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Trade is better than aid – a brief look into impact investing

Dame Anita Roddick, founder of The Body Shop, once cleverly put: “If you think you are too small to make an impact, try going to bed with a mosquito in the room”. That is how I feel in the world of Impact Investing.

According to the latest Global Impact Investing Network (GIIN) report, by the end of 2018, there were 1340 organizations managing US$502 billion in impact investing assets worldwide. This might sound like an expressive number in absolute terms, but when we compare it with the latest official global assets under management, close to US$80 trillion, impact investing is indeed a mosquito, representing less than 1% of this total.

In Africa, where the challenges are even more pressing, the numbers are disproportionately low if we take into account the investment gap African countries face nowadays: 12% of impact investment assets under management is allocated to the continent, nonetheless achieving the Sustainable Development Goals (SDGs) in the region will require annual investments of some US$1.3 trillion, roughly 17% to 26% of the total needs (that ranges from US$2.5 trillion to US$5 trillion).

Despite being mosquitos, however, we have been buzzing loud and reproducing our offspring exponentially. Impact assets under management are nearly doubling each year, and if we extrapolate this trend, we can expect US$1 trillion of AUM by 2020, globally. The most exciting thing, however, at least for me, is that we have been experiencing not only large movements of players entering the impact investing field every day and watching imperative rising government support, but also consumers clearly shifting their attitudes. People are rethinking about the role capital should play in our society.

By the way, Anita also has taught us that we, as assiduous consumers, have real power to affect change. For those who don´t know her yet, she was a forerunner in the impact investment field since she founded her true impact-driven company (The Body Shop) in the seventies, decades before the term “impact investing” was coined.

Anita´s view in which a company can be profitable and have a social impact is not something new, then. Her cosmetics products were not tested on live animals; she sourced unusual products from exotic communities (and ensured that they got a fair deal from selling them); she pioneered zero waste strategies as she encouraged customers to reuse containers and was able to create a singular culture in which sustainability principles were embedded in every function and business unit of The Body Shop operations.

Do you know what was the main method Anita used for selecting her franchisees?
The potential partners were subjected to the Marcel Proust questionnaire, so they were not questioned about their track record or investment capacity, but rather interrogated on their views in politics, virtues and preferences – for example, “how would you like to die?” or “what´s your idea of happiness?”

Speaking of questions, I’ve been constantly asked about the need for impact investing in Africa, as the continent is frequently viewed as a tier-1 geography for foundations and philanthropists. People who know the persistent challenges in the region keep asking me whether a for-profit company will be more efficient than an NGO or a social enterprise in addressing the poverty trap deep-rooted in the region.

My answer? Again, aligned to what Anita believed, “trade is better than aid”, since underprivileged people are better off with businesses of their own rather than with dependency on others.

It´s time to invest in Africa. Stay tuned for more on that thought.

Caroline Martins is an Impact Investment Analyst

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