Daunting task: large challenges and large opportunities
By Timothy
The task is not simple, and while the challenges are large, so too, are the opportunities.
If an action or project is good for a community, good for the planet, and financially profitable it would make sense that the project would be straightforward to finance and implement. Unfortunately, this is not always the case.
As a business student, I have learned that financial return is only attractive when the relative risk involved is also low. So, it is not always enough for projects to exhibit a triple-bottom line. To secure financing, projects must also reassure investors—either through a track record of success or some other way to guarantee loan repayment.
This is often the problem in developing countries where communities do not have sufficient “credit” or “collateral” to satisfy conventional banks, yet they stand to benefit substantially from investment. Increasingly, conversation has shifted from a traditional view on investing which maximized shareholder returns—to impact investing, socially responsible investing, and ESG considerations. As these types of investments grow in popularity, so do the opportunities to create social and economic returns through environmental and community development projects by investing in projects previously overlooked.
As the impact investing and microfinance industries grow in size and reach, difficult questions still remain. How much are investors willing to compromise on financial returns to pursue impact? How do we measure impact? What types of impact do investors value?
When working with the communities that have traditionally lacked access to capital, there is an opportunity for our IM860 student team to help create social value in this growing landscape. We can use our position as student consultants to highlight the ways in which compelling projects can connect with appropriate philanthropic and impact investors. At the same time, modeling the financial case, as well as the potential impact, of this infusion of capital can help to build the trust and connection necessary to unlock beneficial projects through previously inaccessible financing. The task is not simple, and while the challenges are large, so too, are the opportunities.