On a global level, it is being debated that in the modern economic climate new attitudes have been developing towards general investment strategies that focus on what has been termed as the ‘triple bottom line’, namely: a solid level of profitability in addition to key and measureable indications of environmental and social value.

The concept of investing with such a wider scope of focus has existed for years but has only recently become more officially referred to as an ‘emerging’ asset class.  Its presence has been viewed of growing importance where effective business models need to be created to deal with the major social / environmental issues – particularly as governmental aid efforts as well as charitable and philanthropic donations have been witnessing visible declines.

Commentators and sector specialists have been setting expectations high and according to a report published by JP Morgan in November 2010 entitled ‘Impact Investments: An Emerging Asset Class’, focusing on the global population earning less than $US 3,000 a year, the potential of up to the year 2020 for invested capital is $400bn-$1 trillion with an achievable profit of $183- $667bn.  Authors of the report – Nick O’Donohoe, Christina Leijonhufvud and Yasemin Saltuk – also state: ‘with increasing numbers of investors rejecting the notion that they face a binary choice between investing for maximum risk-adjusted returns or donating for social purpose, the impact investment market is now at a significant turning point as it enters the mainstream.’

Yet, as with anything that is preceded by the word ‘emerging’, there is a perceived extra risk by investors who view the concept of funding such projects and programmes as stepping into unchartered territory – particularly in countries which are well-recognised for having problems related to transparency, low political / economic stability, complex legal jurisdictions, credibility and established business ethics.  It is also important to understand such an investment strategy in a detailed manner in order to ensure sustainable growth that truly adheres to the core objectives of the asset class.  In the Indian microfinance industry in 2010, for example, a number borrowers committed suicide as a result of being unable to keep up with their repayments, which several debate was due to the focus of profitability overtaking the achievement of social benefit.  Getting the right balance between healthy returns, environmental adherence and poverty reduction is therefore deemed as the biggest sector challenge moving forward.

As a response, a growing number of organisations have appeared which have a core aim of uniting industry ground level specialists and creating an environment where issues related to impact investing can be effectively scrutinised and discussed with a view to pushing the agenda forward.  The Global Impact Investing Network (GIIN), for instance, has been developing the established work of the Rockefeller Foundation, the Acumen Fund and B Lab in the sphere – producing a common framework entitled Impact Reporting and Investment Standards, the general themes of which are highlighted in the table below:

Looking at Brazil specifically, its growth as an investment destination in recent years has been highlighted by the fact that it is a country which has been presenting solid returns and growth prospects, particularly in contrast to other developed world economies that remain in difficult conditions as a result of the global downturn.  Yet, in addition to the extra risks that have been bought as a result of the country’s recent upturn (such as currency appreciation and inflationary pressures), other – wider scale – investment concerns remain. Indeed, it is often forgotten that much work needs to be done to remove key issues holding the country back – examples of which include the massive wealth divides; the environmental impact of corporate expansion; business / political corruption; wide scale infrastructural issues and a rigid labour market.

The concept of impactful investing – in terms of confronting issues head first in Brazil – therefore could well have a fundamental role to play in improving and overcoming the difficulties above.  As the growth of the entrepreneurial spirit is being encouraged, some examples of projects which focus on the objectives of this growing asset class are highlighted below:

Architects for the Community: a community service created by two young architects – Joice Gomes and Daniela Zacardi – which serves to support the large numbers of rural migrants to Brazilian cities who largely end up living in favelas, with initial focus in the Campinas region of São Paulo.  The organization offers planning assistance; accompanies the construction of community areas and provides programmes which aim to reduce pollution / energy consumption levels.

Plano CDE: a company that is focused on market intelligence that produces information, actionable data and knowledge about people and markets operating in Brazil’s C, D and E (lower-middle) classes.  Some of the services include undertaking in research surveys, consultancy as well as training for businesses focused on the demographic.  The company also pushes the sphere and agenda of business in this sector forward on a wide scale.

Banco Pérola: an institution that provides loan interest loans to 18 to 29 years in the classes C, D and E in the Sorocaba region of São Paulo.  Three types of microcredit loan are offered: working capital, investment and mixed funding.

CDI Lan: focused on providing access to a growing network of internet café’s (currently at 4,800) whilst also offering financial management education and other other e-learning tools.

Ecossistemas Design Ecológico:  a professional consultancy and certification provider that is largely focused on improving the results in Brazil’s ever growing agricultural industry.  The focus of the organisation’s work is assisting on implementing regenerative models which improve financial results and environmental friendliness as well as boosting rural standards of living.

Eva Maria: the programme works directly with socially excluded groups in promoting, manufactuting and utilising Ethylene Vinyl Acetate Copolymer (known as EVA) – a synthetic material that is still not efficiently recycled (and accounts for 140 tons/month of scrap in the state of São Paulo).

Fez Tá Pronto: an organisation (which we are actively involved with) that uses a technically approved, high quality and low cost gypsum plaster construction model to confront the massive Brazilian housing deficit that remains at minimum of 6.6 million units, excluding the wide scale favela communities.  The business model can demonstrate that the monthly mortgage installment of our two bedroom apartment unit (47.7 m²) is cheaper than the current rent of a favela unit in any part of the country.

Ruban Selvanayagam www.brazilinvestmentguide.com