Impact investing has been growing in popularity in recent years, as investors increasingly seek to align their financial goals with their values and make a positive impact on society and the environment. There has been a shift towards investing in underserved or marginalised communities, and a recognition of the need for diverse perspectives and voices in impact investing decision-making. As this type of investing continues to evolve, it is likely that we will see further innovation and growth in this space so we believe its an area that iNGO’s should be exploring in order to obtain investment. This upward trend is a direct result of people wanting to make investments that have a purpose or positive impact on society.
Ethical Good have been engaged in impact investing and working within a network of other impact investors for many years, which has allowed us to support and learn from many social enterprises with positive impact goals. There are numerous new financial products being utilised in the impact investing space as it grows, and we would like to raise awareness of Impact Bonds to help iNGO’s understand this new way of investing and how it can support organisations with solving problems that exist for across global communities
Impact bonds are a type of financial instrument that are designed to support social or environmental initiatives by providing funding for projects that aim to achieve specific outcomes. They are often used by governments, non-profits, and social enterprises to finance initiatives such as healthcare, education, renewable energy, and affordable housing.
Impact bonds work by having investors provide upfront capital to fund the project, in return for the assurance there is a Bond holder who will provide a greater financial incentive - if impact targets are hit. Assuming the project meets its predetermined outcomes, the investors receive a return on their investment, which is typically higher than what they would earn from traditional bonds. However, if the project fails to meet its targets, the investors may lose some or all of their investment and these risks must be considered at the outset.
We are of the opinion that Impact bonds can make for an interesting new financing model for iNGOs and provide a good investment option for their supporters because they offer the potential for financial returns, while also contributing to positive social or environmental outcomes. They provide a way for investors to align where they invest their funds with their value set which can help to create a more sustainable and equitable world. Additionally, impact bonds can help to shift the focus from short-term profit to long-term social and environmental impact.
Real life examples shared from Kenya and Scotland:
Kenya - Faith Development Bond
The Lutheran World Federation has mobilised €25m of private capital to transform the lives of 200,000 young people through education, livelihoods development and community support. It has uniquely integrated faith into its approach.
Scotland - Drug Recovery Bond
Over the next 5 years, ‘Street Connect’ will support 130 women with at least 91 achieving a lifestyle free from illicit drugs. A partnership and impact bond is being created where third party investment capital covers the cost of service delivery until outcomes are achieved. When outcomes are achieved then NHS Greater Glasgow and Clyde will pay for those outcomes. This guarantees 100% impact of public spending – if the service doesn’t achieve its outcomes NHS Greater Glasgow and Clyde don’t pay.
Ethical Good hosted a webinar on this subject alongside Reuben Coulter, a Partner at Ignis Global, a social innovation and strategy consultancy. Reuben acts as advisor to family offices and foundations, including Angello and Faith Driven Investor. Prior to this he was CEO of Transformational Business Network, a global impact investment network and a Fellow and Associate Director for Africa at the World Economic Forum in Switzerland.
The webinar was a valuable educational opportunity. The questions raised an interesting discussion with the panellists and our atendees were able to learn how they could apply this knowledge to their own organisation from a set of experts.
Check out the video below.
If you have any questions about developing Impact Bonds for your organisation, contact us at email@example.com and we would be happy to help.