Private Equity, Social Impact and the SDGs
The Sustainable Development Goals (SDGs) are network of goals set up by the United Nations to address pressing social and environmental challenges of our time. These goals are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity (UNDP.org).
The United Nations Commission on Trade and Development estimates that the SDGs will need more than $5 trillion in annual investments. This sum cannot come from development aid and public capital alone so all hands are on deck to figure out innovative ways to fund this deficit from private capital.
Self-identified impact investors have led this conversation. These impact investors have also put money into de-risking certain industries traditional investors overlooked in the past.
In its 2018 Annual Impact Investors Survey, the Global Impact Investor Network (the GIIN), surveyed responses from 229 impact investors. These responses uncovered about USD 228 billion in Assets Under Management. This figure is used as an estimate of the size of impact investing market.
More recently, the Emerging Market Private Equity Association (EMPEA), which is the global industry association for private equity in Emerging Markets, recently set out to understand how to approach the SDGs through the lens of private equity. The result was EMPEA releasing report titled “Private Equity’s Role in Delivering the SDGs: Current Approaches and Best Practices.”
Some key points to note from this report are:
1. Investors active in underserved emerging markets have the potential to drive meaningful impact at scale and speed.
2. Going forward, Limited Partners will select fund managers that show credible commitment to the SDG agenda.
3. There is an opportunity for the Private Equity industry to collaborate and build consensus with the goal of developing a common approach to ‘investing in the SDGs.
Some Private Equity investors have indeed started setting up impact investing focused fund. For instance, TPG Capital, one of the largest private equity firm in the world set up RISE Fund. Rise Fund is a Global Impact Fund and earlier this year, RISE acquired a $47.5m stake in Cellulant. Cellulant is a digital payments provider reaching 40 million people across eleven countries in Africa.
Having said the above, here are some practical steps that traditional investors such as private equity firms can take when they are serious about social impact.
1. To avoid any form of “impact washing”, Private Equity firms should take time out to develop the impact narrative in their investments. This means going beyond understand the business itself to understanding how the business affects different stakeholders and then developing an intentional strategy to achieve certain predefined impact goals.
2. Intentionality is a key word here. Traditional investors should become as intentional about measuring and tracking impact as they are about tracking the financial trajectory of a business. Impact should become embedded into business models.
3. Current ESG frameworks have to evolve and align with the impact narrative and intentionality mentioned in the two points above.
These are interesting times to see the much needed convergence of private capital and development objectives and at Strat!gos we are always excited to help in any way we can!
About the author
MODUPE 'MOE' ODELE
Moe is an attorney with a focus on mergers and acquisitions, private equity, venture capital and impact investing.