Responsible Investing is a process in which the Environmental, Social and Governance (ESG) criteria are taken into account along with the usual financial criteria. Part I deals with listed RI (SRI funds and stocks) : Is it still a credible alternative against the mainstream ? Part II deals with microfinance and impact investing The author, Xavier Heude has been entirely dedicated to the development of Responsible Finance by the mean of promoting Impact Investing, mainly. He is convinced that Private and Institutional investors are growingly interested in putting some part of their money in business activities or projects where they can themselves follow up the financial performance, and last but not least, the social and environmental outcomes generated. He is Co-founder of meso IMPACT Finance, a Luxembourg-based holding company aimed at taking stakes in SMEs that generate a social and environmental (measurable) impact. MIF helps them develop through a financial and extra-financial support (i.e. technical assistance). He is also co-founder of Backbone, an advisory company specialized in the sourcing of projects that generate social / environmental impact. www.backbone.eu.com Xavier Heude founded also the “PEERS Direct Investment” – registered trademark in 2011, after having stated for many years, that there are still quite few incentives and operational frameworks and guidelines allowing and encouraging a large public to invest in socially responsible business activities or to support valuable social initiatives. A network is being built, in order to contribute to expand the mark and get it known worldwide.

1. 1
Source : Monitor Institute

2. 2
1.0 - SRI negative screening (bad actors)
 ban certain activities
… Return OR Impact
2.0 - ESG policies positive screening (good actors)
 choose the best in class
… Return AND Impact
3.0 - Shared value Get positive impact being
financially profitable
… Return FROM Impact
EVOLUTION in
the Sustainability case
In the light of the dominance of capitalistic socio-economic models in our
societies – and the lack of credible alternatives
the challenges of sustainability can only be overcome
if they are integrated into market logic

3. The force capable of driving this revolution is ‘social impact investing’,
which harnesses entrepreneurship, innovation and capital
to power social improvement.
Social Impact Investments are those that intentionally target specific social objectives
along with a financial return and measure the achievement of both
The financial crash of 2008 highlighted the need
for a renewed effort to ensure that finance helps
build a healthy society
London, Sept. 2014
The world is on the brink of a revolution
in how we solve society’s toughest problems.

4. 4
The scope of challenges facing society today can no longer be solved with a purely
philanthropic approach :
- threat of possible climate change
- poverty leading to major political instability
- human rights issues
- supply change management (e.g. food security)
- scarcity of primary resources
- demographic challenges
- etc …
The socio-economic context
Bamboo workshop (Vietnam)

5. 0
5
10
15
20
25
30
35
40
Improve society Generate profit Drive innovation Produce goods
and services
Enhance
livelihoods
Enable progress Drive efficiency Exchange goods
and services
Create wealth
Primary purpose of business … according to the Millennial Generation
(% of survey respondents)
Source : Deloitte 2013
Nearly 7,800 participants from 28 countries across Western Europe, North America,
Latin America, BRICS and Asia-Pacific about business, government and innovation

6. 6
Emphasis on
profit
maximisation
ESG risk
mitigation
(protect value)
ESG factors
integration
(enhance
value ?)
Address
societal
challenges
No trade-off
on return
Address
societal
challenges
Competitive
return being
uncertain
Address
societal
challenges
No
competitive
return
Address
societal
challenges
No financial
return !
Social / environmental impact is measuredESG initiatives are undertaken
and reported
Investment landscapeSource: Social Impact Investment Taskforce
seek a financial return
while pursuing positive social outcomes
target specific and measurable social returns
while producing financial returns
« moderate » SRI « pure » SRI

8. Financial return is not assessed in isolation from the risks taken
=> why assess investment performance separately from social and environmental
sustainability ??

10. 10
Impact investors can be broadly classified into 2 groups based on their primary objective :
• Impact first investors, who seek to optimize social or environmental impact
with a floor for financial returns
- primarily aim is to generate social or environmental good
- investors are often willing to give up some financial return if they have to
• Financial first investors, who seek to optimize financial returns with a floor
for social or environmental impact
- typically commercial investors who seek out subsectors that offer market-rate returns
while achieving some social or environmental good

11. 11Derived from Monitor Institute
Rational behavior
Emotional
behavior

12. 12
Social Business (Yunus’s definition)
- business model that does not strive to maximize profits …
- … but rather to serve humanity’s most pressive needs
- aims at solving social problems with products and services at affordable prices
(education, health, technology access, environment)
- only original investments are paid back
- all profits are reinvested (no dividends)
- losses must not incur, in order to be sustainable
Forms of Impact Investing
microfinance, community development finance, clean technology investments …

13. 13

14. The impact value-chain
14
Impact
Bricks & motars
IT equipment
Teachers
...
Classes
Tuitions
...
Certificates
Diplomas
...
Jobs Domestic wealth
creation
(taxes,
consumption,
GDP growth ...)
Education
Financial assets Deal sourcing
& investment
requests
Investment
selection
Funding
(debt/equity)
to SMEs,
cooperatives, etc
…
Competitiveness
Employment /
working conditions
Use of local suppliers
Long-term economic/
social development
Reduce poverty and
migration / rural exodus
Impact investing
What we bring along ? What we do ? What we reach ? What are the
short/medium term
results ?
What is/are the
ultimate
impact(s) ?

15. 15
 History
 What is
microfinance ?

16. 16
Pope Leo X authorises the Mont de Piété to charge interest to
cover their costs
Ireland : small unsecured loans are developed for the very poor
farmers
An Italian monk creates the first official European Mont de Piété
in order to counteract “loan-sharks”
HISTORY of MICROCREDIT
Financial cooperative systems grow in Europe and North America
1472
1515
1700’s
1800’s
These models are extended to Latin America1900’s

17. 17
 70’s : several experimental programmes (Grameen Bank, Sewa, Accion)
grant loans to poverty-stricken women
from MICROCREDIT … to MICROFINANCE
 In the 90’s
• spread of microcredit throughout Western countries
• development of savings schemes, followed by micro-insurance
• increase in the number of operators
• diversification of the target populations

18. 18
 2005 : International Year of Microcredit
 2006 : Nobel Peace Prize divided into : Muhammad Yunus / Grameen Bank
« … Lasting peace can not be achieved unless large population groups find ways in which to
break out of poverty. Microcredit is one such means … »
CONSECRATION of MICROFINANCE
Income generating
activity
Wedding
1st child
Activity improvement
2nd child
Children illness
3rd child
School expenses
Funerals
Children wedding
Accident
Health problems
Source : ADA

19. 19

20. 20
Thousands of operators around the world with more and more
diverse profiles, and diverging interests :
 Money lenders
 Tontine
 Cooperatives
 NGOs
 Financing companies / credit institutions
 Local governmental agencies
 Specialised banks
 Commercial banks
 Private investors
TODAY …

21. 21
Target populations are becoming more mixed :
 Farmers
 Families living in slums
 Merchants
 Artisans
 Wage earners
 Civil servants
 Independent professionals
 Small businesses…
Small loans
Large loans
Limited collateral
Significant collateral
TARGETED POPULATION

22. 22
Job hunting support for the youth
Savings to face unexpected hardships and to secure projects in
the long-term
Individualised follow-up to ensure families get the most out of
their loan
Training (management, skill and social) to help loan recipients
gain independence
Loans to develop an income-generating activity

MICROFINANCE SERVICES AT LARGE

Microinsurance to cover many kind of incidents

23. 23
Improve areas of activities in :
1. Financial support for clients : Products, outreach, support and other services
(manage client activities more actively and respond to needs)
2. Non-financial support : Manage client evolvement, advice and support of client activites
(workshops/education in accounting, agriculture and animal farming, entrepreneurship … )
3. Social services : Advice and support health and community development
(family planning, drug abuse, gender empowerment, literacy, electricity, insurance … )
RESPONSIBLE microfinance
Balancing financial sustainability with social impact

24. 24
• More than 200 million beneficiaries vs. 15 millions in 2000
Potential : 500 million
• 74% of all microfinance clients worldwide are women
Key-figures …
2.8 billion adults currently
excluded from the traditional
banking system across the globe

26. 26
How investing into microfinance ?
Interests
Dividends
InterestsMicrocredits
Microfinance Institution
Microbank
Debt
Equity
Microfinance Investment
Vehicle (MIV)
Micro-entrepreneurs
Modèle ADA
UCITS Part II, SICAR, FIS
Securitization Vehicles
Guarantees & guarantee funds

27. 93 MIVs surveyed (11 billion USD)
out of the
113 MIVs identified (11,6 billion USD)
Volume of cross-border investments in microfinance
93 MIVs :
- 54 are Fixed Income Funds
- 22 are Mixed/Hybrid Funds
- 17 are Equity Funds
the top 10 MIVs managing 56% of the total assets

28. 50 to 70 MFIs
250 to 500 MFIs
Non-bank regulated financial institutions
Downscalling or specialized banks
NGOs, Credit cooperatives, savings houses
1.000 to 5.000
MFIs
• 10.000 MFIs worldwide (estimate)

29. Overall, net returns to investors decreased in 2015 across all vehicle types, to below 3%
Source : Symbiotics

30. Source : Symbiotics

31. 88 % 87 %
Switzerland
Netherlands
Germany
Luxembourg
USA
64
Number of domiciliated funds in Luxembourg
(from 11 in 2006 to 39 in 2015)
Source : Symbiotics

32. Source : Symbiotics

33. The top 10 countries receive more than
half of MIVs’ direct microfinance
portfolio (52%)
Top 10 countries
Source : Symbiotics

34. Participating MIVs are managed by 46 different asset managers located in 16 countries.
The top 3 asset managers managed 41% of the sample’s total assets
Source : Symbiotics

35. Very low risk …
Source : Symbiotics

36. MIVs are increasingly financing a broader range of investees,
mostly larger companies that are moving upmarket out of the
traditional microcredit spectrum
Source : Symbiotics

37. Source : Symbiotics

38. Total Expense Ratios
and Management Fees
The total expense ratio (TER) of all MIVs was slightly lower at 3.1% vs. 3.2% in the previous year(2013)
Source : Symbiotics

40. 40
• JASMINE (Joint Action to Support Micro-finance Institutions in Europe) : Technical
Assistance to selected microfinance institutions (MFIs) and micro-credit providers active in
the European Union to increase the quality of their internal processes
• European Progress Microfinance Facility : a microfinance initiative established in March
2010 with EUR 200 million of funding
Target : (future) entrepreneur or enterprise with - 10 employees (maxi. EUR 25,000)
Set up in 1994 to help small businesses :

41. 41
Financing businesses and initiatives in developing countries and emerging
markets, adapted to their needs and circumstances.
Investment products geared to meeting the needs of private & institutional
investors for financial and social returns
Research & Advisory : has intermediated microfinance direct
investments
Asset Management : microfinance / SME impact funds for development
banks, institutional and qualified private investors
Brokerage & Structuring : set up and distribution of different funds and
bond platforms dedicated to microfinance / SME impact

42. 42
Leading commercial microfinance investment manager.
Structured in two companies :
- BlueOrchard Finance S.A. (2001) which provides credit to
microfinance institutions (MFIs)
- BlueOrchard Investments Sàrl (2007) which invests in the equity of
MFIs and network funds
Incofin Investment Management (Incofin IM) manages funds that
invest in microfinance institutions (MFIs) in developing countries
(specialist in rural microfinancing)
• Financer les micro-entrepreneurs qui n’ont pas accès au crédit
bancaire, et plus particulièrement les chômeurs
• Accompagner les micro-entrepreneurs avant, pendant et après la
création de leur entreprise pour assurer la pérennité de leur activité
• Contribuer à l’amélioration de l’environnement institutionnel du
microcrédit et de la création d’entreprise

43. 43
One of the world’s largest sources of private funding to the
microfinance sector. Provide credit to trade cooperatives, fair trade
organizations and small-to-medium enterprises (SMEs) in the developing
world
Non-profit organisation providing assistance to an autonomous
development of populations excluded from traditional financial services :
- develops new inclusive financial products (savings, credits, insurance)
and supports MFIs in their developing process
- helps microfinance research to increase the sector
- builds partnerships to promote microfinance
Independent, non-profit making association created in Luxembourg in July
2006 that aims to promote the raising of capital for Microfinance and
Environment related sectors by awarding a recognisable label to eligible
Microfinance Investment Vehicles and Environment related Investment
Vehicles

45. Interrelation of initiatives

46. 46
MIV Growth Drivers
Transparency
- increased MFI & MIV data / oversight via
MIX-Market, CGAP, LuxFLAG …
Investors seeking relatively uncorrelated assets
Survey conducted in January and February
2014 and is based on 306 responses from 70 countries

47. 47
47

48. World Bank : < 300 employees, 15 million USD in annual revenue, and 15 million USD in assets.
EU :
SME definition
Worldwide
420 million to 510 million MSMEs (formal / informal)
Developing world
365 million to 445 million MSMEs (87 % of worldwide MSMEs)
Formal SMEs : only 25 million to 30 million (7 % of the number of MSMEs in developing world)

49. • in industrialized nations : SMEs (5 - 250 employees) are responsible for 75 % of the
workforce and 95 % of the companies
• in emerging countries : they’re practically non-existent
This lack of SMEs in less developed countries – an essential part of strong economies – is
what's known as the Missing Middle

50. Finance gap and the missing middle

52. Estimated financing gap : 700-850 billion USD
70 to 75 % of all SMEs have a bank account
65 to 80 % of all SMEs
have few or no access
to financing for financial
institutions
Credit gap for SMEs (developing world)
Percentage of firms with Bank Loans / Line of Credit

53.  Banks can often earn high returns in their core markets … giving them little reason to take on
additional risk in the SME market
Weak local competition and low threat of entry
Lending to large public and private players is very lucrative
 Banks incur higher administrative costs by lending to SMEs
Small transaction sizes
Few economies of scale expected by lending to SMEs
 Banks have difficulty providing long-term capital
Banks in developing countries are often reliant on short-term liabilities (such as deposits)
 Banks have limited information, skills and regulatory support to engage in SME lending
Lack of internal skills
Information assymetry and granularity
Credit information gap (credit registries and bureaus)
Inefficient legal and regulatory framework (difficulty providing tailored foreign-exchange products)
Higher (perceived) risks of financing SMEs translate into high interest rates and collateral requirements
 Banks face increased capital requirements under Basel II
Average costs of banks’ liabilities on the rise
Will be offset by higher interest rates charged to clients
Barriers to SME-financing

54. Mismatch Between Firm Assets and Collateral Requirements

55. Alternative external financing techniques for SMEs

56. May 2016
158 impact investors that responded to the survey
Total AUM by organization type

57. Number and size of investments made and targeted
Respondents committed USD 15.2 billion to 7,551 deals in 2015
with a median amount of USD 12 million of capital committed to a median of 9 impact
investment deals
USD-1.33 million per deal

58. Target financial returns principally sought by number of respondents
Investment performance :
• For debt, average gross return expectations were 5.4% in developed markets and 8.6%
in emerging markets
• For equity, average gross return expectations were 9.5% in developed markets and
15.1% in emerging markets
Source : GIIN

59. Number of fund managers who have raised capital from various investor types
Challenges in fundraising :
Fund managers were asked to provide their opinions on the challenges they face in
raising capital.
Strikingly, a majority of respondents considered most of these factors to be ‘not a
challenge.’
The only factor that a majority of respondents considered at least a ‘slight challenge’
was ‘demonstrating a track record’.

60. Motivations for conventional investors to allocate capital to impact investments Source : GIIN

61. Impediments to demanding
more impact investments
Challenges to the growth
of the impact investing
industry
Source: GIIN, J.P. Morgan
« Eyes on the Horizon »
The Impact Investor Survey – May 2015

62. Primary impact
objectives
Social impact themes targeted by number of respondents
Environmental
impact themes
targeted by
number of
respondents
Source : GIIN

63. 63
Incentives for impact investing
Contributors of risk to impact investment portfolios
Source : GIIN

64. 74 European organisations specifically identified as impact investors (EUROSIF)

65. 65
• JEREMIE (Joint European Resources for Micro to Medium Enterprises) : EU Structural
Funds to finance small and medium-sized enterprises (SMEs) by means of equity, loans or
guarantees. It operates through selected financial intermediaries
Set up in 1994 to help small businesses :
European Venture Philanthropy Association. Established in 2004
Network of venture philanthropy organisations and others committed to
promoting high-engagement philanthropy in Europe
Diverse membership (+150 members from 19 countries) :
- venture philanthropy funds
- grant-making foundations
- private equity firms and professional service firms
- philanthropy advisors
- business schools

66. 66
Vocation to support SMEs and microfinance institutions
• Series of financial instruments designed to expand already existing
organisations or to help companies to set up in business :
- Equity and quasi-equity stake
- Long-term loans
- Guarantees
• Capacity Building Fund : BIO provides grants to co-finance feasibility
studies and technical assistance programmes
• Support of technical assistance programmes upon request of the
investee companies in order to improve performance
Germany's leading development bank , with the Federal Ministry for
Economic Cooperation and Development (BMZ), as a main client.
Funds allocated from the federal budget, for the promotion of developing
countries + additional resources raised on the capital markets
Finance programmes and projects :
- purely from federal budget funds (grants and loans)
- mixture of federal budget funds and KfW funds (development loans)
- loans at near-market conditions from pure KfW funds

67. 67
Founded in 1980 (USA)
Named, created and pioneered the global field of social entrepreneurship
Philosophy : founded on the premise that the most effective way to
promote positive social change is to invest in social entrepreneurs with
innovative solutions that are sustainable and replicable, both nationally and
globally
Established programs in over 60 countries and supports the work of nearly
3000 Fellows
Support Social Entrepreneurs
- identifying / investing in leading social entrepreneurs and helping them
achieve maximum social impact
Promote Group Entrepreneurship
- facilitating collaborations and knowledge sharing
Build Sector Infrastructure
- helping close the historical gap between the business and civil society
- creating important avenues for integration and synergy between both
communities

68. 68
(EuSEF)
Benefits of this approach
Social businesses will get easier access to private finance, helping support their growth.
This will benefit many ordinary citizens: creating inclusive and sustainable jobs and growth
across Europe.
Professional investors will find it easier to identify and choose funds that are targeting
investments in social businesses (European Social Entrepreneurship Funds).
Investment fund managers will find it less costly and complex to raise funds, including
cross-border
A recognised EU brand for social entrepreneurship funds:
Funds that market themselves using this brand would have to invest at least 70% of their
money in social businesses
Improved investor information
Each European Social Entrepreneurship Fund would have to provide key information to
investors in a standardised way
Break down barriers to fundraising across Europe: European Social Entrepreneurship Funds
will also act as a passport

69. 69
Peter Blom, CEO
"Profit is not an objective in itself"
Stay close to the real economy; hold a direct relation to
what you invest in
Reappraise the role of money and its place in the economy
Banking to make a positive impact
Services :
- Banking services
- Fund management
- Project development
- Investment management
- Venture capital funds
- Corporate finance
- Private banking
Geographic focus : Western Europe and emerging economies

70. 70
Investment criteria

71. 71
Principles of Ethical Finance :
• ethically oriented finance is aware of non-economic consequences of economic
actions
• access to finance, in all its forms, is a human right
• profit produced by the ownership and exchange of money must come from
activities oriented towards common well-being and shall have to be equally
distributed among all subjects which contribute to its realisation
• maximum transparency of all operations is one of the main conditions of all
ethical finance activities
• the active involvement of shareholders and savers in the company's decision
making process must be encouraged

72. 72
Incofin Investment Management (Incofin IM) manages funds that
invest in microfinance institutions (MFIs) in developing countries
(specialist in rural microfinancing)
ECHOS©: measuring social performance
ECHOS© is a measuring tool that scores the social performance of MFIs. It calculates the score
of an MFI by using a questionnaire which focuses on its social performance in 5 dimensions:
- the extent to which an MFI puts its social objectives into practice
- its outreach and contribution to society
- level and quality of the service provided and respect for the Client protection principles
- human resources
- respect for the environment and implementation of the principles concerning CSR
The ECHOS© questionnaire is completed by the investment manager during an on-site audit
Only MFIs that score above 50% are eligible for funding.

74. How social/environmental performance is measured ?
May 2016

75. The universal challenge for impact investors is how to assess impact
Two emerging global standards in impact assessment have emerged :
• 2008, the GIIN (Global Impact Investing Network) launched a set of prescribed impact
indicators, which it called IRIS (Impact Reporting and Investment Standards)
=> provide a common framework for assessing impact, in order to increase
transparency, communication, and comparability of investments
• 2010, an organization called B Lab developed GIIRS (Global Impact Investment Rating), a
« Morningstar-like » rating system for evaluating the impact potential of a social enterprise
Impact is currently mostly self-reported by the enterprise.
It is important for investors to corroborate it through field visits, frequent meetings with
the entrepreneur and staff, and inputs from others who interface with the enterprises (like
customers, vendors, and competitors)
IMPACT MEASUREMENT

76. What is IRIS?
IRIS is the catalog of generally accepted
performance metrics that leading
impact investors use to measure social,
environmental, and financial success.

77. Impact performance management
99 % of respondents measure the social/environmental performance of their
investments, through a range of standardized and proprietary metrics and frameworks,
with the majority aligning with IRIS.
Most respondents seek to achieve impact by investing in organizations that either
sell products or services that benefit a target population or provide employment to
target populations.
Respondents generally put high importance on measuring outputs and outcomes,
while they are less focused on putting a dollar figure on impact.
May 2016

79. Third party impact evaluations and ratings system
Analogous to Morningstar investment rankings, evaluate the social and environmental
impact of companies and funds
Numerical investment ranking that scores the impact potential of an investment in the areas
of governance, employees, community, environment, suppliers, and consumers
The tracking of impact data over time benefits the impact investing community
The collection of GIIRS data over time could build a comprehensive, academically viable, and
data rich resource on the impact of social enterprises, funds and fund managers
Global Impact Investing Ratings System

81. Impact Investing is not « investment as usual ». It requires :
• social / environmental awareness
• opened dialogue between the parties
• patient capital (mini. 5 years)
• risk-taking mind
Main asset classes fitting for Impact Investing :
- Fixed income (including private debt and mezzanine financing)
- Venture capital / Private equity
- Real assets (including real estate, commodities, timber, etc …)
81
Lessons learned
What we are experiencing …

82. Barriers to Impact Investing
Motivations for Impact Investing
500 wealth managers, private banks, family
offices and HNWIs (between April-June 2012)

83. 83
Perspective
(Bas Ruter, managing director, Triodos Fund Management)
Investor Interest : “On the institutional side, the whole debate of being a responsible investor is
shifting from negative screening toward an increased interest in alternative asset classes with
sustainable development in a competitive risk/ return profile”
Challenges :
“ The most important challenge is that the investment process is much more intensive.
It is like building up a new portfolio : it takes a lot of time and is labor-intensive. We charge
competitive management fees to our customers, but we have a lower margin than typical funds”
“ There is a risk of the hype driving people to bad product, which will hurt the field.
Investors need to understand the difference in quality and impact of the products being offered.
We will have to develop criteria for investing and we will need more transparency
Certification schemes and legislation can help maintain standards”

84. 84
The scope of challenges facing society today can no longer be solved with a purely
philanthropic approach (capital accessible through fundraising for philanthropic activities is in
no way sufficient to address all the local issues in society) :
- threat of possible climate change, as well as poverty leading to major political instability,
human rights issues in supply
- change management, the scarcity of primary resources, and demographic challenges
In the light of the dominance of capitalistic socio-economic models in our
societies – and the lack of credible alternatives
the challenges of sustainability can only be overcome
if they are integrated into market logic

85. 85
Source : Monitor Institute
A nascent industry …
Impact Investing may have reached a transitional moment in its evolution : poised to exit
its initial phase of uncoordinated innovation … ?
?

86. 86Source : Monitor Institute

87. 87
Conditions to SUCCESS (1/3)
Impact First Investors
• Impact investment becomes a popular
retail consumption experience tied to
brand and social networking (e.g., Kiva,
MicroPlace)
• Some private banks and wealth advisors
are drawn in to offer innovative products
for their clients
• Sovereign wealth funds - under public
scrutiny to produce social as well as
financial value - deploy substantial
capital into impact investments
• “Blended value” / “patient capital”
approaches gain traction : growing
conviction that financially driven deals
often sacrifice social impact and/or as a
result of moral objections to exploiting
social problems for profit
Financial First Investors
• Some leading investors engage in impact
investing but are not willing to make a
financial sacrifice :
- institutional investors (especially pension
funds, seeking to satisfy stakeholders)
- corporations looking to the large
market of poor people (commonly called
the “bottom of the pyramid”) for growth
• Early returns in clean tech, microfinance
… spur a “gold rush” that catalyzes the
development of intermediaries (that
begin sourcing broader impact
investment opportunities)
• New policies create incentives to move
capital into impact investments
• Investors become open to returns
achieved over longer time horizons
MARKET
FEATURES

88. 88
Impact First Investors
• Better metrics are developed so
investors know what they are paying
for and validate that they are achieving
their social or environmental objectives
• More product innovation becomes
available to enable greater levels of
investments and accommodate diverse
social or environmental objectives
• Infrastructure specially suited to these
opportunities is developed (e.g. a
separate social stock exchange)
• A Capital Asset Pricing Model is
developed for submarket rate
investments, making it easier to
underwrite deals
Financial First Investors
• Social and environmental considerations
are incorporated into research and
valuation
• Impact ratings systems enable investors
to assess the social/environmental
impact of projects easily without
expensive due diligence
 accepted set of minimum standards to
certify companies and deals
… providing legitimacy and verification
that commercial opportunities are at least
not destructive (e.g. branded certification like
fair trade)
CRITICAL SUCCESS
FACTORS
Conditions to SUCCESS (2/3)
• Competitive returns are demonstrated
because of the incorporation of social
and environmental considerations

89. 89
Impact First Investors
• The size of the market is likely to
remain relatively small compared to
the overall capital markets
• Investors can’t articulate the value gained
in social return relative to the potential
sacrifice of financial return
• No consensus is reached on metrics and
too much time is spent developing
competing and elaborate evaluation
methodologies that don’t yield much
• A Capital Asset Pricing Model is
developed for submarket rate
investments, making it easier to
underwrite deals
Financial First Investors
• A mismatch of expectations among
investors in long-term projects leads to
some pressure for premature exits,
depressing returns and damaging the
field’s reputation
• An “integrity constraint” emerges as
commercial capital invests in projects that
misrepresent themselves as having a
positive impact or have unintended
consequences, resulting in the impact
being much lower than believed—or even
net negative
 already occurring in microfinance
sector or biofuel industry
LIMITATIONS
& RISKS
Conditions to SUCCESS (3/3)
• Most of social and environmental issues
are unlikely to generate commercial
returns in the short to medium term

90. 90
What is creating this Moment ?
Many challenges are standing between the promise and the reality for Impact Investors
 need to be tackled for the industry’s development to accelerate
Facts emerging from the global financial crisis :
- growing mistrust of markets
- long-lasting macroeconomic slowdown helps investments diversification
- as the market has mispriced risk … the traditional capital asset pricing model (CAPM) is
questioned
- growing volatility of traditional financial markets

91. The “Missing Middle”, SME financing needs
Source : International Finance Corporation, The SME Banking Knowledge Guide”, 2010.

92. 92
At launch, the Impact Investing Benchmark
comprises 51 private investment (PI) funds
First comprehensive analysis of financial
performance in Impact Investing.
Inclusion criteria

93. 93
Of the 51 funds in the Impact Investing Benchmark :
- 36 are focused on more than one theme
- 15 pursue a single impact theme
The funds tend to be small :
- 27 of the 51 funds raised less than 50 million USD
- over two-thirds of the funds have a vintage year of 2005 or later
Emerging markets are the most represented geographic grouping

94. Performance by Vintage Year and Fund Size: ≤ 100 Million USD
Comparative universe : same asset classes, sectors, and geographies

95. Performance by Vintage Year and Fund Size: > 100 Million USD
Comparative universe : same asset classes, sectors, and geographies

96. Contacts
Xavier Heude
xh@peersdirectinvestment.com