ADB s Inclusive Business Impact Assessment Tool Proposal for Further Discussion

Transcription

1 ADB s Inclusive Business Impact Assessment Tool Proposal for Further Discussion Inclusive Business Forum for India August 2012, Discussions with Fund Managers and Development Partners in Delhi and Mumbai For inquiries: Dr. Armin Bauer, Principal Economist, Regional and Sustainable Development Department, Asian Development Bank, abauer@adb.org, Tel: Disclaimer: The views expressed in this paper/presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use. Terminology used may not necessarily be consistent with ADB official terms. What we will discuss 1. What is Inclusive Business at the BoP? 2. What is the social impact? 3. How do others measure it? 4. ADB s proposal to measure impact Why? The 5 steps Proposed TA Facility 5. Impact Assessment as part of ADB s IB Initiative 6. Conclusion and further Discussions 2 1

2 What is Inclusive Business? impact Inclusive Businesses are Commercially viable private companies Whose core business solutions are designed address pressing social (and East and Southeast environmental) issues Asia for the poor and vulnerable ($3 and below) through The provision of goods Services, or Income and decent work opportunities To provide goods and services or 65.9 employment opportunities Their investments will improve 53.0 in a systemic way and 33.2 through scale the living conditions and livelihood of the women, men, and children at the base of the 14.3 pyramid 3 South Asia % of population (2009) Latin America , , The Base of the Pyramid inclusive business Sources: World Bank PovCalNet (24 Aug 2012 update), ADB Key Indicators 2012 the rich the lower and upper middle class vulnerable ($3, $4) poor ($2) very poor ($1.25) Total popuklation (million people) How does Inclusive Business differ from Corporate Social Responsibility? -> Scale of impact and commercial viability business criteria Characterists of inclusive business and social enterprises Philantropie / social CSR inclusive business NGO enterprise financial viability not viable not viable 4 commercially viable fully commercially viable (profitable) mainstream business profitable or highly profitable rate of return (percent net per year) turnover in business (million $per year) < 0.5 < 0.25 < > 10 net profit per year (million USD) 0 < investment (million USD) < 0.25 < > 3 growth potential (average percent per year over 5 years) < 5% < 2% 5% - 10% 10% - 25% > 15% social impact criteria main purpose of the business is social impact yes yes yes mixed (business + social) no social impact area community / local community / local local sector / country / systemic bottom line triple single or double or triple triple double or triple single benefitting households (total over 5 years, number of households) less than 5,000 5,000-50,000 anything of which poor (under the $2 poverty line, %) 80% 20% 10% 30% 10% of which vulnerable (under the $4 poverty line; %) 10% 50% 20% 50% 10% of which non poor and not vulnerable 10% 30% 70% 20% 80% Other exclusion criteria for ADB Fund microfinance, BoP business for private consumption goods 2

3 Measuring Impact - key principles Its not about measuring rate of returns or size of profit General impact investing (environmental or other impact) It is about social impact on low income people $3 international poverty line Social exclusion Focus on contribution rather than attribution Understanding the impact chains We favor assessment over self-reporting Quantifying before and after / with and without solutions The tool has to be simple and affordable; and easy to report on 5 Monitoring impact investments - what the others do Its not about Issues measuring rate of returns or size of profit General impact investing (environmental or other impact) Focus on contribution rather than attribution Range of impact: direct, indirect, systemic Reach and depth of impact Ex ante ex-post Understanding the impact chains Stakeholder perception: We favor assessment over self-reporting Data gathering: Quantifying before and after / with and without solutions The tool has to be simple and affordable; and easy to report on 6 It is more about social impact on low income people ($3 international poverty line) -Inclusive growth goes beyond poverty ( Social exclusion), - but is not trickle down 3

4 Monitoring impact investments - what the others do Global Impact Investors Network (GIIN): developed the Impact Reporting and Investment Rating (IRIS) and a Global Impact Investing Rating Scheme (GIIRS) IRIS: Set of indicators companies or funds can chose from for self reporting Common langue for reporting social and environmental impact, Not context specific GIIRS Social and environmental impact Weighting and rating (1-5 stars) Can we compare? Aspen Network of Development Entrepreneurs (ANDE) s core set of metric: Revenue, employees, wages, additional finance mobilized, greenhouse gas emissions avoided IADB: number of beneficiaries, cost per beneficiary, innovation factor, role of BoP, scalability, replicability KfW/DEG: impact rating system: combination of social, financial and economic returns IFC s Development Outcome Tracking System (DOTS): 7 focus on growth and jobs; financial performance, environment-social=governance standard, private sector development ADB Impact Assessment Tool - 5 Steps A tool for a fund manager to assess individual possible deals, not for portfolio screening 5 steps Eligibility gate: financial soundness, good business case, social inclusiveness Routes to Impact (smell test): how does the company achieve the combination of financial and social objectives: unmet development needs, proposed inputs, planned outputs, anticipated outcomes, anticipated impact, alignment of social and financial objectives investment decision 3. Scoring: social impact and inclusiveness; direct beneficiaries and poverty ratio, distribution benefits, gender, percentage change, systemic impact (innovation and scalability), distribution and use of company profits, relevance and critical need for the poor, internalization of inclusiveness in the company s business culture 4. Setting Targets 5. Assessing the Fund Manager s performance 8 4

5 ADB Impact Assessment Tool - 5 Steps Eligibility gate: financial soundness, good business case, social inclusiveness 9 ADB Impact Assessment Tool - scoring 1. Eligibility gate: financial soundness, good business case, social inclusiveness 2. Routes to Impact (smell test): how does the company achieve the combination of financial and social objectives: unmet development needs, proposed inputs, planned outputs, anticipated outcomes, anticipated impact, alignment of social and financial objectives investment decision 3. Scoring 4. Setting Targets 5. Assessing the Fund Manager s performance 10 5

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7 ADB Impact Assessment Tool - scoring 1. Eligibility gate: financial soundness, good business case, social inclusiveness 2. Routes to Impact (smell test): 3. Scoring (1-10, or high-medium-low; weights depending on ADB strategic priority): social impact and inclusiveness; direct beneficiaries and poverty ratio, distribution benefits, gender, percentage change, systemic impact (innovation and scalability), distribution and use of company profits, relevance and critical need for the poor, internalization of inclusiveness in the company s business culture Good business case conditions: alignment of financial and social objectives, value for money (cost per beneficiary), management of negative social, environmental, governance impact, proven quality of financial performance, quality of strategy 4. Setting Targets 5. Assessing the Fund Manager s performance

8 ADB Impact Assessment Tool setting targets 1. Eligibility gate: financial soundness, good business case, social inclusiveness 2. Routes to Impact (smell test): 3. Scoring 4. Setting Targets for systemic change on poverty reduction and inclusiveness Fund manager will set targets for each project, in consultation with company and ADB Along the routes of impact Direct and indirect Data point should be referenced to the IRIS set of indicators 5. Assessing the Fund Manager s performance

9 ADB Impact Assessment Tool assessing fund manager s performance 1. Eligibility gate: financial soundness, good business case, social inclusiveness 2. Routes to Impact (smell test): 3. Scoring 4. Setting Targets for systemic change on poverty reduction and inclusiveness 5. Assessing the Fund Manager s performance (impact coefficient) Principles incentives to select business ventures with significant pro-poor and inclusive business impact Maximize not only commercial returns Nothing without social impact Quantitative and qualitative matrix to determine the impact coefficient (UBS): Impact coefficient Investment policy target Investment target on Pro poor reach Achievement of specific targets (incl. innovation of IB business models promoted) Quality of reporting 17 annual impact assessment (Aureos Health Fund) or carry (15%+5%+5%) or combination ADB Impact Assessment Tool assessing fund manager s performance

10 ADB Impact Assessment Tool - Reporting For the investment committee Initial screening Investment approval Portfolio management and monitoring Reporting to ADB / development partners Core metrics: number of beneficiaries, route to impact, revenue and profit generated, additional capital mobilized, Company specific metrics: output and outcome indicators Additional qualitative indicators, e.g.: empowerment of the poor (organizing in cooperatives, involvement in company s decisions), engagement of NGOs, change sin government systems 19 ADB Impact Assessment Tool In sum A rating instrument 20 10

11 ADB Impact Assessment Tool in sum

12 For discussion: Harmonizing the tool ADB Inclusive Business website