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Notes from Last Night: “How to Use Finance to Change the World”

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We are running a similar event next week - How to Use Finance to Change the World: An Evening with Finance Matters

Social impact investing is an area growing rapidly in both interest and scale. Last night, 35 Escape the City members were fortunate enough to hear Karl H Richter (founder of the EngagedX index for social impact investment) share the story of how he came to found EngagedX, and hear his thoughts on the shape of the social investment sector.

Karl’s Background

It’s becoming more frequent that one comes across brilliant people with a diverse range of experiences, but it’s still unusual to find someone with a background like Karl’s.

Starting out as an architect, Karl moved through to property development, then urban enrichment, before co-founding EngagedX with Dr Rupert Evenett. But while it may seem an unconnected path, Karl told us there was one key thing that joined the dots – a gut feeling to do good.

The Drive

Even as an architect, Karl wanted to use his designs and ideas to make a real impact, helping people lead more valuable and meaningful lives by creating the right sort of spaces for them to live and work. As time went on, he found that while architects have the opportunity to make visions into reality, the people setting the vision were those who controlled the purse strings.

So, with that gut feeling still there, he chose to follow the money, spending some time in property development before going on to use his experience to found an organisation focused on urban enrichment processes.

Of course, as things would have it, this was right before the 2008 financial crisis; despite valiant efforts, the organisation was eventually wound up. Karl told us that once again, that gut feeling to do good surfaced, and once again he wanted to follow the money – what had happened to the investment in social projects? Where had the money gone? When might it come back?

The Idea, the Goal

This was the drive behind the founding of EngagedX – a data-based approach to investment in projects with social benefit, to help consolidate and standardise much of the financial and impact data that has been surfacing in this emerging market.

More simply, to make it easier to assess social impact projects, and thereby attract investment to the sector and help it grow. By opening up social impact to broader and deeper analysis, EngagedX is helping more traditionally focused investors compare impact investing to other markets and asset classes, and therefore consider it for inclusion in their portfolios, while at the same time attracting money to a sector in need to help it grow.

The Future

Karl shared with us some fascinating insights about the potential shape of social impact investment in the future. He shared with us some stories of his conversations with investors, around how they knew 2-3 years into a 10-year project whether they should keep investing or call it off – it turns out, that many of them look at social impact metrics without realising it in making these decisions.

A real eye-opener was the effect of language in the sector’s development – because of people’s preconceptions, it can make a big difference whether you refer to ‘social enterprise’, ‘social finance’, ‘social impact’, etc.; a term that may attract investment from one area may discourage it from another. In many ways, the concern over semantics is insoluble – as Karl explained, there’s a focus in the social sector on plurality and diversity, and on not forcing one model of financing and investment on everyone.

Because of the huge range of social impact projects, it’s vital to keep in mind that different projects have different needs and aims. This, Karl said, was a key area to look at as things develop; the readiness of investors to work with projects seeking a partly non-financial return, and the readiness of investees to deal with different types of funding and the relevant legal impacts and obligations.

The entire ecosystem around social impact investing is still growing, and there’s still plenty of uncertainty on both sides – what will be important is helping it grow steadily, so that all those involved know what they’re getting into.

Other Useful Links

Interested in impact investment? Check out these links:

 


Guest Reviewer: This post was written by Rory McNeice. Follow him on twitter (@rorymcneice).

Are you based in London? You may be interested in coming to our next evening talk at The Escape School. Details here.

We are running a similar event next week - How to Use Finance to Change the World: An Evening with Finance Matters


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