From designing with an impact to investing with an impact

Public sector austerity measures are very much a reality all over Europe. This means that many of the projects that have the potential to positively impact wider populations’ well-being are short of investment. Alternative models are needed, as pointed out in a recent article, where stronger cooperation between public and private investors is made possible. Impact investing is one possible way to untap this potential, and it is gaining significant ground all over the world.

Why now, why here?

In Finland, this model has emerged in form of Impact Accelerator Programmes, a joint effort of Sitra (Finnish Innovation Fund) and FiBAN (Finnish Business Angels Network).

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A danger of looking for purely financial returns (Mompi 2016)

The aim of the programmes is to support companies and organizations that solve the well-being challenges of the Finnish society. The  first three-months programme started in October 2015. It aimed at improving the ability of participant companies to develop effective services, as well as sustainable and investment-ready business model. The first programme culminated in the first ever Impact Investment Pitch in Finland, held on 23.February in Startup Sauna, where participant companies had a chance to pitch their business ideas to the investors.

What is impact investing?

In his keynote speech Mr. Mike Mompi from ClearlySo, UK impact investing powerhouse, defined the impact investing as  almost necessity nowadays. Without looking at the impact, we might be sitting on ruins of our own investment which was shortsightedly based only on financial return. He defined it as “harnessing the power of business and finance for social and environmental good”.

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A definition of impact investing (Mompi 2016)

It is a “way of investing with the explicit intention of generating positive social impact with a return on capital”. As such, it is considered to be somewhere in between of typical investing and philanthropy. However, as Mr. Mompi mentioned, this linear representation of the subject suggests that impact investment requires a trade-off between impact and financial return, which hurts its reputation. The truth is – it is both that can be achieved at the same time!

 

How to measure its effects?

Traditional investments typically deal with two dimensional challenge, i.e. Risk vs. Benefit. In impact investing we deal with a three-dimensional one, called Risk vs. Benefit vs. Impact. Purely quantitative measures in terms of hard currency is simply not enough in this case. Impact is often purely qualitative. How easy would it be to measure the impact of returning a smile on a child’s face in Sudan, India, China or Finland?

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Measuring impact (Mompi 2016)

However, measurements are absolutely necessary in this model since, after all, we are talking about investments, and not pure donations. When thinking about impact Mr. Mompi suggests measuring Qualitative, Quantitative and Financial aspects for each of the Inputs, Activity, Output, Outcome and Impact elements of an investment.

 

How does success look like?

The successful examples are a best proof of a working model. ClearlySo portfolio includes brilliant examples like EyeJusters, which helps families in developing countries to “see”, ADUNA which “makes Baobab famous”,  and Third Space Learning which helps pupils that lag behind in learning. Some of the most brilliant Finnish examples are Minduu which helps people with mental illness find the right therapist for exactly their needs, Elffe which brings together elderly in need of hi-tech help and energetic tech-savvy youngsters, and Entocube which fights the growing lack-of-food problem on our beloved planet.

Embedded in service design, up-front?

Fellow service designers would agree that design processes wonderfully align with impact investing model. Our practice of putting bunch of great world-changing ideas on a portfolio chart enables early concept selection. It is the highest impact and lowest risk combinations that deserve our attention and result in prototypes and implementation. We only need to make that chart three-dimensional. And be even stricter with our choices. Let us design prototypes of service concepts that are up-front loaded with social impact and financial benefit, and contain an acceptable risk. Let us create service business models which embed social impact from the very beginning. With that we are much more likely to stay on track in our mission to change the world for the better. And then we just need to keep walking.

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Impact investing is the right way to go. (Mompi 2016)

 

References

Humala H., Keltanen T., Pyykkö M.: Impact Accelerator: boosting growth and social impact in the well-being sector

Kartunen M., Keltanen T.: Impact investing in a nutchell

Mompi M., 2016: Impact investing – A brief tour, Keynote Speach, Impact Investment Pitch, 23.Feb.2016

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