanks to partners such as Mike Smith, White & Case has long provided pro bono legal and business advice to social entrepreneurs and the organizations that support them. Mike has represented Acumen, a pioneer in the field, for many years and has been joined by many other White & Case partners and associates, advising on its innovative "patient capital" deals around the world.
Our lawyers are helping Acumen structure its first social investment in Ethiopia—in a poultry farm—a project that is intended to enhance the productivity of small-hold farmers and improve meat quality. In Tanzania, also for Acumen, a team has reviewed transaction and project documents for an equity investment in small-scale biomass power plants, which are intended to provide renewal and reliable energy to poor communities throughout the country.
In London, a group of White & Case partners and associates led by partner Melissa Butler is advising the Ethical Property Company, a social enterprise that provides office and meeting space to nonprofits on commercially favorable, flexible terms with a focus on the sharing of resources and the creation of a communal working environment. Melissa, who has worked pro bono with a number of social enterprises, finds that they are "getting very sophisticated, becoming global, requiring funding and resources beyond what has been previously available or thought appropriate for startup ventures." At the same time, through Bromley by Bow's Beyond Business Program, we are advising numerous socially and environmentally minded startups that seek to create jobs in East London—which may one day rent office space from the Ethical Property Company.
White & Case assists impact enterprises around the world. Partner Alex Zhang and associate Ning Zhang in Shanghai are helping develop agreements for Fair Globe, a socially minded trading startup company based in Suzhou that sources and distributes premium-quality, certified fair-trade products to urban retailers in China. New York partner Daren Orzechowski, associates Allison Dodd and Caitlin Johnston, and South African partner Steve Raney are providing technology, data, software licensing and employment advice to Dimagi Inc., a company that integrates innovative technology into public and private healthcare-related services.
Mike Smith has seen impact investing affect an entire generation of business people: "So many more of today's young business leaders are determined to combine profitability with social progress, to do good while doing well. This approach bodes well for the world, and I'm proud that we can do our part to support it."