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By Devon Maylie
As the President and CEO of Calvert Impact Capital, a non-profit impact investing firm, Jennifer Pryce sits in-between the capital markets and the communities that she and the firm seek to uplift. Calvert Impact Capital invests through organizations that on-lend to people and businesses in the United States and more than 100 countries, financing everything from solar panels in Tanzania to fintech start-ups in Indonesia. In 2020, Calvert Impact Capital’s investments helped partners reduce CO2 emissions by 31.3 million metric tons and create nearly 500,000 jobs. Pryce spoke to IFC Insights about what’s happened in the two years since the launch of the Operating Principles for Impact Management, the importance of industry collaboration, and her belief that all investments in the future will have an impact investing lens.
Q: There's a lot of discussion that this is the year where we see impact investing go mainstream, with more investment in sustainable and environmental and socially driven assets than we've seen in previous years. Why did this happen?
A: One thing that is becoming clear is people are recognizing that the way we've been doing things is not going to get us to where we need to go, to meet the Sustainable Development Goals and to achieve a net-zero climate future. And so, people are very much questioning how they invest and they're asking all the right questions: “Where is my money going? What is my money doing? What impact—positive and negative—are my assets having as they are being put to work?” Now, I think the thing that we have to be careful of is that we don't end there at greater awareness. We really need to get the money to move.
Q: With all this new interest, how do we make sure investments are having an impact?
A: There's a lot of great work happening around regulation, around standards-setting, around impact measurement and management. One initiative that we're part of, which IFC was a leader on, is the Operating Principles for Impact Management. We are coming up on the two-year anniversary of the Principles, and there's a lot to reflect on. As a signatory to the Principles, I’ve seen that it has really deepened our practice, our awareness, our understanding of impact. And not just the positive impact, but also the potential negative impact that we may or may not be having with our investments. It has also helped us communicate with our investor base. At Calvert Impact Capital, we have over 6,000 unique investors, and the Principles have really helped us to articulate in a concise way how we measure and manage our impact. I see my colleagues being able to have these clear and concise conversations, too. And I hope what we will now see is investors asking for this information and asking about the integrity of our impact measurement management systems.
Q: Calvert Impact Capital also endorsed the Joint Impact Indicators that were just launched. Why are these important?
A: What they are doing is harmonizing a lot of the work across the industry. And that is important to move us forward so we all are talking about the same thing at the same time. It goes back to making things easier for the investor base. We're trying to get more capital into communities in the right shape and form so that the communities can really thrive and succeed. And if we have multiple different ways that we're measuring the impact of the capital we’re providing, that increases the confusion for investors regarding how to engage with impact investing. It also makes it difficult for us, as industry practitioners, to know if we're actually advancing our broader impact goals in a collaborative way. I think things like the Joint Impact Indicators are leapfrog moments. We need to scale impact investing to really meet the targets that we've set for ourselves through the Sustainable Development Goals and other such efforts. These types of efforts are moments when we really are making progress toward that goal.
Q: How do we help generate more investment opportunities to support increased impact investing?
A: On a macro level, what impact investing seeks to do is invest in underserved or nascent sectors and opportunities where traditional finance doesn't understand or feel comfortable underwriting the risk. We look to invest in those opportunities and bring them to a place where we can crowd in additional capital. And then, once we can demonstrate a track record over time, other investors come in, other businesses come along with a similar model, and the sector grows. We've seen this happen in microfinance, for example, an impact sector that started when there was disbelief that you could lend to the poor and earn a financial return. Over time, that was proven to be possible. And then over time, it was proven that those microfinance business models not only worked but could scale, and more traditional commercial capital has come in to support hundreds of millions of people around the world.
Q: You talk about the importance of moving faster and thinking bigger. What does that look like in the context of impact investing?
A: We need to offer more products to the market, and we need to make it easier and more accessible for investors to come into this work. At Calvert Impact Capital, we're in the process right now of developing new products, public bond offerings, hopefully with investment-grade ratings that really look and feel familiar to the investment community. The other opportunity I see is thinking bigger. We have 4 billion people on this planet that are low income, and I've heard an estimate that because of the COVID-19 pandemic, another 150 million people have fallen into poverty. This is not a half a billion-dollar problem, it is not a $100 million bond offering problem. We need to think bigger. And it's twofold: not just increasing the amount of assets that we need to put to work, but also ensuring that when that capital is put to work, the impact is positive. And this goes back to some of the work that is happening around the Operating Principles for Impact Management, and other industry efforts, to really bring transparency and accountability to the impact proposition of the work that's being done.
Q: We talk about how to get the broad category of institutional investors more involved in private sector development―is impact investing the most efficient way to do this?
A: For an institutional investor to engage in a lot of impact investing work, they need liquidity and scale; for example, pension funds often have a minimum investment size of $10 million―larger than many impact investing funds right now. They want risk-adjusted returns to complement the rest of the assets that they manage. And oftentimes, those features are not all present in impact investments. What we need to continue to strive for is to create products that really respond to these investor demands, but also really have community interests at heart. And it is a tricky balance.
But I think as the impact investing sector has matured, it has grown in scale, in size, and a lot of impact investments now have a compelling track record. I am confident that in three, four, or five years that impact investing will have grown to a place where meeting some of the requirements of institutional investors around size, around liquidity, will be possible. Until we can get to that place, it's very important we continue to educate and engage institutional investors, so that they're part of this journey. So that when the moment comes when there are suitable investments, they're ready to invest. There's still a low percentage of investment dollars in impact investing from institutional investors. But it is a growing percentage, and I believe one that will grow significantly in the near term.
Q: What does the future of impact investing look like to you?
A: All investments are invested with an impact lens. And to get to that place, I know, is quite utopian, but I believe we have to get there. And I do believe it's possible. We know that we're in a place right now that is not sustainable as it relates to climate and people’s welfare. We need to move quickly to make a change. Can we get to where we need to go in the right amount of time is the question that keeps me up at night.
Published in April 2021