More impact, more return? (Or how to monetize impact)

I picked up this topic for my first post this year because I have been encountering this question a lot, since my recent work on Development Impact Bonds. By the way,  I plan to be a little more regular on this blog than last year, especially with the number of questions, issues and idea that pile up in my “to write about” list. I also have a friend who will be monitoring the publication flow, and send me a clear warning when I start to get side tracked by work, studies and other “I am busy” excuses.
So what do I mean by “monetizing” impact? I mean the way by which an ” impact investor” can get an additional stream of revenue through the positive impact he helps achieve. Ideally,  he realizes a financial return coupledd with intended social/environmental benefits. Now, what if those “impact benefits” get him more revenue so he can achieve an even more attractive financial return? This particularly makes sense if the project is risky, and the financial requirements of the investors are more on the “above market” side of the spectrum.
Let me start by a simple, common example in green finance: the investor put upfront capital for a renewable energy project (let’s say, a solar panels plant) in Cambodia. The project is successful, the energy is being produced, and the revenue flows back from the clients. Meanwhile, the project is also helping meeting local energy needs in an “environmentally friendly” way. Minor carbon emission, much greenhouse emission “avoided” with which he can issue carbon credits to help other parties offset their carbon emissions, according to the rather complicated Clean Development Mechanism. In short, the investor in this case not only gets revenue from selling energy, but also from selling the environmental benefits of his investment, i.e the carbon credits. He “monetized” his impact. He got an overall higher return THANKS TO his impact. Don’t get me wrong, it is not as simple, and yes I know the carbon credit market is totally collapsed. By who knows what might happen in the upcoming Paris conference?
Let’s take an example related to health. The same investor now looks at supporting health services in Kenya. He invests in equipping homes with devices that ultimately protect against pollution and effectively help children with asthma. The families love it and pay for it (first stream of revenue). He then knocks on the doors of surrounding hospitals and insurance companies and asks them to share part of the savings that they realize by having fewer serious asthma cases  (second stream of revenue through the impact).
I hope it is a little clearer by now, but this is the essence of it: some stakeholders value “impact” and are willing to pay for it. This “impact value” combined with the direct revenues can make socially driven projects a more attractive investment proposition.. Also, the more impact you seek, the more return you might have. This looks as part of the solution to increase the accountability of impact investors and incentivize them to bring in more funding where the (social) need is higher,  answering to the prevailing trend of impact washing or  the impact investors who ask too much. Some people asks me whether it is ethical to mix social good with investment thesis and return calculation. I tend to answer: isn’t it already the case?

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