‘Investing for impact is not optional; it is the only way’

Global Value Creation Partners (GVCP), a firm set up by former International Finance Corporation (IFC) executive Sanjeev Goel, collaborates with firms that can generate measurable social and environmental impact alongside a financial return. Termed impact investing, hitherto a new concept in India, it is expected to gain traction in the country as the economy bounces back after the Covid-19 pandemic.

Impact investing is synonymous with achieving superior and sustainable returns, and it has been on the rise globally, Goel, the founder and managing head at GVCP, told BusinessLine . Excerpts:

The main differences are in thought, approach and intent. Impact investing is all about creating positive, measurable and meaningful social and environmental impact alongside a financial return. This contrasts with the traditional model of investing that focuses only on generating profits.

Impact investing in India, as in most emerging markets, is in a nascent but evolving stage. With the awareness among stakeholders and push from the investment community growing, I am confident that impact investing will soon take off in India.

This time of troughs due to the pandemic will be followed by a spurt in economic and entrepreneurial activity, all of which will be fuelled by a rise in investments. However, businesses will be scrutinised as never before by investors, governments and civil society as to their impact on people and the planet. Those who make a positive economic and social contribution will be handsomely rewarded by investors and the markets.

Investing for impact is not optional; it is the only way. It is a good business and investment strategy. That is why it has been on the rise globally. As per a recent report by IFC, the market size for funds available for impact measurement and investment has grown to more than $500 billion, and for impact investment funds to more than $2 trillion.

Businesses in India need to define what societal problems they are solving and what opportunities they are creating for the people. If not, their right to operate may be questioned by the market, investors, consumers, and – above all – society.

MSMEs are the engines of economic growth in India, accounting for 31 per cent of the GDP and 40 per cent of job creation. But this sector has to rely on informal sources for nearly 90 per cent of its financing needs. An IFC report estimates the addressable financing gap in the MSME sector to be $397 billion.

GVCP will support U GRO Capital in its institutional building, defining its impact strategy, and developing its ESG capabilities. More importantly, we will assist U GRO in fostering partnerships with impact institutions and investors globally to channel funding to the MSME sector.

MSMEs are facing a crippling shortage of finance and the government has been going all out to support the sector. In the current Covid-19 crisis, the sector requires immediate help with augmentation of risk capital and substitution of lost revenues. The implementation of the policies that the government has announced remains a challenge due to lack of focus, commitment and understanding resulting in an unpractical one-size-fits-all approach.

Instead of waiting for the government for all the solutions, the corporates and financial institutions should collaborate to solve such challenges.

In addition to the significant work the government is already doing, it could offer MSMEs avenues for availing cost-effective advice and solutions to help them improve and grow their businesses. It can also provide incentives to MSMEs for developing their impact definition, assessment, and reporting capabilities. Not only will this open up better and cheaper sources of funding for them and improve their operations, but it also allow them to integrate into the global supply chains and reach out to new markets for their products.