Technology is fundamental to the future of impact investing

Technology is fundamental to the future of impact investing

Florian Kemmerich, Managing Partner, Bamboo Capital Partners

Florian Kemmerich, Managing Partner, Bamboo Capital Partners

Impact investing has grown rapidly from a nascent sub-sector of the financial services industry to an increasingly well-known movement that’s rapidly attracting a new generation of investors looking for purpose, in addition to profits. The Global Impact Investing Network recently evaluated the industry to be worth USD$ 715 billion – a number that’s set to grow in the next decade.

As the impact investing industry has expanded, technology has made its presence felt. Through portfolio companies, technology has generated a significant amount of positive impact on the ground, lowering the barriers of entry to accessible and affordable good and services. It is shaping the way impact investors manage funds, and it also has the potential to democratise the future of impact investing through distributed ledger technology and tokenisation.

Technology’s impact on the ground

For the past decade, impact investors such as Bamboo Capital Partners have invested in companies that utilise technology in emerging markets and developing countries to leapfrog years of traditional development. With technology-led approaches, they are able to resolve issues such as access to energy or finance in these markets at an affordable price point.

One of our portfolio companies – BBOXX – is a prime example. As a modern utility, BBOXX offers a decentralised, off-grid energy solution for rural communities in sub- Saharan Africa. Its solution completely sidesteps the need for big infrastructure – such as a regional or national electric grid that you would typically see in Western countries. To date, using its solar home systems, BBOXX has provided access to clean energy for nearly 1.5 million people.

Technology-led approaches lower the barriers of entry to basic goods and services which have typically eluded underserved populations. They ultimately enable economic inclusion and improve the lives of marginalised communities around the world.

Technology improves the investment process

Technology is not just improving the lives of ordinary people through the portfolio of impact investors, it is also improving how impact investors themselves operate.

Technology is transforming how impact investors manage their funds and deal pipeline. Potential investee companies now submit requests for financing digitally, while introductory and due diligence meetings are conducted via video conferencing systems. This is a trend which has been dramatically accelerated by the COVID-19 pandemic.

“Technology is transforming how impact investors manage their funds and deal pipeline”

Meanwhile, reporting processes are also being streamlined. Automated data on the financial returns and impact of each individual investment provides impact investors with fast, granular insights into how an investment is performing. This ensures that the impact generated from each investment is transparent, provided in real-time and fully traceable to ensure that investors are held to account over the performance of their investments by LPs.

One eye on the future

With one eye on the future, new technologies have the potential to completely transform the impact investing industry.

At present, impact investors are limited to receiving investments from qualified institutional investors. However, crypto assets, blockchain and distributed ledger technology have the potential to democratise access to liquid markets.

Tokenisation would allow anyone to invest any amount directly into a fund or investee company. The underlying distributed ledger technology enables a complete, transparent circle. For example, an individual would invest USD$100 to get 100 tokens. They would see how the fund or investee company uses the tokens and receive a granular picture of the impact and financial returns generated from the initial 100 token investment.

Tokenisation would improve the transparency and traceability of impact investing. It would also eradicate the threat from ‘greenwashing’ – the practice of inflating the impact returns of investments.

At the moment, this remains a vision for the future of the industry. It certainly could not happen overnight and would require the support of regulators around the world. But it is a stark reminder that while technology has been integral to the evolution of impact investing, it also has a fundamental role to play in the movement’s future.

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