Impact Investment

Investment and Finance in Emerging Markets and Developing Economies – ESG Vs SRI Vs Impact Investment

~ Venkata Gandikota

I recently started a Certification course on “Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs)” issued by the The World Bank Group . I will start to blog on the topic a bit on my course learnings and my own views.

I have been previously raising with 2 colleagues Finland’s first Impact VC fund called Vault Impact and also am producing the InnoFrugal conference since 2015. For the first 2 editions, the conference focused very much on frugal innovations with perspectives from Academics, R&D, State Innovation & Development Agencies and Businesses. Then I began to see a lot of startups coming up in the field and doing impact solutions with their solutions directly contributing to the UN SDGs (Sustainable Development Goals). And it also became clear to me the importance of finance and investments not just from traditional banks, development agencies etc but increasingly of impact investors. These new investors are either doing their investments under the ESG Investments (Environmental Social and Governance) or the SRI (Socially Responsible Investment) and or directly Impact Investing with more or less adhering to one or more of the 17 UN SDGs.

There seem to be various schematic representations but the below one from Western Asset nicely illustrates ESG Vs SRI Vs Impact Investing.

(Source: https://www.westernasset.com/us/en/research/whitepapers/esg-essentials-what-you-need-to-know-2018-04.cfm)

I Get Excited and Depressed When I Read Stories Of Automation & Robots

~ Venkata Gandikota

I just read this article in The Guardian, titled “Robot factories could threaten jobs of millions of garment workers”

This is neither the first nor the last article to be published on this topic.

Also according to the article,the International Labor Organisation (ILO) has a report stating that up to 90% of workers in south-east Asia could face unemployment due to automation. So this is just one field. Now think about how automation will have repetitive jobs eliminated in all the different fields not just in developing countries but also in the developed world! It will be an unemployment nightmare because it is far difficult for people to update their skill sets in a short period of time to apply for new opportunities.

A simple Google Search with the words “Automation Job Loss” gives 1.3 million results. This already shows the volume of articles in this area.

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Sewbots are unlikely to appear in factories in Asia, the report says, but will be installed in destination markets like Europe and the US. It is such a big threat that the ILO urges Asean countries to start planning to diversify to “avoid considerable setbacks in development”.

I get excited when I read about automation because new tech is awesome and I get depressed because the transition for people to acquire new skills and be part of the workforce will be an increasingly difficult job.

Obviously this is not just a technology issue but a societal issue. So, factories will be coming back to the developed countries from these emerging markets but they don’t enhance employment opportunities in the developed markets in any significant way either.

Adidas announced a factory in Germany that will begin manufacturing shoes using robots in 2017. The “Speedfactory” will employ just 160 people: one robotic production line will make soles, the other production line the upper part of shoes. With an additional factory planned for the US, it is a scheme Adidas describe as a “gamechanger”.

Currently an Adidas shoe takes 18 months to produce from idea to shelf. The aim is to reduce this to five hours, with customers able to customise their order in stores.

There is a significant amount of experts who are pushing now to create some sort of “Basic Income” to counter this phenomenon. The idea of a “Basic Income” is that the state will providea minimum amount of money needed to survive to all it’s citizens so that it could provide financial security for people and at the same time help unleash their creative juices, get them to take more risks and be more entrepreneurial in their pursuits.

There is question and answer about how to tackle this automation in this specific context.

For the millions of people who stitch clothes and shoes for a living and who look set to be hardest hit by automation, could robots be an opportunity for fairer work?

“In a best case scenario, robots take on board the most repetitive, mundane and non-cognitive tasks of apparel manufacturing,” explains Chang. “Robots would also assume more of the dangerous and dirty tasks, like mixing of chemicals which can be hazardous to human workers. Ultimately, human workers would be able to perform more satisfying and rewarding, as well as higher-paid, jobs in the sector like programming robots for better production and design.”

I think this is more hope talking rather than reality. Because the transition to automation and building such factories will be lot quicker than making structural changes in the economy or for people to update their skills.

So, this again brings me to emphasise the importance of Frugal Innovations and creating quality, accessible, sustainable and affordable solutions.

So, as the quote goes “If not us, who? If not now, when?”

Businesses and innovators in both public and private sector need to learn to create such solutions because people and organisations with lesser financial resources will demand such solutions.

Impact Investing Is A Good Way To Go For Frugal Innovators As Well

~ Venkata Gandikota

Over the past 3 years, I have been developing ideas on all the different ways that Entrepreneurs and Startups who are creating frugal solutions can access capital.

Mind you if you are a big company that is publicly listed or even privately owned, then they can go for their own cash reserves or set aside budgets to deal with these as new R&D&I projects.

But for startups, they can either access traditional innovation funds in the public sector, or raise funds via crowdsourcing, or get funding via big foundations in your field. Now Impact investing is a growing phenomenon trying to take advantage of all these.

Came across this nice overview for Impact investing from The Global Impact Investing Network’s What You Need to Know About Impact Investing

Many types of investors are entering the growing impact investing market. Here are a few common investor motivations:

  • Banks, pension funds, financial advisors, and wealth managers can PROVIDE CLIENT INVESTMENT OPPORTUNITIES to both individuals and institutions with an interest in general or specific social and/or environmental causes.
  • Institutional and family foundations can LEVERAGE SIGNIFICANTLY GREATER ASSETS to advance their core social and/or environmental goals, while maintaining or growing their overall endowment.
  • Government investors and development finance institutions can PROVIDE PROOF OF FINANCIAL VIABILITY for private-sector investors while targeting specific social and environmental goals.

Impact Solutions Are Not Necessarily Frugal Solutions But The Opposite Is True

~ Venkata Gandikota

I am seeing lot of ‪#‎Impact‬ examples where ‪#‎affordability‬ to end user is missing. I made this note for myself:

“What is ‪#‎Frugal‬ can be ‪#‎Impactful‬ but an #Impact solution isn’t necessarily a #Frugal Solution.”

My definition of Frugal = Quality, Accessible, Sustainable & Affordable.

The comment I have heard from a Finnish colleague is “This might not be a top priority for a typical Finnish engineer or technological solution, i.e. being tech-centric as opposed to user-centric. I suppose the point-of-view depends what target market a product or service is being designed for. Personally I understand an impactful product or service to be either affordable for the end user or otherwise accessible (paid for my someone else), because what impact is there if the product or service does not reach its intended users?”

But isn’t it so that because even if we think of a developed country market..eg: Finland:

  • Average pension is less than 2000 Euros, Pensioners (1.525 million) make up almost 28% of the population;
  • Currently 341000 people are unemployed (The Ministry of Employment and the Economy has forecasted that by 2017 the long-term unemployed will rise to nearly 40 % of all unemployed …A bigger issue is if increasing number of unemployed have stopped looking for work);
  • The recent Employer-employee contracts show that wage growth will be more or less stagnant;
  • Government funding cuts to organisations already shows in lesser resources for education, research, healthcare, social security, pensions etc.. Also means government can’t or wont subsidise much;

    • Also I read that a growing number of Finns financial difficulty is now at record levels. 372,000 people had problems paying the bills in April 2016 (Turun Sanomat May 30, 2016).

    So with these in mind how can we push the conversation in this country that actually “Frugal” solutions are needed here as well, not just in some distant faraway Africa or Asia.