It's a healthy return but more importantly, in the four years Leapfrog was invested in BIMA it helped sell 30 million insurance policies across 14 countries. BIMA is now the largest life insurance provider in Cambodia and doubled the insurance penetration per capita of both Ghana and Bangladesh.
"The thing about impact investments is the best of them look like regular investments.”
Here in the West we may take our insurance policies for granted but in developing countries access to affordable insurance options is a game-changer which can greatly improve quality of life.
"Insurance provides a crucial safety net and springboard to people working to rise in the middle class,” Leapfrog founder and CEO Andy Kuper says.
“It enables everyone from farmers to taxi drivers and shopkeepers to take worthwhile risks; this might include starting and expanding a business, or sending their children to school rather than to work.”
They recognised serving this immense market would have major social impacts, while also offering returns to its investors. This is impact investing—a blend of philanthropy, finance, sustainability and development aid—and it's growing.
Investors expect financial data but calls are growing louder for impact data to be made available as well.
Leapfrog's investors were given insights into the social impact of financial inclusion. This is as important to them as the profit margin earned by their innovative fintech solutions.
This trend is also operating more broadly. Whether it's the everyday Australian wanting to know how their superannuation fund is being invested or the world's biggest fund manager BlackRock pooling its votes to force petroleum giant ExxonMobile to declare its climate change risk - there's a growing force around the globe demanding answers.
All investments have impact, some are good and some are bad. Impact investing is at the vanguard of a trend which values a company's impact as much as its financial results.
Wearing the label of an impact investment doesn't come lightly.
If you choose to buy free-range eggs over the cage option, you're making an ethical choice about where your food comes from.
There are clear definitions around the terminology to ensure brands which wear the free-range label are adhering to a certain standard.
For an investment to wear the impact investing label it must deliver both intentional and measurable returns – at least according to GIIN, a global industry association helping cement the industry.
"The growing impact investment market provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education." GIIN explains on its site.
The Leapfrog example represents the traditional impact investment structure: it’s a fund manager holding major stakes in private companies where they exert direct influence over board decisions and day-to-day operations. It drives profit maximisation while ensuring positive social impacts are never compromised.
Private companies like BIMA, operating in under-appreciated markets, are rare and the opportunity for investments like these are in high demand. This has led the industry to expand the options available, in search of scale.
We are now seeing impact funds sprout-up around the world, owning shares in publicly listed companies – like the WHEB Sustainable Impact Fund from Pengana - rather than having direct control of private companies.
These investment funds tend to focus on a particular cause, whether it be fighting climate change or promoting women's empowerment.
One fund might include shares in a global mix of companies which are leaders in renewable energy, or another might be filtered by those with strong representation of women on corporate boards.
The companies which fit the requirements hope to be rewarded by an increase in demand for their shares, as well as the valuable kudos and social capital of being recognised as an impact leader.
As with the free-range egg example, the tag of impact investment makes an investment increasingly attractive. However, where free-range eggs tend to cost more, an impact investment doesn't necessarily have a higher cost.
Most impact investors expect their investments to have returns in-line with mainstream markets - and that’s happening.
Not lower returns
Investors no longer have to take a hit to their returns in order to support companies which are leading the way on environmental, social and governance (ESG) factors.
There's plenty of research highlighting the superior performance of companies focussed on sustainability.
This may come as a surprise - and it has the old-guard of the finance industry sitting up and taking notice of what used to be the niche focus of 'greenies' and 'tree-huggers'.