Infrastructure, Education & Impact Measurement: Scaling Impact Investing in India

In case you missed it, our CEO Jennifer Pryce gave the keynote presentation at India Impact Investing Week 2020, hosted by Impact Investor's Council India. Below is the transcript of Jennifer's speech, where she discusses three key ideas that are critical to unlocking private capital and impact investing's growth-- infrastructure, education and impact measurement. Read on to learn more:

"Good morning and good afternoon to all and thank you, it is an honor and a pleasure to be here with you today –

As mentioned, I work at Calvert Impact Capital, a global financial firm. We have been operating for over 25 years, supporting investors in investing for both financial return and intentional, measurable, positive, social and environmental impact. I’m looking forward to speaking with you today about how to scale impact investing with the integrity and the speed that this moment requires. The perspective that I am sharing today is one of a financial practitioner that invests US capital in emerging markets globally:

From this lens, I work with one hand in the capital markets (talking to individual investors, private wealth managers) and one hand in communities. I sit in the middle of two well-functioning markets, however two markets that don’t come together to share the assets that one has and the other needs – the movement of resources into communities and in return, resilient communities that benefit us all.

In order to scale, private capital is needed. There is simply not enough public money. If you want to bring impact investing to scale, you need to focus on unlocking private capital.

I want to talk about three things that are critical to unlocking private capital and impact investing’s growth – infrastructure, education, and impact measurement.

During Calvert Impact Capital’s 25-year history, we have been working with investors of all types. We sell products and provide services so that investors, individual investors as well as institutional investors, can invest in private impact markets around the world.

We are working to unlock the private capital that is advised. Advised assets are investment portfolios of individuals or institutions that advisors are paid to manage in line with the goals of their clients. Often these advisors are employed by large asset management firms or banks such as Goldman Sachs or Citigroup; worldwide, these assets under management are over $100 trillion. This is the private capital that we need to unlock in order to scale impact investing.

To unlock private investor capital, we have found it is necessary to offer products that meet investors’ need for risk diversification, liquidity, risk-adjusted return, and investment size. As such, we have found that a model in which we lend to intermediaries and funds around the globe enables us to responsibly invest the capital that we raise, while meeting investors’ demands.

A few of our investments in India include:

Varthana: An operating company that supports affordable private school owners by providing loan capital so they can expand their infrastructure, invest in teacher-training, and introduce new learning methods into their classrooms.

Intellegrow: A lender that provides customized and flexible lending solutions to small and medium enterprises.

Both are intermediaries serving the education and small and growing business sectors respectively, and both have the track record, scale, and need for the debt capital that we provide.

It is this financial infrastructure -- investor to advisor; advisor to capital raising intermediaries/product (which is where Calvert Impact Capital sits); capital raising intermediaries to local capital deploying intermediaries (such as Varthana); local capital deploying intermediaries to an operating business -- that unlocks private capital.

This is how we can enable an investor whose money sits in an account at Goldman Sachs to allocate some of their investment portfolio to a community outside of Delhi. Intermediaries play an extremely important role in enabling businesses and communities to access capital in a consistent and potentially scaled way.

Of the countries we invest in, which is over 100, India has one of the most well-developed financial ecosystems, particularly in the sector of financial inclusion. However, there are intermediary gaps in both sectors and regions that impede an outside investor without in-country staff, such as Calvert Impact Capital, from easily and responsibly channeling more money into Indian markets.

An intermediary that has the size, scale, and track record is required to put significant capital to work locally. These intermediary gaps limit the flow of private capital into the country and impede the scaling of businesses within communities.

Sharing our learnings and educating investors as to what is possible is core to our work and culture at Calvert Impact Capital. Our work demonstrates that it is possible for private capital to invest in markets overlooked by traditional finance.

But we know that many investors face common challenges when it comes to impact investing:

• Some are technical, such as the existing platforms, technology, and operations on which the financial markets are built, do not map well to impact investments; • The regulatory framework can impede allocating capital to impact investments if it is not clear or supportive; • The models that many portfolio managers and financial advisors use to make investment decisions are not a great fit with impact investments because they don’t account for impact, and the size, type, and track record are often not typical; • The basics of investor education and distribution of product offerings do not enable most impact investments to reach investors.

What is clear today, more than ever, is that we need to break through the above challenges and reach investors systemically. We can’t rely on a growth strategy that reaches one investor at a time. We need better infrastructure, more intermediation, and more products that are designed to meet the needs in communities, but also ones that account for investor demands and distribution.

There is also a need to educate, not just on “why” to invest for impact, but more importantly on “how” to do so.

We at Calvert Impact Capital began a journey in understanding how gender showed up in our own work over a decade ago. We came to learn that we were not intentional or consistent in how we were reaching and advancing women’s lives. As a result, we began to formalize this process.

In 2012, we created an intentional and measurable gender framework. At the beginning, we screened in a subset of our portfolio that met the gender targets that we established. After a few years, we began to recognize that gender does not live in a silo, but all investments have a gender impact. We then revised our process to capture the gender elements of all our investments.

Over time, we built a diverse, global portfolio using gender as both a lens to see investment opportunity more clearly as well as a lever to pull for greater impact.

In 2018, this led us to undertake a quantitative and qualitative analysis of our gender work and portfolio more broadly, showing the outsized impact and financial performance of investing with a gender-lens. We published these findings as well as a guide to support fund managers in adopting a gender lens in a report entitled, Just Good Investing: Why gender matters to your portfolio and what you can do about it.

We saw the opportunity to demonstrate to investors the positive alpha of gender lens investing as well as the positive business outcomes that organizations could achieve in incorporating a gender lens in their work. Through this work, we would work directly with fund managers to support their ability to incorporate gender into their investment making decisions. This was an effort to move the conversation from “WHY” invest with a gender lens to sharing through our own experience on “HOW” to invest with a gender lens.

In 2019, we worked with close partners to inform the investment criteria for the 2X Challenge to invest in women across the globe. To date, the challenge has mobilized more than $4.5 billion in investment from Development Finance Institutions, private investors, and philanthropies across sectors and regions. In reflection, our work of doing, advocating, and teaching others to incorporate a gender strategy is one to replicate: To demonstrate, educate and scale.

I believe educating is a responsibility of us all. Education can lead to the growth of the overall amount of capital seeking and allocating to impact investments. We know that there is a need for more capital in communities and there are hundreds of trillions of dollars of investor capital that is poised to be influenced. As such, there will be no winners or losers in this effort – as my predecessor always emphasized, it’s important to “let a thousand flowers bloom.”

Another opportunity is that of Impact Management and Measurement (IMM) to provide a foundation for scale. As I have heard IIC state, and could not agree with more, is that impact investment measurement and management is a key, defining feature of impact investing.

The first step is to get asset managers aligned by using the same industry standards and establishing an impact measurement and management framework.

The next step is to leverage this key defining feature to help us collectively raise capital. To that end, investors need a credible tool that they can use to assess the impact of one product versus another. How we report on impact is also important. There are different reports for different audiences, and in my experience, investors have very little time to read and analyze information. They look to benchmarks and ratings to facilitate investment choices. The simpler the better.

Calvert Impact Capital recently signed onto the Operating Principles for Impact Management and Measurement, a global effort to increase transparency and standardization of impact management and measurement frameworks. The Operating Principles do not assess impact itself, but rather provide a framework to assess an investor’s IMM practices through the whole investment lifecycle from initial investment to exit. The potential to grow this effort into a tool to facilitate the raising of capital is real.

As research and policy agendas pivot to COVID-19 recovery, our challenge is not to restore the existing systems but to lead resilient, inclusive, and sustainable transformation. Overlooked communities have been uninvested for generations, so rebuilding what was there will not be enough – we have to do more.

Thinking of how to collectively move the system – not just to support individual sectors or deals - needs to be part of our conversations. We have all experienced collaboration and know it is not often easy. That said, over the last few months, the team at Calvert Impact Capital has been part of recovery efforts in the US to bring loan capital to the smallest of the small businesses that lack access to banks and other traditional financial institutions. What we have experienced with our colleagues, including those in this audience, is a sense of urgency—a motivation created by the severity of the moment and a desire to do whatever we can, as quickly as possible, to provide relief and support. In this moment, this spirit is our greatest asset in stepping up to these opportunities and creating positive change.

Thank you for your time and attention this morning. It has been a pleasure to be a part of your day and the event. Best to everyone as you move onto the rest of the day’s meetings."