MBA Programme Period 3/Period 5 (France/Singapore) May-June 2018 IMPACT INVESTING Professor: Jasjit Singh Faculty Assistants E-mail: jasjit.singh@insead.edu France: michele.plu@insead.edu Website: http://faculty.insead.edu/jasjit-singh Singapore: avegail.villanueva@insead.edu Please note: The mini-electives Strategy and Impact and Impact Investing are designed to be complementary, but either can also be taken without the other. Attendance in the first session is mandatory, and auditing is not allowed. The first assignment is due by 9PM of the evening before the first session. Course Purpose This course will cover a financial perspective on business as a force for good. The conditions economic theory requires for markets to fully attain societal goals rarely exist in practice. However, relying just on government funding, charity and aid to address issues of market failures and social injustice has proven to be insufficient. Private investments done with societal impact as a priority commonly referred to as impact investments - are therefore increasingly seen as critical as well. Understanding and maximizing the effectiveness of impact investments will be a focus of our discussions. Learning Goals Understanding impact investing in the context of the overall investing space Managing financial and societal goals simultaneously in making investments Distinguishing non-concessionary and concessionary impact investing Rigorously defining and evaluating impact Who Should Take This Course? Societal issues are becoming increasingly salient in every job. Therefore, while this course should be of obvious interest to people pursuing social impact opportunities (e.g., impactdriven businesses, impact investing, social enterprises, non-profits or development agencies), it should also appeal to those in mainstream business careers. This elective can be taken either independently or as a complement to Strategy & Impact (in any order).
Course Overview The term impact investing refers to investing and managing capital based on both financial returns and societal impact. As per the Global Impact Investing Network (GIIN), Impact investments are investments made in companies, organizations and funds with the intention to generate social and environmental impact alongside a financial return. These can be in both emerging and developed markets, and can target a range of returns from below market to market rate, depending on the investors strategic goals. Rather than being a separate asset class, impact investing is a mindset involving an intentionality to generate measurable societal benefits and financial returns. Although a nascent field, this approach is generating immense excitement among investors (e.g., millennials and high net worth people), fund managers (e.g., venture capital and private equity), and donors (e.g., foundations and aid agencies). We will cover key concepts and practical knowledge needed for you to also engage in this space. Evaluation Your overall grade will depend on your answers to three individual assignments (questions listed online as well as in the session details below): Individual Assignments (3) 100% Each individual assignment, due 9pm of the evening before the corresponding session, asks a question regarding the session s case. Your response will be evaluated based not on a right answer but on the quality of your argument. Please consider the situation as described, and do not use outside information (e.g., Internet sources). While no word limit is imposed, 200-250 words (bullet format okay) should suffice for a wellwritten response to each of the individual assignments. You may discuss the assignments with others, but should write your actual answers independently. Please turn in your responses via the course website. In exceptional circumstances where online submission has issues, please submit it via email to the instructor and the course assistant by the deadline. Late submissions carry an increasing penalty with the delay, but turning in late is still better than not submitting at all.
Classroom Expectations No separate points are set aside for class participation. But a negative participation penalty or a positive participation adjustment might be awarded if warranted. The specific expectations from you are: Attending class regularly (except with advance approval to miss a class) No electronic devices (except with permission in airplane mode for note-taking) Coming to class well-prepared to discuss the cases Making clear, relevant, insightful and constructive comments Listening actively and respectfully to others Beyond the Course The session-by-session outline below suggests optional readings to consider either during or after the course. You are also encouraged to sign up for the mini-elective Strategy and Impact for a perspective on social impact that complements this course. In addition, please feel free to contact the instructor for any further guidance on the topic.
Prof. Jasjit Singh Associate Professor of Strategy Academic Director, INSEAD Social Impact Initiative http://faculty.insead.edu/jasjit-singh Jasjit Singh has been an INSEAD professor since 2004. His interests include Strategy, Inclusive Business, Sustainable Development, Innovation, Impact Investing and Impact Evaluation. He is particularly passionate about how market forces and business tools can be used as a force for good, and regularly teaches in INSEAD s MBA, EMBA and executive programmes on this topic. He also gives speeches, conducts workshops and advises enterprises, non-profits and investors on how to systematically think about their impact. Jasjit obtained his Ph.D. in Business Economics (Strategy) and M.A. in Economics at Harvard. He also holds M.S. in Management & Computer Science from Georgia Tech, and B.Tech. in Computer Science & Engineering from IIT Delhi. He has written numerous academic articles and case studies, many of which are highly cited and have won prestigious awards. He is also personally involved in editorial and reviewing roles for leading academic journals. Prior to joining academia, Jasjit worked as a management consultant with Accenture and an engineer at Intel, AT&T and Cadence. He is an Indian citizen, and lives in Singapore.
SESSIONS 1 & 2 (Double Session) FINANCIAL INCLUSION AND SOCIAL IMPACT PRE-SESSION READING (REQUIRED): LOLC Micro Credit. INSEAD Case. INDIVIDUAL ASSIGNMENT #1 (DUE 9PM OF THE EVENING BEFORE THIS SESSION): If you were an impact investor, how would you rate LOLC Microcredit s performance on the social impact dimension (4=Excellent; 3=Good; 2=Fair; 1=Poor)? Why? LEARNING OBJECTIVES AND SESSION DESCRIPTION: Capital is increasingly invested with a consideration of not just financial returns but also societal consequences. Trillions of dollars of assets under management already fall under socially responsible investing (SRI) funds that screen out some sectors (such as tobacco) and emphasize others (such as healthcare). An increasing number of funds are also employing a sustainable investing approach that considers ESG (Environmental, Social and Governance) performance. So impact investing seems like the natural next step in this trend, wherein some investors actively seek business models that inherently generate a positive impact. Although still a nascent space, it is drawing significant attention globally. We will examine the key debates related to impact investing, and why this novel approach towards investment is generating excitement among people coming from mainstream finance as well as those with a more impact focus (such as individuals working in policy, philanthropy and development). As we discuss impact investing, we will also take a close look at microfinance. There are two reasons for this. First, microfinance preceded impact investing in trying to employ finance as a tool for creating impact. Second, microfinance has since the earliest days of impact investing been one of the prominent sectors to invest in. Therefore, understanding debates and lessons related to microfinance provides useful insights for impact investing. ADDITIONAL PREPARATION QUESTIONS (NOT NEEDED FOR SUBMISSION): 1. What opportunities and challenges did LOLC Microcredit face in building a rural lending business? In what ways was its new group lending business model different from its original micro-leasing business model in addressing these? 2. What specific steps could LOLC Microcredit s leadership practically take in order to further improve the company s social impact? [OPTIONAL] RELATED READING: Morduch, J. 2013 How Microfinance Really Works. The Milken Institute Review.
SESSION 3 & 4 (Double Session) NON-CONCESSIONARY IMPACT INVESTING PRE-SESSION READING (REQUIRED): Credit Suisse: Building an Impact Investing Business in Asia. INSEAD Case. INDIVIDUAL ASSIGNMENT #2 (DUE 9PM OF THE EVENING BEFORE THIS SESSION): Taking into account all aspects you consider relevant, would you recommend Credit Suisse pursue neither, exactly one, or both of the investments (China Nutrition and/or Vietnam Finance)? If constrained to pursue exactly one, which one would you recommend? Why? LEARNING OBJECTIVES AND SESSION DESCRIPTION: The so-called non-concessionary (or finance first ) impact investors insist that investments they make generate positive impact without compromising on financial returns. Seeking market returns is seen as critical for maintaining rigor in how an impact venture is managed, and also for attracting institutional investors and fund managers bound by fiduciary duty. In this view, investors contribute by providing a combination of long-term capital and expertise to support solutions to the world s pressing challenges - in sectors such as inclusive finance, affordable housing, equitable education, access to healthcare, sustainable agriculture and clean technology. Non-concessionary impact investors directly build upon approaches used by mainstream private equity or venture capital funds. A fund still needs a clear investment thesis, a clear philosophy regarding how the fund can create unique value through financial and non-financial support of its portfolio companies. This thesis is implemented as an investment strategy, a detailed plan for how the capital will be practically deployed in line with its investment thesis. Just as in traditional investing, the process includes sourcing ventures, doing due diligence, carrying out financial valuation, structuring term sheets, managing the portfolio and ultimately exiting. The main difference is that considerations about impact additionally need to come in at each stage. ADDITIONAL PREPARATION QUESTIONS (NOT NEEDED FOR SUBMISSION): 1. Why was setting up an Asian impact investing fund an interesting opportunity for Credit Suisse? How would you describe the investment strategy for the new fund? 2. What challenges did Joost Bilkes face in launching an Asian impact investing fund within Credit Suisse? How has he tried to overcome these challenges? [OPTIONAL] RELATED READING: Jaquier, J.B. 2016. Part 1: An Introduction to Impact Investing in Catalyzing Wealth for Change: Guide to Impact Investing. (Book available in the library)
SESSION 5 & 6 (Double Session) CONCESSIONARY IMPACT INVESTING AND VENTURE PHILANTHROPY PRE-SESSION READING (REQUIRED): Acumen Fund: Measurement in Impact Investing (A). HBS Case. INDIVIDUAL ASSIGNMENT #3 (DUE 9PM OF THE EVENING BEFORE THIS SESSION): Taking into account everything you consider relevant, would you recommend that Acumen invest in Ecotact, Meridian, both or neither? If constrained to invest in exactly one of these ventures, which one would you recommend? Why? LEARNING OBJECTIVES AND SESSION DESCRIPTION: Investors differ substantially on the kind of impact they expect, and financial trade-offs they might be willing to accept towards that. We will argue that non-concessionary ( finance first ) and concessionary ( impact first ) approaches have their distinct advantages as well as challenges, making them appropriate for different kinds and stages of impact ventures. In fact, many impact investors are already using both approaches: concessionary investments in social enterprises needing financial compromises for their desired impact, and non-concessionary investments in more profit-driven (yet impact-generating) businesses with a creating shared value mindset. It is important for investors and investees to only enter deals where there is mutual alignment on the overall mission as well as specific goals on financial and impact dimensions. Open communication, thorough due diligence and metric-based milestones help ensure that expectations really are aligned and post-investment conflict is avoided. ADDITIONAL PREPARATION QUESTIONS (NOT NEEDED FOR SUBMISSION): 1. What is Acumen Fund s mission and strategy? How is it different from that of other players that might also call themselves impact investors? What are the pros and cons of their specific investing approach for achieving social impact? 2. What are the pros and cons for Acumen to invest in Ecotact rather than giving the same amount to the charity Practical Action to address the same societal need? [Optional: Apply Acumen s BACO methodology to quantify this comparison.] 3. If Acumen does proceed with both investments, what clauses should it try to negotiate for each deal in order to increase the likelihood of its investment objectives being met? [OPTIONAL] RELATED READING: Brest, P. and K. Born. 2013. When Can Impact Investing Create Real Impact? Stanford Social Innovation Review. Bannick et al. 2017. Across the Returns Continuum Stanford Social Innovation Review.
SESSION 7 (Single Session) IMPACT EVALUATION AND CROSS-SECTOR COLLABORATION PRE-SESSION READING (REQUIRED): Impact Evaluation of the Perry Preschool Program. INSEAD Case. Goldman Sachs and Social Impact Bonds. News Articles. LEARNING OBJECTIVES AND SESSION DESCRIPTION: Evaluating performance in impact-seeking ventures is complex. It requires defining the impact goals in a measurable way, and thereafter verifying if these are met. But people can disagree even on basic parameters like breath vs. depth of impact, the time horizon to consider, the metrics to focus on, and the trade-off between ease and rigor of evaluation. While acknowledging that impact evaluation is not a perfect science, we will discuss the key concepts and best practices in this domain including the Randomized Control Trials (RCTs) approach that experts consider a gold standard to strive towards. Before embarking on an evaluation, it is helpful to formalize a project s strategy for impact in the form of a clear impact model (or theory of change ). Just documenting impactgenerating activities it carries out or even the scale of outputs it achieves is insufficient: we need to investigate how well the intervention ultimately improves the outcomes being sought. It also helps to carry out a societal cost-benefit analysis in monetary terms to the extent possible, as doing so clarifies the business case for a project. Rigorous impact evaluation facilitates financial innovation for cross-sector collaboration too: financial institutions are increasingly able to finance social impact projects using contracts (such as social impact bonds ) based on realization of desired outcomes. PREPARATION QUESTIONS (NOT NEEDED FOR SUBMISSION): 1. What were the key elements of the Perry Program and the rationale behind these? 2. How was the Perry Program s evaluation designed? Why? What were the key findings? 3. Why and how is Goldman Sachs getting involved in social impact projects like reducing reincarceration rates and providing preschools for at-risk kids? 4. What are the key enablers making it practical for players like Goldman Sachs to engage in the social impact space? Do you consider this a desirable trend? Why? [OPTIONAL] RELATED READING: Brest, P. and H. Harvey. 2008. Chapters 9 and 10 in Money well Spent: A Strategic Plan for Smart Philanthropy. Bloomberg Press. Rangan, V.K. and L.A. Chase. 2015. The Payoff of Pay-for-Success Stanford Social Innovation Review.