Blockchain for Social Impact: Why Social Impact Projects Need To Be Better and Braver To Be Successfulbr>
Social Impact projects leverage an ability to support a community, project, or initiative in need and have created a $300 billion industry for impact investors to use their fiscal power to change lives. In 2018, $12 trillion was invested in socially responsible investment funds, up 38% since 2016, and companies like JPMorgan have gone on record saying that impact investing is an emerging asset class, with potential of invested capital over the next 10 years totaling $100 billion to $1 trillion, and $183 to $667 billion in profits.
While the opportunity for socially responsible investment funds is there, it’s indisputable that what social impact projects provide in investments, they lack in, when it comes to sound methods of traceable impact on their intended audiences. Social impact measurement is hard to do well. Sustainability of social impact is reliant on having measurable outcomes, which instills confidence in investors and also helps them focus on solutions that actually have an impact. Morgan Simon, managing director of the Candide Group, explains, “Impact investors over the past decade have largely focused on proving that impact investments could achieve a ‘market rate’ or above return profile [but] the elements that make something profitable work counter to those that maximize positive social impact.” The difficulty then is how can a social impact project do both and should it be held to that standard?
Adding to this task is that a single convention for measuring social impact does not yet exist and relies heavily on collecting and analyzing data, much of which is reliant on money and time – things investors consider important factors in making decisions on investment. Measuring social impact requires a lot of time in order to see changes in outcomes, and while difficult, Ebrahim, HBS associate professor notes, “It can be done, but it requires a longer time horizon and an effort to understand the contributions of many organizations working in the same place at the same time. Societal transformations—such as improving human rights or democratic conditions—involve multiple actors and causal mechanisms that are still poorly understood. In such cases, it can still be useful to try to measure what an organization is doing and whether its strategies are working to influence societal change. But there’s a tradeoff in terms of the best potential use of scarce resources.”
Yet even if we accept the more long term and more displaced societal benefits of a project, are we accepting that social impact investing will never be competitive to the pure returns of direct commercial investing? But social impact investing is not going away. There is a growing understanding that corporations need to serve a social purpose. So where does the industry turn when trying to combine both the rigorous analytics of traditional investment and the heart of philanthropy. The blockchain could be the place.
One example of a company taking this approach is the International Blockchain Monetary Reserve, a social impact fund that looks to empower the urban working poor in emerging markets through structural financial inclusion. The IBMR fund seeks to impact the lives of 630 million people in Southeast Asia through issuing a cryptocurrency token to act as a free ‘micro asset’. The value of this token is backed by the returns of its social impact fund. Users earn the token by participating in surveys that give a voice to their daily struggles in how a lack of infrastructure and social security impact their standard of living. This data is recorded on a public blockchain to create an incorruptible baseline of aggregated data that gives a true picture of the living standards of the urban working poor. The ultimate goal is to provide a fintech platform which acts as a micro asset management network for those excluded from the formal economy but make upwards of fifty percent of an urban capital’s population. In this case, technology allows for this social impact project to not only track measurable impact in real time, but also provide emerging market returns. This project is working with new technology and new micro financing concepts to bring together a project which does not compromise on both the commercial and social returns. It’s a brave project because it is without precedence, but pressing the conceptual envelope is perhaps the only way forward as well if we want the best of both worlds.
Despite the difficulties of finding the right balance between investors seeking to maximize profit and seeking the greatest social impact, there are some firms that solely focus on investing in projects that make a social impact as the priority first. Take Bamboo Finance for example. They are a commercial private equity firm that focuses its business strategy on making an impact in low-income communities in emerging markets. Bamboo Finance targets projects that benefit communities with services that give them access to healthcare, energy, education, and affordable housing. Bamboo finance prides itself in being an equity firm with 100% of its assets under management invested in social impact projects and they are also aggressive in making a return for their investors. With more successes they are leveraging their social impact focus to get backing from government and regional organizations, gaining stronger initial market traction and derisking their investments by getting this high level support.
ImpactAssets is also one of the leading examples in projects that are dedicated to making a social impact. Since their inception in 2010, they have become the leading facilitator of direct impact investing. They have over 1,000 clients, strategic partners, and staff that are constantly giving their best efforts in making an impact. The fund managed my ImpactAssets include over 300 impact positions with over $425 million in assets under management. ImpactAssets takes it one step further by establishing the ImpactAssets 50 database which collectively lists 50 equity funds that are fixated on making social change and are selected based on a list of criteria. The firms are selected to exhibit a wide range of social impact investing activities across geographies, sectors, and asset classes.These are just a small portion of a series of leading social impact initiatives around the world. Social impact projects are becoming the norm, as our social issues and global needs are changing.
A recent study by Stanford University exploring the growing impact of blockchains ability to improve the effectiveness and reach of the technology reveals that while still nascent, 55% of social impact initiatives are expected to reach their beneficiaries by this year, and has enabled solutions to problems that “could otherwise not have been solved without blockchain.” Blockchain for Social Impact is a coalition made up 55 members, including the World Wildlife Fund, that seeks to incubate, develop and implement blockchain solutions to tackle the United Nation’s Sustainable Development Goals. Blue Chip powerhouse IBM has even begun initiatives – now joined by Volkswagen to completely overhaul the supply chain system for the ethical mining of Cobalt, potentially stamping out unethical child labor in this industry.
The drive to do social impact is not just a rate of financial return, but a rate of societal return that changes lives, so we must be brave chart this path. Social impact projects should be held to a higher standard, and this higher standard will force us to be more innovative to create a new standard for all global investments. Where we may have had gaps in tracking, and analyzing the data in high fidelity, we are finding that blockchain is aiding us in these areas. Blockchain technology may be the link that melds all investments to having their own positive social impact.