NGUVITJITA KAMENJONO: Corporate impact investing: a paradigm shift on the horizon in doing CSR

Businesses are built to make money. And big businesses are built to make big money. When such sizeable sums are involved there are usually good profits at the end of the financial year too, and over the last decade or so corporate social responsibility (CSR) has boomed, utilising some of this money to do good. But whether CSR is creating meaningful and sustainable impact where it is needed most, is less clear.

Despite an upward trend in the scope and scale of CSR and strategic philanthropy (outward-orientated corporate philanthropy and grant making), many initiatives remain hampered by poor co-ordination and a lack of active engagement from senior leadership. The result can be a plethora of “do-good” programmes that sit in isolation, disconnected from each other and from society. Though the best of intentions may underpin these programmes, more is needed to ensure they add real and lasting value.

Here, businesses could look to impact investing to ground their CSR in greater impact. This relatively new investment approach is shaped around promoting and tracking positive environmental and social change alongside the generation of a financial return.

Expanding the impact of CSR

Doing good is good for business. This is well established. A survey of research on CSR by HEC Paris points out that in 92% of studies CSR is shown to generate a net financial benefit. It does this through strengthening customers’ brand loyalty, increasing employee motivation, improving stakeholder relations, and helping firms develop their innovation capabilities. It stands to reason then that a more intentional and impact-orientated approach to CSR could deliver even greater returns, while also promoting much-needed positive change. If money makes the world go round, the marriage of corporate philanthropy with impact investing could help ensure a wider pool of stakeholders get to benefit from the money that’s going around.

Impact investing is widely regarded as one of the more promising approaches on the responsible investment continuum, representing a huge opportunity to contribute to the implementation of the UN sustainable development goals (SDGs). And it has grown dramatically across the world over past few years, including in Africa, as the sixth edition of the African Impact Investing Barometer published by the Bertha Centre for Social Innovation and Entrepreneurship in partnership with RisCura shows.

However, on the continent impact investment remains constrained by several factors, one of which is limited capital supply, especially for early-stage, high-risk initiatives. What if corporate capital could be more intentional about stepping up to fill this gap?

Badr Jafar, founding patron of the Centre for Strategic Philanthropy at the University of Cambridge, points out that well over $1-trillion of private philanthropic capital, more than triple the annual global development and humanitarian aid budgets combined, is deployed every year. That is a significant sum that could be working for greater impact.

Sowing the seeds for meaningful and sustainable change

In Southern Africa corporates have a substantial opportunity to use their capital heft to sow the seeds for meaningful and sustainable change, helping to address some of the intractable challenges that threaten the very survival of society and the economy, from climate change to rising inequality.

Innovation researchers at IMD Innovations point out that “rather than run the risk of distorting market mechanisms through unsustainable charitable gifts, the unique and differentiating mission of impact investors is to build better, more competitive markets by investing in businesses with potentially large social benefits, such as better livelihoods and perspectives for underprivileged people or a reduced ecological footprint on our planet.”

What’s more, a significant and important element of philanthropic impact investing is that it is typically more patient than other forms of capital, meaning impact is prioritised and the investor is willing to accept no or below-market financial returns.

Philanthropic impact investment therefore has a key role to play in creating impact by supporting social enterprises and unlocking sustainable social innovations by supporting emerging innovators especially in the high-risk start-up phase. For example, in Namibia incubation and innovation hub Basecamp is helping incubate and accelerate entrepreneurship training, start-up community building and pre-seed investments. Previously funded by GIZ, Germany’s main development agency, under its StartUp Namibia Project, Basecamp now enables the private sector to invest in broader systemic and transformational economic change in the communities in which it operates.

The most successful of these kinds of initiatives are the result of large amounts of background work targeting the efficient and impactful use of available capital. Knowledge, and an acute contextual understanding are crucial here. The OECD provides helpful guidelines for philanthropic engagement: a multilevel, inclusive, and systemic dialogue lays the foundation; timely and accurate data supports better decision-making; and facilitating collaboration through partnerships with local stakeholders contributes to a more conducive and enabling environment for philanthropy.

Creating the change we all seek

A paradigm shift is on the horizon for CSR. To practically deliver on these guidelines and shake off the limitations that traditional CSR may impose, many corporations will either need to upskill staff in the CSR space or find strategic partners advancing impact investments with these approaches core to what they do to enable them to direct a portion of their capital towards impact investments. Not only is this likely to be financially beneficial to the company in the long-term, but as Livingbridge founding partner and CIO Shani Zindel says, it will also sit well with employees, customers and shareholders who are eager to see corporations make this shift.

In a sea of pessimistic views about our future, Zindel highlights three important points for why we should be optimistic:

• We have access to more information than ever before — this should enable us to better diagnose problems and shape the right solutions to meet them head on.
• With the widespread adoption of social media and growing access to the internet, we are visually made aware of what goes on beyond our narrow purview of what is right in front of us.
• Perhaps most importantly, there is a genuine thread of social and environmental awareness among young people eager to prevent the coming decades from being humanity’s last.

Combine these three factors along with the power and incentives of corporate impact investing, and the future suddenly looks brighter.

• Kamenjono is a Bertha scholar on the MPhil in inclusive innovation programme and a trained accounting and financial advisory professional.