IMPACT INVESTING

MAKING AN IMPACT WITH YOUR INVESTMENTS

PROJECT SUBMITTED BY:ABHINAV KAPOOR (09101013) AMAN GUPTA (09102052) CHETAN KHANNA (09102061) RAMAN MAKKAR (09102076) RISESH BHUTANI (09107051) SIDDHARTH GULERIA (09102079)
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DECLARATION

We hereby declare that the project work entitled

IMPACT INVESTING is an authentic

record of our own work carried out as requirements of course ECONOMIC REFORMS IN INDIA under the guidance of Ms. Renu Lamba during August to December, 2012.

ABHINAV KAPOOR (09101013) AMAN GUPTA (09102052) CHETAN KHANNA (09102061) RAMAN MAKKAR (09102076) RISESH BHUTANI (09107051) SIDDHARTH GULERIA (09102079)
Date: ___________________

Certified that the above statement made by the students is correct to the best of my knowledge and belief.

Ms. Renu Lamba PEC University of Technology Chandigarh

CONTENTS
1. 2. 3. 4. 5. Introduction..4 Executive Summary....6 The Current Market Landscape.12 Approaches To Impact Investing..20 Impact Investing In Education......22 a. Need..23 b. Case Study On i. Ashoka - Lumni28 ii. Team Lease - IIJT...37 6. Impact Investing In Clean Water..42 a. Water Crisis....43 b. Case Study On i. Manila Water.....47 ii. Water Health...56 7. Conclusion...65 8. Future Scope of Impact Investing in India.67

INTRODUCTION
Impact investments: An emerging asset class
In a world where government resources and charitable donations are insufficient to address the worlds social problems, impact investing offers a new alternative for channelling large-scale private capital for social benefit. 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. In this work, we argue that impact investments are emerging as an alternative asset class. As such, we analyze the questions one would ask when adding impact investments to an investment portfolio. Specifically, we consider the following: What defines and differentiates impact investments? Impact investments are investments intended to create positive impact beyond financial return. As such, they require the management of social and environmental performance (for which early industry standards are gaining traction among pioneering impact investors) in addition to financial risk and return. We distinguish impact investments from the more mature field of socially- responsible investments (SRI), which generally seek to minimize negative impact rather than proactively create positive social or environmental benefit. Who is involved in the market and how do they allocate capital? Charting the landscape of the impact investment market, investors range from philanthropic foundations to commercial financial institutions to high net worth individuals, investing across the capital structure, across regions and business sectors, and with a range of impact objectives. How much financial return are investors expecting and realizing? In a survey conducted by J.P. Morgan of leading impact investors, which resulted in 24 respondents providing data on expected returns for over 1,100 individual investments. Reported return expectations vary dramatically: while some impact investors expect to outperform traditional investments, others expect to trade-off financial returns for social impact. Increasingly, entrants to the impact investment market believe they need not sacrifice financial return in exchange for social impact. Indeed, many have a regulated, fiduciary duty to generate risk- adjusted returns that compete with traditional investments. How large is the potential opportunity for investment in this market? J.P. Morgan has presented a new framework for measuring the potential scale of invested capital and profit. Applying their methodology to selected businesses within five sectors housing, rural water delivery, maternal health, primary education and financial services for the portion of the global population earning less than $3,000 a year, we find that even this -segment of the market offers the potential over the next 10 years for invested capital of $400bn$1 trillion and profit of $183$667bn.
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 What does risk management and social performance monitoring involve? Our analysis of impact investment risk management includes components similar to those for venture capital or high yield debt investments (with country and currency risk components for emerging market transactions), with a unique set of complexities arising from social performance measurement and reputational exposure. Measuring and monitoring social performance are essential to track progress toward the intended impact and to manage the reputational exposure, but are challenging and potentially expensive in practice. Market initiatives are in place to build third party systems to facilitate these efforts.

EXECUTIVE SUMMARY
Investments intended to create positive impact beyond financial return Impact investments are investments intended to create positive impact beyond financial return. This definition captures the key themes characterizing impact investments as illustrated in Figure 1 in the next page: impact investments provide capital, expecting financial returns, to businesses (fund managers or companies) designed with the intent to generate positive social and/or environmental impact. Investors and investments range broadly, across sectors and objectives A variety of investor types participate, including development finance institutions, foundations, private wealth managers, commercial banks, pension fund managers, boutique investment funds, companies and community development finance institutions. These investors operate across multiple business sectors, including agriculture, water, housing, education, health, energy and financial services (Figure 2). Their impact objectives can range from mitigating climate change to increasing incomes and assets for poor and vulnerable people. Investments take the form of traditional financial structures, such as debt or equity, or more innovative structures, such as the Social Impact Bond issued in the UK, where returns are linked to metrics of social performance such as reduction in prisoner reoffending rates.

Impact investments generally target the (broad) base of the economic pyramid Impact investments generally aim to improve the lives of poor and vulnerable people or to provide environmental benefits at large. In this report, we focus primarily on investments that target the base of the pyramid defined by the World Resources Institute as people earning less than $3000 a year1. In addition to this established definition of BoP, which applies to emerging markets, there are also people living at the base of economic pyramids in developed countries who may enjoy a higher income but can still benefit from impact investments that expand their access to services and opportunities. We refer to this broader population as the BoP+. While many impact investments target BoP+ populations, this report focuses on impact investments benefiting the BoP sub-segment in emerging countries. Investments generate impact in a variety of ways Impact investments can deliver positive social outcomes by expanding access to basic services for people in need or through production processes that benefit society. Figure 3 summarizes some of the ways in which business can deliver positive outcomes for BoP+ populations through their method(s) of production such as by providing quality jobs, enhancing energy efficiency, facilitating local asset accumulation and/or purchasing inputs from local or smallholder providers. Other businesses deliver positive social outcomes by providing customers with access to needed and cost effective products or services, including agriculture, water, housing, education, health, energy or financial services.

The Next 4 Billion, World Resources Institute and International Finance Corporation, 2007.

Financial return expectations for a sample of impact investments exhibit high variance Before identifying the potential market opportunity for investments in businesses serving BoP customers, we analyze a sample of current impact investments across business sectors and impact objectives (i.e. no longer limited to BoP-serving businesses). As the market is primarily private, we obtained the data from the survey conducted by J.P. Morgan of market leading group of impact investors, from which 24 respondents provided data on over 1,100 investments. Return expectations vary from competitive to concessionary Reported return expectations for impact investments vary dramatically. Figure 4 illustrates the range of expectations with a vertical line, and we see that some investors expect financial returns from their impact investments that would outperform traditional investments in the same category, while others expect to trade-off financial return for social impact. Increasingly, newer entrants to the impact investment market, in particular those focused on BoP consumers in emerging markets, believe that impact investments need not sacrifice competitive financial returns in exchange for social impact. The International Finance Corporation, which makes many impact investments, recently revealed that their emerging market equity portfolio has outperformed traditional emerging market venture capital and private equity benchmarks for investment vintages from 1989 to 2006. Whether or not there is a return trade-off in impact investing depends on instrument type, investor perceptions, and of course, chosen benchmarks. Developed markets (DM) debt investors appear to expect some return sacrifice. This could be explained in part by regulatory features and, in some developed markets, tax incentives that encourage investment in lower-return social ventures. Emerging markets (EM) debt on the other hand appears to target returns that are competitive with long-term realized index returns. For equity, the results are mixed. If we benchmark against the realized DM and EM index returns, impact investors targets appear competitive for EM but concessionary for DM. If, on the other hand, we benchmark against the 20- 25% gross or 1520% net returns raising money in the current environment would target, then there does appear to be a trade-off for EM.

The market opportunity for investment is vast As noted in the introduction, the estimate of market size is only partial, yet still produces compelling results. While the market of impact investments will serve the BoP+, we have attempted only to size the BoP sub-segment in emerging markets and only for selected subsectors where data and case studies were readily available. In each sector, J.P. Morgan determined the amount of invested capital that would be required to fund such businesses, and the profit that could be made, over the next ten years, summarized in Table 1. In aggregate, across five sub-sectors, they estimate a potential over the next ten years of profit ranging from $183bn to $667bn and invested capital ranging from $400bn to nearly $1 trillion.

Why the BoP opportunity exists Markets at the base of the economic pyramid are typically under-served by traditional business, which may exclude this population from being considered part of its potential customer base. BoP populations are also often unable to access services provided by the government. Academic research has shown that the BoP population will often manage its finances to buy affordable products or services improving their productivity and reliability of income2. It is a market introducing operational challenges to otherwise proven business models requiring innovative approaches to accommodate what can be unreliable income streams or to deliver services to remote rural areas. While government or philanthropic solutions will sometimes provide these products or services (such as healthcare or education), impact investment can complement government and philanthropic capital to reach more people. Managing impact investments The risks for impact investments are similar to those for venture capital or high yield debt investments, with heightened reputational and legal risks, particularly in emerging markets where regulatory infrastructure can be onerous and the rule of law is less well defined. Further, critics may argue that impact investments exploit poor people for the sake of profits. Indeed, exploitation and mission drift are risks that are amplified when poor populations are concerned, but it is believed the potential of impact investing to create a pathway out of poverty, combined with the emergence of systems to track and manage social performance, outweigh these risks. Investors need to be vigilant to ensure that the social impact and outcomes are delivered by monitoring social performance.
2

Portfolios of the Poor, D Collins et al, Princeton University Press, 2009.

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In practice, measuring social performance is complicated, expensive and can be subjective, so impact investors have supported the development of standard reporting and social measurement frameworks. The Impact Reporting and Investment Standards (IRIS) provides taxonomy to standardize social impact reporting and facilitate the creation of industry benchmarks. The Global Impact Investing Rating System (GIIRS) will utilize IRIS definitions and additional data to assign relative value to investments social performance, helping to inform investment decisions and potentially lower diligence costs by collating standardized information on investments.

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THE CURRENT MARKET LANDSCAPE

For several years, momentum has been building among select private investors to focus on a new type of asset: impact investments investments intended to create positive impact beyond financial return. These impact investors have been motivated by the view that their invested capital can be utilized to generate positive social and/or environmental change, and until recently have mostly been operating independently from mainstream financial markets in doing so. In recent years, participants in the impact investing market have recognized the common threads across their respective activities and a larger movement has begun to emerge. As this movement gathers steam, we recognize the potential for impact investments to attract a larger portion of mainstream private capital and anticipate that more investors will seek to generate positive social and/or environmental impact when making investment decisions. In fact, we believe that impact investing will reveal itself to be one of the most powerful changes within the asset management industry in the years to come. Part of the reason that impact investing is such an innovative concept is that it defies the traditionally binary nature of capital allocation. By convention, capital has traditionally been allocated either to investments designed to optimize risk-adjusted financial return (with no deliberate consideration of social outcomes), or to donations designed to optimize social impact (with no expectation of financial return). Recognizing that charitable donations will never reach the scale needed to address the world's problems, and that business principles and practices can unleash creativity and scale in delivering basic services and addressing environmental challenges, impact investment introduces a new type of capital merging the motivations of traditional investments and donations. In this section, we provide a definition of impact investments and characterize the market participants, industry associations, and the nature of the investments themselves, including the sectors and geographies in which they are made.

Identifying impact investments

Impact investments are investments intended to create positive impact beyond financial return. Figure 1 illustrates the components of this definition in summary, and we describe each aspect in more detail below. Impact investments provide capital to In the current market, many impact investments will take the form of private equity or debt investments, while other instruments can include guarantees or deposits. Publicly listed impact investments also exist, though they are a much smaller proportion of the transactions being made today. Most of the activity in public equities that includes a social or environmental motivation takes the form of socially responsible investment, in which investors seek to minimize negative impact rather than proactively create positive impact. Indeed, only one out of 1,105 investments reported in the before mentioned survey was listed as a public transaction. Greater numbers of publicly listed impact investments are expected to emerge as the market matures.
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a business designed with intent to generate positive social and/or environmental impact The model of the business (which could be a fund management firm or a company) into which the investment is made should be designed with the intent to make a positive social or environmental impact, and this should be explicitly specified in company documents. For many impact investments, the intended impact is likely to be focused on underserved populations, though environmental initiatives may be intended to impact a broader population. The impact is likely to be delivered through the business operations and processes employed, the products or services produced and/or the target population served. The business should also have a system in place to measure its impact. and expect financial returns Key to the success of impact investments is the fact that they are investments expected to generate a financial return. This aim should co-exist with the intent toward positive impact, though one or the other may be the primary focus for a given investor. In fact, the pairing of these two motivations by investors will hopefully encourage businesses to develop in financially sustainable ways, thus facilitating the growth of the impact delivered by those businesses.

Investors: Market participants and infrastructure

Impact investing may be new terminology, but it is not a new concept The term impact investing may be new, but the practice of investing in businesses that provide solutions to social challenges has been around for quite some time. The Commonwealth Development Corporation in the UK, established in 19483, invests in a commercially sustainable manner in the poorer countries of the developing world and to attract other investors by demonstrating success. Similarly, the International Finance Corporation was created in 1956 to foster private sector investment in emerging nations. Private capital has also been deployed, with a focus on generating non-financial impact, for decades. The parent organization of Sarona Asset Management, for example, has been making socially- and environmentally-driven investments since 1953. Prudential4 also has a long tradition of making investments that support and improve communities, having established a formal Social Investments program in 1976 and invested more than $1bn since then. While they may not have been identified historically as impact investors, their intent was consistent with the definition.

3 4

Established as the Colonial Development Corporation The Prudential Insurance Company of America

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Impact investors vary widely in character from individuals to institutions across sectors. Some of the investors currently making impact investments include: Development finance institutions (DFIs) were initially capitalized by governments to complement donor aid, and many now sustain their operations from earned income. These include the multi-lateral International Finance Corporation (IFC), regional banks such as the European Bank for Reconstruction and Development (EBRD) and investment organizations such as the US Overseas Private Investment Corporation (OPIC) and the Commonwealth Development Corporation (CDC) in the UK. Private foundations such as Omidyar Network in the US and the Esme Fairbairn Foundation in the UK consider impact investing as a means to deploy their endowment assets toward their social mission. A larger number of foundations make program-related investments (PRIs) from the grant making (rather than endowment) side of operations. Large-scale financial institutions such as J.P. Morgan, Citigroup, Prudential and Africas Standard Bank are positioning themselves to grow impact investing businesses beyond their minimal regulatory obligations. Private wealth managers such as Capricorn Investment Group and New Island Capital in the US are integrating impact investments into their traditional asset management portfolios. Commercial banks such as Triodos Bank in Europe and Charity Bank in the UK tap into retail customer interest in impact investment and lend to charities. Retirement fund managers such as PGGM in Holland and TIAA-CREF in the US are responding to demand for impact investments rather than simply sociallyresponsible investments that do no harm. Boutique investment funds such as responsAbility in Switzerland and Root Capital in the US are raising capital from a growing class of high-net worth individuals, family offices and private foundations seeking fund managers who can offer high-impact, low-risk investment options. Companies such as General Mills and the Starbucks are diversifying their supply chains and expanding their fair trade operations through impact investment. French food company Danone is teaming with Grameen to address malnutrition. Others are using impact investments to identify the potential for serving new markets. Community development finance institutions (CDFIs) in the U.S. such as the ruralfocused Southern Bancorp and New York-based Carver Federal Savings Bank.

While some of these investors are more recent entrants to the market, others have been making impact investments for some time, including DFIs, which have been operating for over sixty years. Historically, many of these investors operated independently or partnered within one geographical region. More recently, disparate sectoral or regional initiatives are coming together to build a cross-sector, global impact investing marketplace. Recognizing the need for a global, cross-sector impact investment infrastructure As different investors develop their impact investment portfolios, similarities emerge between their investment activities. Ten years ago the Social Investment Task Force was set
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up in the UK to define "how entrepreneurial practices could be applied to obtain higher social and financial returns from social investment"5. In October 2007, The Rockefeller Foundation hosted an international meeting of approximately 15 impact investors to discuss the similar investment approaches and challenges shared by the group. A broader meeting in June 2008 brought 40 impact investors together to discuss how they could work together to accelerate the development of the impact investment industry. The investors at this meeting found that their common challenges included: deal sourcing, impact measurement, and the lack of a common language to describe their investment activities and performance targets. They also highlighted the need for an organized network to advance their shared interest in using for-profit investments to fund social solutions. In essence, these investors envisioned a well-developed impact investing marketplace that functioned like the traditional capital markets. They sought a marketplace in which investment opportunities are transparent; performance data is accessible, credible, and comparable; investors can access ratings agencies, syndicators, clearinghouses, auditors and other necessary market intermediaries; and co-investors are easily identified. Having acknowledged these needs, the group set out to seed the organizations that would accelerate the development of this newly-dubbed impact investing industry. In addition to serving their own needs, these investors also hoped that helping to build an effective impact investment infrastructure would attract new investors by reducing deal sourcing and transaction costs and providing examples of efficient impact investments. The Global Impact Investing Network is established to build market infrastructure In September 2009, J.P. Morgan, Rockefeller Foundation, and the United States Agency for International Development (USAID) launched the Global Impact Investing Network (the GIIN) to accelerate the development of an effective impact investing industry. The GIIN was tasked to develop the critical infrastructure, activities, education, and research that would increase the scale and effectiveness of impact investing. The GIINs work is rooted in the needs identified by early impact investors and currently consists of four main efforts that mobilize hundreds of investors and other industry participants. Investors Council: The GIIN Investors Council is a membership group comprised of leading impact investors representing a diverse range of institutions from around the world. The Investors Council provides leadership in the industry, facilitates shared learning and collaboration, serves as a platform for disseminating the latest research and best practice, and supports the creation and adoption of industry infrastructure, including impact metrics. IRIS: Impact Reporting and Investment Standards (IRIS)6 is a language and framework for measuring the social performance of impact investments. IRIS addresses a major barrier to the growth of the impact investing industrythe lack of comparability and credibility regarding how funds define, track, and report on the social performance of their investments. IRIS provides a standardized approach with the aim to lower transaction costs and improve investors ability to understand the impact of the investments they make.

Social Investment Ten Years On - Final Report of the Social Investment Task Force, April 2010. http://iris.thegiin.org

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Outreach: The GIIN Outreach initiative elevates the profile of impact investing by highlighting exemplary impact investments, industry progress, and best practices. Working with partners, the GIIN also supports and disseminates research, informs conference and event programming, and promotes mainstream media coverage of impact investing. ImpactBase: ImpactBase7 is a global database of impact investment funds, searchable via an online platform. ImpactBase is an online search tool, created to bring order to a fragmented and inefficient marketplace of impact investing funds. On ImpactBase, fund managers can create profiles for their funds visible to a global set of mission-aligned investors. Investors and advisors can search these fund profiles to find investments that may fit with their impact investment objectives.

Ratings system, social stock exchanges, trading platforms and advisory firms Around the same time that the GIIN was launched, the development of a rating system for impact investments called the Global Impact Investing Rating System (GIIRS) was initiated. Related industry services such as impact investment stock exchanges, online trading platforms, and advisory firms are also in early development stages. Most of this growth is possible because increased interest in the market and the developments in the broader economy have led more professionals to pursue careers in impact investing, including experienced investors and entrepreneurs starting businesses that play an important role in the impact investment ecosystem. Investment opportunities are growing One of the challenges in making impact investments is sourcing transactions. Many impact investment recipients are small companies and the majority of deal sizes analyzed from the survey are less than $1m. Particularly for investors based in different regions, the costs of due diligence on these investments can often challenge the economics of making such small investments. While demand has been growing from investors, there has been growth in the supply of social businesses able to receive the capital currently waiting to be allocated into impact investments. Investments: Business sectors, impact objectives, investment structures and geography An investor who begins to analyze impact investments will immediately notice that the opportunities for investment span a wide range of sectors, impact objectives and geographical regions. In order to manage the investment portfolio, some investors will limit their scope to certain sectors, objectives, structures or regions. In this section, we lay out a framework that describes how some impact investors think about constructing a portfolio of impact investments.

A two-dimensional sector framework The set of impact investments is unique in that there are two dimensions that can characterize each underlying investment: each investment will operate in a certain
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www.impactbase.org

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business sector, and it will be designed with the intent to address one or more impact objectives (e.g. mitigate climate change, improve basic welfare for people in need). In some cases, an investors impact objective (i.e. improving health outcomes) may be tightly correlated with the business sector (i.e. health services) where it operates. In other cases, the relationship between sector and impact objective might be more complicated. For example, an investor whose impact objective is to help BoP populations build income and assets may invest in a financial services company that allows entrepreneurs to start a business, or in a health services company that generates jobs and income in the community where it operates. This two-dimensional characterization is meant to describe the landscape of business sectors and potential impact objectives, but it is neither exhaustive nor exclusive. Nor will an investment necessarily fall into only one category within the business sectors or impact objectives. The impact objectives of an investment in Selco Solar in India, which sells solar home systems to provide energy access for people without access to electrical grids, would incorporate climate change mitigation with improving basic welfare for people in need, for example. Investors often choose a business sector or an impact objective as primary focus An impact investor might approach investment decisions by first choosing a business sector or by first identifying an impact objective. Yara, a global fertilizer company based in Norway, invests along the agricultural value chain to leverage its existing core competency, generating impact through agricultural productivity, food security and reduced emissions from the production of fertilizers. A foundation dedicated to mitigating climate change might use this impact objective as its primary investment criterion, making cross-business sector investments in renewable energy, green real estate or sustainable agriculture. We list the full categorization of social and environmental impact objectives in Table 2, as outlined by the IRIS.

Impact can be delivered through processes or products Businesses can pursue the objectives above by many means, and investors can reference these means of impact in designing an investment thesis. In Figure 7, we outline some examples of ways in which companies deliver social impact, which we categorize into processes or products. Within processes, for example, a company might make part of its mission hiring employees from a traditionally underrepresented group, or employing people that had previously been unemployed. Alternatively, a coffee processor might source its cocoa beans specifically from BoP suppliers, with the intent that engaging them in a
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production supply chain will improve their incomes (or stability of income). Within products, a company producing solar lamps, for example, might deliver its social impact by providing affordable access to light for people who currently lack access to electricity grids. Targeting BoP consumers can be considered an implicit part of the products method of impact.

As with the impact objectives above, the means by which a company delivers social impact can often fall into more than one category (and the categories listed are not necessarily exhaustive). There may also be categories that emerge as the industry develops. We present this framework as a classification to help investors structure their investment theses, rather than as a rigid framework that exhausts all possibilities. More recent entrants often start investing in the more developed sectors While there are investors that have been making impact investments for some time, a new set of market participants has recently entered the sector, spurring growth momentum for the sector as a whole. For those investors that are just beginning to make impact investments, certain sectors of impact investing such as microfinance have provided a launching pad to then explore other impact investment sectors. For example, after successfully closing two microfinance funds totaling more than $300m, SNS Asset Management, a Dutch asset manager, is now raising funds to invest in agriculture in Africa. Similarly, Gray Ghost Ventures, an investment firm, began by investing in microfinance in 2003. The firm now has funds dedicated to education and technology that serve people with limited access to both. Investment structures Impact investments take many forms, including structures that are common in traditional financial markets. Equity and debt, guarantees and deposits are all examples of commonly used investment structures. Some more innovative investment structures have also been devised, including bonds that employ equity-like features that allow the investor to benefit from financial profits or even, in the case of the UKs Social Impact Bonds 8, from successful social impact. The Social Impact Bonds, structured by the UK-based investment organization
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www.socialfinance.org.uk

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Social Finance, employ government commitments to use a portion of the savings that result from improved social outcomes to reward non-government investors that fund the intervention activities. The existence of such innovative structures allows investors with different (social and/or financial) return and risk appetites to invest via the vehicles that best align with their goals. Geographical distribution of impact investments Many impact investors choose to focus on either the emerging markets or the developed markets. Part of the reason for this specialization is that there are significant regional differences that require local expertise. Another driver of investors geographical specialization is their value set: some prefer to help the worlds poorest in emerging market economies; others prioritize their local neighbours in need. Below, we give some examples of the variety of geographies in which market participants operate. Developing world: Asia, Africa, and Latin America Within the developing world, impact investors will often focus particular efforts on particular regions and sectors. Gatsby Charitable Trust and the Bill & Melinda Gates Foundation use some of their investment capital to positively impact the lives of smallholder farmers in sub-Saharan Africa. Gray Ghost Ventures, Acumen Fund, and Omidyar Network all have programs that actively invest in alleviating poverty by financing innovations directed at Indias low-income populations. Developed markets: North America and Europe Within the developed markets, we see similar regional specialization. For example, W.K. Kellogg and Annie E. Casey Foundations support community development finance institutions in specific regions of the US that are important to them: W.K. Kellogg focuses on areas including Detroit, MI and Oakland, CA while the Annie E. Casey Foundation invests in Baltimore, MD and San Antonio, TX, among other communities. Among the European investors, Social Finance and Bridges Ventures target UK markets, while Triodos Bank makes investments in mission-driven businesses in several European countries.

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APPROACHES TO IMPACT INVESTING: FINANCIAL VS. SOCIAL INVESTMENT THESIS

Impact investors enter the market with a variety of priorities Because impact investing is still a relatively nascent industry and most impact investments are made in private markets, there is yet to be significant comprehensive data analysis on investment performance. As a result, investors enter this market with a wide variety of expectations. In this section, we highlight the range of expectations with which investors approach impact investments, for financial returns, social impact and risk. Financial expectations For some investors, financial returns should compete with traditional investment Some impact investors, such as pension fund managers, are constrained by a fiduciary duty to the clients whose money they manage. These investors will have to prioritize the pursuit of a competitive financial return. TIAA-CREF, a retirement fund manager, must seek to attain competitive returns and therefore make investments such as sustainable real estate and cash deposits in CDFIs in which they can both achieve social goals and earn risk-adjusted returns competitive with traditional investments. Foundations making impact investments from their endowments, such as the Kellogg Foundation and the Annie E. Casey Foundation, also seek competitive risk-adjusted rates of returns. Foundations social duty demands high social impact By contrast, many foundations, including the Esme Fairbairn Foundation, the Rockefeller Foundation and the Bill & Melinda Gates Foundation, are making program-related investments (PRIs) primarily to advance a social goal. As a result of prioritizing the social impact over the financial return, these investments can acceptably deliver less competitive rates of financial return. Many private foundations in the US qualify their impact investments under the Program Related Investments section of the US tax code, which requires an investment to prioritize social impact rather than financial return. Social impact expectations Investors expectations are largely anecdotal By definition, impact investors finance businesses that generate positive social impact alongside financial returns; therefore, investments that simply avoid negative social consequences will not deliver sufficient impact to meet investors expectations. Generally speaking, however, expectations of social impact are largely anecdotal. Without standards and benchmarks for non-financial performance, investors must rely on their own judgement and proprietary systems to assess whether an impact investment is making progress toward social goals. Indeed, only 2% of surveyed impact investors reported using a third party impact measurement system the rest use either their own proprietary system or the one used by the company in which they invest. Similarly, without average performance benchmarks, investors are limited in their ability to understand how the social performance of their investments compares to those made by other investors.

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Comparable data will be available only once standard impact metrics are employed Because most impact investors use proprietary impact measurement systems, there is little consistent quantitative data about the social impact actually achieved by impact investments made to date. Many investors have recognized the limitations of so many bespoke approaches and are actively working to build and contribute data to standardized frameworks. Rigorously assessing progress toward social impact expectations will only be possible once standard social metrics are adopted. Risk appetite Given the variety of financial return and social impact expectations, it is unsurprising that risk appetite can also vary. Most impact investing is done in private markets, typically through private equity or debt instruments, and guarantees. The businesses themselves are often small-scale and may operate in emerging countries where political and country risks add to the risks of the company's standalone success. While investors must approach these investments with a commensurate risk appetite, there are opportunities to make impact investments with lower risk profiles as well. Since its inception in 2002, the UKs Charity Bank has earned steady returns of about 6% from lending to charities and social enterprises with realized losses of only 0.3% of their loan portfolio9. Notwithstanding recent turmoil in Indias microfinance market, empirical evidence suggests that microfinance institutions in some regions have been more resilient than other financial institutions in recessionary environments10. Clearly, the risk of an impact investment will be particular to the investment, including its stage, sector and geography, and any investor will need to assess these risks accordingly. Across investors and instruments, a vast range of opportunity Having characterized the current landscape of impact investments, we see that the set of impact investments spans a broad range of sectors and regions.

Charity Bank 2009 Annual Report and interviews. Microfinance: Shedding Light on Microfinance Equity Valuation Past and Present, J.P. Morgan and CGAP, February 3, 2009.
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IMPACT INVESTING
IN EDUCATION

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NEED FOR IMPACT INVESTING IN EDUCATION A GLOBAL SCENARIO

Fig. : The number of students out of school decreased initially, but has followed stagnation in recent years. Thus Additional Investing is required to accelerate the rate of literacy. Impact investing can supplement additional requirement.

Fig. : Total aid to education disbursement 2002-2010. The above two graphs can easily be correlated to draw a simple conclusion that the literacy rate is directly proportional to the aid to education. In 2009-10, the aid to education has shown stagnation resulting in the stagnation of improvement in literacy rate. Thus aid to education is required to be increased in order to improve literacy rate.

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Adult illiteracy rate, 1998-2001 to 2015 (projection)

Fig. : shows that most countries will miss the adult illiteracy target set for 2015, hence there is an immediate requirement for other sources of investment other than conventional fund raising methods.

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Lower secondary gross enrolment ratio and proxy for progression from lower to upper secondary schools, by country, 2010

Fig. : shows that most of the developing countries such as India, China, etc require adequate funding to improve Gross Enrolment Ratio (GER) in lower and higher secondary level of education to come at par with the developed countries.

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Education status of 15-19 year old, by country, latest available year

Fig. : shows high dropout % at the primary and lower secondary level in most of the countries around the globe. Thus the unemployability of the people dropping out in between increases significantly thereby increasing the unemployment rate.

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INCLUSIVE GROWTH THROUGH IMPACT INVESTING

Equal Opportunity through Impact Investing

Underprivileged Class

Two Case studies regarding Impact Investing in the field of Education have been discussed in the subsequent pages.

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Mission
Ashoka endeavours to create an Everyone a Change maker worldone where each person is equipped with the skills, drive, and resources to push forward solutions to pressing social and environmental problems, and each organization is designed to maximize the change making potential of its members.

History
Ashoka was founded as an answer to a question: Given the immensity of the problems facing this planet, how can we ever hope to solve them? Ashokas hypothesis: the institutions traditionally expected to solve such problems cannot experiment and fail quickly enough to respond to the ever changing environment. The solution is to support and invest in social entrepreneurs, the people so driven to change an entrenched global problem that they will stop at nothing, and so creative that they see beyond the existing barriers to change and invent entirely new solutions. The ideas, models and movements created by these social entrepreneurs will then ripple throughout society. Bill first tested his theory in 1978, when he travelled to India, Indonesia, and Venezuela to find and interview people with game-changing approaches to solve problems in their regions, people whom he later gave the name social entrepreneur. Blown away by the power and impact of their work, as well as their fast growing numbers, Bill founded Ashoka in 1980. While the initial goal of the organization was to encourage and assist social entrepreneurs as they worked to make the world better, Ashoka realized soon enough that a truly changed world will require everyonefrom school child to prime ministerto value and drive social innovation. Out of this insight was born our Everyone a Change maker mission.

Approach
Rather than focus solely on individual social entrepreneurs as engines of innovation, Ashoka recognizes that successful and lasting social change is a collaborative endeavour. Ashoka works in areas ranging from empathy education to agricultural innovation, but in each of these areas, we bring together teams of people with common goals and equip them with the entrepreneurial tools and resources they need to tackle some of the worlds most challenging social problems.
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Ashokas Impact Implementation Methodology

Identify, Help Launch, and Support Social Entrepreneurs - Ashoka invests in people. They search the world for the leading social entrepreneurs. At launch stage, they provide these Fellows with a living stipend for an average of three years which allows them to focus full-time on building their institutions and spreading their ideas. Foster Collaborative Entrepreneurship - Ashoka accelerates social impact by engaging communities of entrepreneurs in ripening fields to think and create together to tip the world. Build an Everyone a Change maker World - A truly changed and sustainable world will require everyone to have the essential skills of change making: empathy, teamwork and leadership for change. More problem solvers and barriers torn down between sectors will result in safer, happier, more equal and more successful societies.

Ashoka Fellows
Ashoka Fellows are leading social entrepreneurs who they recognize to have innovative solutions to social problems and the potential to change patterns across society. They demonstrate unrivalled commitment to bold new ideas and prove that compassion, creativity, and collaboration are tremendous forces for change. Ashoka Fellows work in over 70 countries around the globe in every area of human need.

Ashoka fellows Worldwide

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Felipe Vergara was elected to the Ashoka Fellowship in 2006.

Felipes Idea
Recognizing the need for an efficient system to finance higher education, Felipe Vergara introduced human capital contractsa new set of financial productsto draw private capital toward the high education sector. Felipe applied a simple principle to the field of education finance: profit attracts capital. The cornerstone of Felipes innovation, the human capital contract, eliminates the risks to both students and investors that otherwise deter private investment. In exchange for education financing, these legally binding agreements require students to pay a fixed percentage of their income over a pre-determined number of months after graduation. For students, human capital contracts do away with both the need for collateral and the threat of burdensome debt associated with traditional loans. The effect makes unemployment and underemployment less ominous, but also allows students to pursue their dreams, whether drams of business success, entrepreneurial pursuit, or contribution to the social good. For investors, they essentially allow the purchase of equity shares in students post-college financial success. Lumni operates as a node, facilitating win-win financing opportunities between Universities, private investors, and students. To date, Lumni is the in the design or implementation phase for 10 funds in Chile, Colombia, Mexico, and the US. Through this global effort Felipe is working to demonstrate the potential for HCC-based funds to transform education financing around the world.

Strategy Adopted
Felipe had taken up the challenge of turning theory to reality. In doing so, he recognized that his most important task was also his most basicto prove that HCC based funds can reliably return the appropriate risk-adjusted ROI to investors. With US$250,000 raised to date, he demonstrated this fact with pilots in Chile and Colombia, two countries with relatively well developed financial and educational infrastructure. Felipe believed these
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funds could take innumerable forms, financing all areas of human capital development and creatively partnering with Universities and other institutions. For the pilot phase, however, he focused on two distinct formations. The open funds in Chile, one for graduates and one for undergraduates, connect investments procured by Lumni directly to students. Through pending deals with Universities in both Chile and Colombia, University funds allowed students to defer tuition payments through HCCs. Lumni, the fund manager, received some compensation up-front from the University to cover the cost of operations. As Felipe built these funds he had prioritized the tricky legal questions associated with their implementation. HCCs and the groups that manage them were novel legal entities, and their success was predicated on validity of a single legal agreement. In Chile, Felipe recruited a group of pro-bono attorneys to research and create a 32-page contract which established the legal basis for the HCC arrangement under Chilean law Felipe knew that during Lumnis early years, demonstrated success is particularly important but also especially precarious. As he pilots HCC-based funds, Felipe had minimized accompanying risks. This means selecting the right groups of studentsthose who were high performing, studying for careers that pay well and likely to pursue high paying job. The organization employed a structured application and interview process to appropriately vet candidates. And to further improve the likelihood of success, Felipe had introduced mentoring, tutoring, and career counselling into the mix. Most importantly, Lumni must fund students whose economic outcomes could be accurately predicted, allowing them to structure payments for profitability without excess burden (payments never exceed 15 percent of income). Felipe had controlled this variable by launching funds for students already two years into their college education. As Lumni grows, it will also amass accurate information on the financial benefits of particular education tracks at particular institutions. This information, vital for Lumni, will also be invaluable to the public, enabling students and families to make informed decisions about the opportunities conferred by higher education. This type of public information, along with the information systems to track it, represents one example of the broader set of tools that Lumni is creating for the good of the field. Felipe had begun conversations with poverty-focused public entities, such as the InterAmerican Development Bank and the Andean Development Corporation to fund the development of such open access tools. Philanthropic and public dollars will only accelerate the development of information systems, fund-management training programs, and legal research.

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Lumni was founded on the belief that there is a better way to help students pay for their education. In 2002, Felipe Vergara and Miguel Palacios partnered to launch Lumni Chile and began financing students using the companys innovative model: students commit a fixed % of their income for a set period of time. Since then, Lumni has expanded to Colombia, Mexico, and, in 2009, to the US. To date, Lumni has funded over 3,000 students across the Americas and is a leader in the field of innovative student financing.

The problem
Approximately 88% of the worlds youth does not attain a university education. Of those who do enrol in university, dropout rates among the poor are very high, with 60% of dropouts citing inability to pay as the primary cause abandoning their studies.

The Lumni model

Lumni is the first organization to successfully pioneer human capital contracts. Whereas traditional student loans require students to pay back both the full principal of the loan plus interest payments, human capital contracts only require graduates to pay back a percentage of their income after graduation for a fixed period of time. Besides providing funds to pay for college, Lumni offers coaching and internship and job placement services to its students. This helps reduce attrition and open professional opportunities for the students. With
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Lumni, examples of repayment options are 8% of income over 48 months of employment (after the student graduates and begins a new job), or 6.75% of income over 60 months of employment. In most cases the income differential for attending university more than offsets these payments, representing a win-win solution for both the investor and the student. At Lumni, things are done differently. First and foremost, their goal is to help you succeed in college and in your career. To do that, they help you pay for college in a manageable way, provide assistance for you while you are there, and help support you once you graduate. This is what they do at Lumni that sets them apart:

Lumni funding is not a loan

Instead of a loan, where one has to pay back the amount one owes plus interest, at Lumni one pay back a fixed % of ones pay check for a set period of time. If funded amount is small, one have a lowpaying job, or one cant find work, the payments are low or one dont pay anything at all. And if one has a high-paying job, he can afford it!

Co-signer not required

Lumni evaluate one based on his potential to succeed in college and career, not on ones parents financial resources.

College and career help offered

Funding ones education is just the beginning. Lumni helps one achieve his college and career goals by offering a host of additional support services.

One dont pay anything until he graduates

Repayment doesnt begin until one get his first job after graduation.

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Impacts of Various Undertaken Projects Bavaria, Colombia

The SAB Miller subsidiary Bavaria has committed $5million USD to the goal of financing 4,000 students through Lumnis system. All beneficiaries will be the children and grandchildren of the mom and pop store owners who distribute their product throughout Colombia, everywhere from the farthest corners of the Amazon to the poorest neighbourhoods of Cartagena. There are 380,000 such distributers in Colombia, representing nearly 1% of the population. Because these families typically have low or very low incomes, their children have little or no opportunity to study beyond their high school years. While Lumni provides its normal suite of services, Bavaria is contributing its marketing expertise to the programs outreach effort and corporate employees are acting as mentors for the selected students.

Office Depot, Mexico

Lumni has also partnered with Office Depot in Mexico to manage the company's pilot commitment of $400,000 to finance high potential employees of their operation. These employees were not previously able to complete their higher education due to lack of funds, but with the help of this source of flexible financing, they are able to gain the skills they need for a potential promotion within the Office Depot organization. The fund is currently being implemented throughout Office Depot's stores in Mexico.

Universidad de San Sabastian, Chile

The University of San Sebastian partnered with Lumni to create opportunities for talented, low-income students those who would typically not be able to attend college to access a world-class education. The fund supports gifted young adults who wish to become teachers, and in the process, creates a series of benefits for the students themselves, the University, and Chilean society in general. Students are able to improve the future outlook for their lives through a college education. The University is benefiting by attracting some of the countrys brightest young minds, in the process raising academic standards for everyone. The investment is particularly important because selected students have chosen teaching as their profession. As a result, graduates provide a stream of talented, motivated young teachers who return to their hometowns with the training and motivation to improve education in their communities.
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Bay Area Opportunity Fund, Lumni USA

The Bay Area Opportunity Fund is helping young adults who are residents of the San Francisco Bay Area cover their college costs using Lumnis innovative system. The project is bringing together local social-investors who want to support the future of their own community and the young people who are the future of that community. Individuals can invest in local students in a variety of ways including through a tax-deductible donation or by purchasing a low-interest note with a fixed return. In addition to the dual financial and social return of this investment, contributors are helping prove an efficient, sustainable new system for giving students access to college without the burden of a traditional student loan.

FAB 1, Lumni Chile

The FAB1 fund has financed 50 Chilean undergraduate students, each with extremely high academic and professional potential, but limited family resources to complete their degree. In addition to financing, Lumni has supported students with career coaching and networking services. Since the Funds inception seven years ago, graduates have gone on to surpass all expectations and become young leaders in their fields. The fund has enjoyed extremely low default with under 3% of graduates are delinquent in their payments at any one time. And even during the recent economic downturn, graduates showed substantially lower unemployment and higher salary growth than their peers. As a result, investors have earned nearly twice the funds 10% expected financial return on investment.

Awards and track record

Felipe Vergara was named the Schwab Foundation Social Entrepreneur of the Year in 2011 and is also an Endeavour Colombia entrepreneur. Lumni has attracted more than USD 25 million from 100 investors in Asia, Europe, and the Americas in recent years, with an average 11.4% return on investment for a previous Chile Fund. The targeted returns of Lumnis existing funds in Chile, Mexico, and Colombia vary between 7% and 10% in local currency; however, returns have been historically above talent.

Other Partners & Supporters

Apart from Ashoka, Lumnis partners & supporters include Grant Thornton, Lex Mundi Pro Bono Foundation, IABD Inter American Development Bank and Endeavor.

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About Team Lease & Indian Institute of Job Training

Team Lease, along with its subsidiaries, is an integrated staffing and education services company focused on providing education, employment and employability to a diversified client base comprising individuals, corporate and the Government. The Company began operations in 2002, as a temporary staffing company and over time has moved into vocational training, Government/PPP projects, corporate training. Indian Institute of Job Training (IIJT) was established in 2006 to fill the void in our schooling system, created due to lack of strong foundation in practical skills or adequate exposure to real scenarios in the working world. Its multi-disciplinary courses have robust practical elements that develop critical skills necessary for workplace success. Having started as a single centre, IIJT has expanded to more than 120 centres located across multiple cities in a short span of time. The centres are defined by IIJTs firm commitment to quality delivery, sound infrastructure, and vital learning resources. Strong ties with industry are also a big part of the IIJT difference. Following INR500 million ($11 million) in investment from Indian private equity firm Gaja Capital in 2009, Team Lease expanded into the education and vocational training sector with the acquisition of the Indian Institute of Job Training in March 2010. This gave it 150 centres offering short diploma-based vocational courses to students. Partnering with a placement powerhouse provides access to a vast employment network that IIJT can leverage for its students. For its part, TeamLease can use IIJT's expertise in training to make inroads into filling the employability gap in the labour market. By taking training to people and people to jobs, the affiliation will vastly improve the efficiency of this market. TeamLease University, established in January 2012 is a venture designed to fill what Sabharwal describes as a missing mezzanine layer in the Indian ecosystem: that of community colleges. The franchises community colleges will aim to offer two-year vocational associate degree courses closely aligned with the needs of real-world employers. In the initial rollout stage, TeamLease will set up 22 of these community colleges in Indias Gujarat state over a period of 36 months, having signed an agreement with Gujarat state government. The first ten are expected to be operational within 18 months. However, the company eventually plans to develop a network of such institutes across the country. Sabharwal put the total costs of its nationwide ambitions for TeamLease University at $22.2 million across three phased expansion stages. The company received that amount earlier this year from two private equity firms, Gaja Capital and India-focused ICICI Ventures.

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India's Skill Crisis

Youth unemployability is a bigger crisis than unemployment 53% of employed youth suffer some degree of skill deprivation while only 8% of youth are unemployed 57% of India's youth suffer some degree of un-employability

The 82.5 million unemployable youth fall in three skill repair buckets:

Repairing this skill deficit needs Rs 490,000 crores over two years. Current budgets cover 25% of this but only allocating more money won't solve the problem. The Poor HRD Regime Demand/ Supply mismatch; 90% of employment opportunities require vocational skills but 90% of our college/ school output has bookish knowledge High dropout rates (57% by Grade 8) are incentivized by the low returns of education; 75% of school finishers make less than Rs 50,000 per year Poor quality of skills/ education show up in low incomes rather than unemployment; 45% of graduates makes less than Rs 75,000 per year

The Urgency Unviable Agriculture; 96% of farm households have less than 2 hectares. 70% of our population and 56% of our workforce produce 18% of GDP. Demographics; 300 million youth will enter the labour force by 2025. 25% of the world's workers in the next four years will be Indian. Our 50% self-employment does not reflect entrepreneurship but our failure to create non-farm jobs and skills. The skill deficit hurts more than the infrastructure deficit because it sabotages equality of opportunity and amplifies inequality while poor infrastructure maintains inequality (it hits rich and poor equally).

The increasing returns to skills and skill deficit are reflected in the 10% increase in inequality (Gini coefficient) since 1994. The Solution
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Innovation at the intersection of employment/ employability, assessment/ training and matching/ mismatch. As the Indian economy expands; there is an acute shortage of skilled people. Team Lease and IIJT are now looking beyond the initial phase of lamentation of the problem of "skills crisis" to proposing specific, scalable and effective solutions to the problem. By working closely with the State & Central Governments and Ministries, we aim to reach out to job seekers across the country and provide six basic services.

Some Recent Initiatives of TeamLease

Some of the recent collaborative/consultative initiatives of TeamLease Services Pvt. Ltd. are given below. These assignments address a broad spectrum of functions such as skill inculcation, placement and policy change.

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Investors of Team Lease

About ICICI Venture ICICI Venture is one of the largest alternative asset management companies in India with funds under management / advise in excess of USD 2 billion. Its investment focus areas span across private equity, buyouts, real estate, infrastructure and mezzanine financing. ICICI Venture, over the years has built an enviable portfolio of companies across sectors including pharmaceuticals, Information Technology, media, manufacturing, services, logistics, textiles, real estate etc thereby building sustainable value. ICICI Venture is a subsidiary of ICICI Bank, the largest private sector financial services group in India. About Gaja Capital Partners Gaja Capital Partners is a leading Private Equity investor focused on providing growth capital to emerging companies from emerging sectors in India. Gaja Capital (www.gajacapital.com) is a pioneer in India's education sector and its investments include Career Launcher, Educomp and TeamLease. Gaja Capital was created to be a unique source of Meritocratic CapitalTM in India and backs potential sector leaders in various sectors that includes the Financial sector, Consumer and Infrastructure ancillaries.

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IMPACT INVESTING
IN CLEAN WATER

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The Water Crisis

More than 3.4 million people die each year from water, sanitation, and hygienerelated causes. Nearly all deaths, 99 percent, occur in the developing world. Lack of access to clean water kills children at a rate equivalent of a jumbo jet crashing every four hours. 780 million people lack access to an improved water source; approximately one in nine people. "The water and sanitation crisis claims more lives through disease than any war claims through guns. An American taking a five-minute shower uses more water than the average person in a developing country slum uses for an entire day. Over 2.5X more people lack water than live in the United States.

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Only 3 % of all the water available on earth is fresh water, and further 79 % of this water is ice locked. Thus there is huge shortage of water all over the world. A lot of water (97%) is saline in nature which cannot be directly consumed. It has to be treated in a reverse osmosis plant, which makes it very expensive and thus cant be afforded by the unpriveledged people. This can be seen by looking at the graph which shows the continuity of service of water in different countries. In India itselfon average there is just 5 hours of continuoes serive of water in the households. This is in those fortunate household who can afford water in their home. Only half of the world population can afford to have water suplly at their home rest of the whole have to be contend with other sources for water like bore/tubewell or dug well. Thus these graphs clearly show that the whole is facing not only a shortage of water supply to the households but also a huge porption of the world population is not having pure drinking water. As many of the sources from the water is taken like surface water, old dug wells are not always fit for drinking. Many times there can be huge amount chemicals or micro organism in these water sources. Two major chemicals that are often
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found in water sources and cause sevre health problems are Florine and Arsenic

Arsenic concentration probability around the world

Florine concentration probability around the world This shows that a huge number of people are exposed to these chemicals in the world. These people mojorily are the ones who consume impure water. A huge amount of capital and will is required to purify these water sources. If this water is not purified and people
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continue to consume water from these sources then the amount of money spent on their treatment and economic losses due to loss to work would be unimaginably high.

Thus, this world requires immediate need of funds to purify water at a very small price so that the poor can even afford it. This can only be done by impact investing of various firms in into water treatment processes.

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Vision
To become a leader in the provision of water, wastewater and other environmental services which will empower people, protect the environment and enhance sustainable development.

Overview of the business

Manila Water Company, Inc. (the Company or Manila Water) is a Philippine company engaged in providing water, sewerage and sanitation services. It currently serves a total estimated population of over 6 million people in the East Zone, which encompasses 23 cities and municipalities, including Makati, Mandaluyong, San Juan, Taguig, Pateros, Marikina, Pasig, most of Quezon City and Rizal Province, as well as some parts of Manila. On February 21, 1997, Manila Water entered into a Concession Agreement (CA) with the Metropolitan Waterworks and Sewerage System (MWSS) and was granted the exclusive right to service the East Zone. As agent and contractor of MWSS, the Company is granted the right to manage, operate, repair, decommission and refurbish the facilities of MWSS, including the right to bill and collect for water and sewerage services in the East Zone. Under the agreement for CA, the Company is entitled to recover operating and capital expenditures, business taxes, concession fee payments and other eligible costs, and to earn a reasonable rate of return on these expenditures over the extended life of the concession. Under the existing concession framework, Manila Water in coordination with the MWSS Regulatory Office conducts a Rate Rebasing exercise every five years. This provides a venue for the MWSS to review the Companys performance and, evaluate and approve the new business plan that the Company submits. This exercise will enable the Company to count for changes in economic and operating assumptions that will affect its future plans. Based on the approved plan and its impact on the Companys future cash flow, the new tariff is determined. In 2009, the MWSS and the Government approved the renewal/extension by another 15 years of the CA through Resolution No. 2009-072. The renewal was proved with the objectives of implementing accelerated wastewater projects and new water sources development, and mitigating the impact of the required tariff adjustment. With the CA renewal, the term of the concession was extended from May 7, 2022 to May 6, 2037. Manila Water has also expanded its services outside of the East Zone of Metro Manila through operating subsidiaries, Laguna Water Corporation (LWC) and Boracay Island Water Company, Inc. (BIWC). The Companys services now reach Central Luzon customers with the acquisition of Clark Water Corporation (CWC) in the last quarter of 2011. In addition, Manila Water has widened its coverage in Vietnam with the purchase of 49% ownership of Thu Duc Water B.O.O Corporation (TDW BOO). TDW BOO is the largest private bulk water supplier in Ho Chi Minh City, Vietnam.
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Company Investors
Ayala Corporation - 32.07% Mitsubishi Corporation - 8.31% International Finance Corporation - 6.04% First State Investment Management (UK) Limited, First State Investment International Limited, and First State Investment (Hong Kong) Limited - 9.7% Philwater Holdings Company, Inc.

Ayala Corporation The Investor

Ayala Corporation is a holding company for the diversified interests of the Ayala Group. Founded in the Philippines by the Spanish and German Ayala, Roxas, and Zobel families during colonial rule, it is the country's oldest and largest conglomerate. The company has a portfolio of diverse business interests, including investments in retail, real estate, banking, telecommunications, water infrastructure, renewable energy, electronics, information technology, and management and business process outsourcing. FROM PHILANTHROPY TO 'BEYOND CSR' The company follows a path of meaningful giving. It began long ago with family philanthropy. Margarita Roxas de Ayala saw the need for good education for young girls. She set up what is now La Concordia College, donating the land where the school still stands in Manila and bringing Spanish nuns over to build and manage the school. Fast-forward to 1961, when Ayala institutionalized philanthropy through Filipinas Foundation, the first corporate foundation in the Philippines. Now known as Ayala Foundation, this became a driving force in the exercise of corporate social responsibility, or CSR, in the Philippines in the past five decades. The foundation has not only created, developed and sustained far-reaching programs on many fronts: socioeconomic, environmental, educational, and cultural. It also spearheaded programs in which other corporate foundations joined it as partners. Today, the Ayala group is taking an approach that may be described as beyond CSR. A different perspective and approach CSR continues to be the buzzword in the social involvement of business enterprises, but it has always been recognized as having natural capacity limitations. Often it ranges from pure donations and other such traditional approaches, to skills training and other such programs with more sustainable impacts. The help given is necessarily limited in scope and impact, especially if viewed against the magnitude of the countrys socioeconomic and environmental problems. Moreover, CSR is separate from the business objective of maximizing profit; it is entirely on the allotted budget; it faces basic constraints in human resources and infrastructure; and often it is determined by personal values, by a feel good motivation.
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I tend to take a different perspective and approach to charitable giving," says Ayala Corporation chairman and CEO Jaime Augusto Zobel de Ayala. Philanthropy must be strategic and must be undertaken in a manner that ensures its sustainability. We must go beyond traditional forms of philanthropy. "Creating shared value" Not all profit is equal... Profits involving a social purpose represent a higher form of capitalism, one that creates a positive cycle of company and community prosperity. Says Zobel: Many of us have sought to blur these lines of separation and align our profit goals more specifically with the needs of the communities we interact with. The concept integrates investment and social intervention, capital and community collaboration. In the Philippines, it can mean operating in the low end of the socioeconomic pyramid, which many businesses almost immediately dismiss as an unviable market. It is in fact a market for which the Ayala group has developed and delivers products and services successfully and profitably. A prime example comes from the groups Manila Water Company, which delivers water supply and sewerage and sanitation services to more than six million customers in eastern Metro Manila. The company has a flagship program, called Tubig Para Sa Barangay, designed specifically for areas with clusters of low-income communities, including informal settlers who previously had no access to piped water. These areas are very poor and have a severe problem with sanitation. A proliferation of illegal water connections has resulted in lowquality water that causes widespread health hazards. Tubig Para Sa Barangay is not a CSR program although it has the elements of one. It is in fact a bottom-of-the-pyramid business model. Some people had said it would not work because the very poor would not pay for piped-in water. As of today, Manila Water has gotten more than 1.6 million people into the program. These are people who in the past had to queue for long hours to buy water from vendors at very high prices. Now, they pay far less for their water, with regular and predictable supply, Zobel says. At the same time, the water-borne diseases have been reduced, and the overall sanitation conditions in the low-income communities have improved. The program required creativity and innovation and effort. We had to use new business models, such as deferred payments, shared infrastructure to lower costs and community billing, Zobel says. But the results have been effective. Last year Manila Water posted a record net income of close to P4 billion, which it has reinvested in the infrastructure needed to strengthen its operations. As Porter and Kramer might say, shared value has been created both for the community and for Manila Water.

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Three Core Principles People Profit Planet

1.7 million Low Income People connected so far 4,000 students educated about water sustainabilty Winning the Asian Human Capital Award

1% rise in billed Volume 7% rise in net profit 55,000 new connections in last year

1,50,000 households connected to sewerage system More than 52,000 septic tanks cleaned Continued Protection of 3 critical watersheds

Companies Reach
Over the past few years, Manila Waters stated aim was to close at least two projects each year in order to bolster its growth and diversify revenue sources. The year 2011 witnessed a lot of developments with regards to Manila Waters new business initiatives with the Company acquiring 49% of Thu Duc Water BOO in Vietnam and 100% of Clark Water in the province of Pampanga, Philippines. Both are already operating and are net income positive.

Vietnam Operations

Philippines Operations
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East Zone
In august 1997, manila water work took over the operations of the East Zone in Metro manila as agent and contractor of the government-owned Metropolitan Waterworks and sewerage systems under 25 year concession agreement. This granted Manila Water exclusive rights to use facilities for the production, treatment and distribution of the water, as well as right to operate the sewerage system. In 2011, over 44,000 new service connections in the East Zone were connected to the network as they expanded to the areas of Rizal, Antipolo, Taguig and Marikina. A key accounts management program was also established to improve our ability to respond to the needs of our major customers.

THU DUC WATER BOO

Manila Water strengthened its presence in Vietnam when it acquired a 49% stake in Thu Duc Water BOO Corporation, the largest private bulk water supplier in Ho Chi Minh City. This transaction was the largest private acquisition in the history of the Vietnam water sector and was also Manila Waters biggest venture in the regional water sector, signalling the Companys emergence as a major player in the international. It has ai50-year contract to supply a minimum of 300 mld to Saigon Water Corporation (SAWACO) serving two new urban and three suburban districts. These are the areas that have the lowest water coverage level in Ho Chi Minh City. Ho Chi Minh Citys current population of 7 million is forecasted to reach to 9 million people by 2020.

CLARK WATER
Clark Water is the water and wastewater concessionaire of Clark Freeport Zone (CFZ) located in Angeles, Pampanga. Clark Water is currently serving more than 1,800 locators, with a total water demand of 22 mld. Approximately 85% of its customers are industrial and commercial locators. Clark Water also provides bulk water to Balibago Water System Inc., a private water operator which serves parts of Mabalacat and Angeles in Pampanga, and Capas in Tarlac. Clark Waters growth is expected to be spurred by the rapid commercial development and the arrival of new businesses in CFZ. Aside from these, the future development and expansion of the Clark International Airport, said to be the Philippines next primary international gateway, will give significant gains to Clark Waters growth plan.
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LAGUNA WATER
Laguna Water Corporation was Manila Waters first acquisition outside the East Zone. This paved the way for several new business initiatives resulting in the rapid growth of the Companys presence and brand of service in various parts of the country outside Metro Manila. More importantly, the acquisition of Laguna Water was done in partnership with the Provincial Government of Laguna, showing how public-private partnerships in the water sector can be implemented to bring improvements in water services to communities. Over the past two years of operations, Laguna Water has registered strong billed volume growth as it embarked on an aggressive expansion strategy. In 2011, Laguna Water delivered revenues of P96 million, 28% higher than 2010, on the strength of a 25% growth in billed volume. Acquired in September 2009, the efforts put into revitalizing Laguna Water are finally paying off in terms of providing better service and reaching out to more unserved and underserved areas. Its services have already reached more than Gaining Traction new business 29,000 connections, equivalent to around 18% of the population in the concession areathe cities of Bian and Sta. Rosa, and the municipality of Cabuyao. The customer base is expected to grow exponentially in the coming years as service expansion programs to connect more customers continue to gain traction.

BORACAY ISLAND WATER

Boracay Island Water Company was created in 2009 as a joint venture company between Manila Water and the Philippine Tourism Authority (now the Tourism Infrastructure and Enterprise Zone Authority). Boracay Island Water is the first venture where Manila Water applied the East Zone concession framework to another area. After two years in operation, Boracay Island Water boasts of having improved the water service and wastewater service quality in the island. More importantly, the rehabilitation of the islands sewage treatment plant has allowed Boracay Island Water to protect its fragile environment and sustain its viability as one of the countrys most popular tourist destinations. Boracay Island Water delivered revenues of P184 million for 2011, 23% higher than 2010, on account of a 22% increase in billed volume. Boracay Island Water demonstrated success in further expanding its coverage with the 13% increase in connections during the year, with market share significantly improving to 80% from 70% in 2010. Boracay Island Water also gained from the increased tourism activity in Boracay coming from the 16% growth in tourist arrival and higher peak season demand.

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Overall Statistics Billed Volume in million cubic meters No. Of Households in thousands

Operatation Results

Stockholders Value
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Water Health International

Water Health International (WHI) provides innovative business solutions to one of the worlds most desperate health crises: the lack of safe, clean, affordable water. Their model incorporates an innovative, cost-effective technology designed for the poor into a franchise model to stream line marketing and distribution and assure uniform water quality and service. The purification technology, called UV Waterworks, is an ultraviolet water disinfection system that eliminates waterborne pathogens. WHI has unleashed the potential of this technology by developing a franchise model that makes distribution and marketing easy for local entrepreneurs. On average, franchisees get a full return on their investment within 1218 months. WHI has attracted major investments from both philanthropic and venture capital funds, including Acumen Fund, the IFC, Dow Venture Capital, ICICI Bank, and Plebys International LLC. Globally, there are more than 600 installations of its water purification systems, with more than 200 operating in India. Water Supply Water Crisis: Up to now, the response to the water crisis has been focused solely on water availability, not on the critical issues of quality or sustainability.

Access to water only solves part of the problem. Traditional solutions like bore wells and water delivered by tanker trucks are viable options for water access, but they can easily become compromised. Bore wells can become irrevocably contaminated or dry up, while trucking in water from non-reliable sources is neither safe nor sustainable. A safe, clean and sustainable water supply is the only effective solution. Water Healths immediately deployable solution purifies any available water source, effectively delivering a safe and sustainable solution to the quality crisis, one community at a time.

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Water Treatment History: Water filtration and purification has been in practice for over a thousand years. From the ancient Greeks using charcoal to filter water to the widespread use of chlorine during the Industrial Revolution, water treatment has been and will continue to be vitally important to the health of the worlds population.

Whats Different? Water Healths game-changing strategy combines the use of decentralized purification centres in partnership with local communities to create a scalable and sustainable solution for processing health drinking water. Using off-the-shelf technologies (including UV light disinfection), our market-tested Water Health Centres efficiently purify any available local water source to exceed WHO-quality drinking water standards. Water Health Centres employ local workers to maintain, test and dispense always pure water at an affordable cost. And those who cannot travel to a Water Health Centre have the option to have the purified water delivered directly to them. At less than US$10 per person, Water Health can provide a decade of healthy drinking water to communities in need. Other solutions to the water crisis require ongoing investment, but our ground-breaking business model creates a sustainable community solution that improves lives, facilitates growth and enriches local economies. For example, a commitment of US$25,000.00 provides a typical community in India with their own Water Health Centre and service for 10 years. Communities not only realize immediate benefits from improved health and wellbeing brought by clean water, they also benefit economically by sharing in a portion of a Centres net earnings and ultimately by vesting in full ownership of that Centre. This unique win-win relationship means that access to safe, reliable water can become a reality for 100s of millions of people creating a bridge today to a better tomorrow.

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Why Water Health do it? Every year millions of people, most of them children, die from diseases like cholera that are associated with inadequate water supply, sanitation, and hygiene (WHO 2004). This was evident in 1993, when a mutant strain of cholera broke out in parts of India, Bangladesh and Thailand, killing thousands. Researchers at the Lawrence Berkeley National Laboratory witnessed the suffering caused by this epidemic and were determined to develop a water disinfection system to address the problem. The result was a groundbreaking technology that used ultraviolet light to purify and eliminate harmful pathogens and microbes from contaminated water. Since that time, Water Health has advanced the technology and developed a scalable and sustainable model for building Water Health Centres globally. The company has centres in India, Africa and Southeast Asia with plans to continue building facilities wherever there is need. How Water Health do it? Water Healths healthy and good tasting water is the result of advanced engineering that uses off-the shelf technologies like UV light disinfection and multi-stage filtration to remove silt, bad taste and odours. Water produced at a Water Health Centre exceeds the potable water standards of the World Health Organization. Water Health maintains a centralized real-time monitoring and quality control system to guarantee an immediate and agile response to any system or water quality issues. Water Health also extensively test their purification systems with third-party laboratories, verifying the efficacy of our systems against a broad range of bacteria, viruses, and parasites. Everyday Impact: 1. About Water Health centres Average number of beneficiaries with access to safe water per village: 10,000 Average litres of water purified per day: 2,100,000 Average litres of water purified annually: 766,500,000 Their decentralized Water Health Centres allow underserved communities rapid access to safe water at an affordable cost, helping solve the global challenge of waterborne diseases. It can take less than a month to build their modular centres in a community in need. Each site is operated, managed, and maintained by Water Health to ensure optimal quality and performance at all times. Their state-of-the-art technology platforms also feature remote sensing and monitoring of Water Health Centres to reduce any disruption in providing safe water.
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Water Health also develops partnerships with health care professionals and respected community service organizations to provide outreach and education programs in the communities where they operate. In this manner, every centre has an everyday impact on health and hygiene education. 2. Job Growth These Centres promote job growth in their communities in a number of ways: 1. Each Water Health Centre employs at least two maintenance workers from the communities that they operate in on a permanent basis. In addition, they employ labourers, plumbers, electricians during the construction phase and work with NGOs and other community organizations for education related initiatives. 2. They encourage entrepreneurship by enabling businesses to either re-sell water from retail outlets or by enabling delivery to homes 3. Clean water also helps reduce disease and illness in a community, so men women and children can be more productive 3. Improved Health: Communities with a Water Health Centre have seen a significant reduction in the number of common illnesses like cholera, dysentery, diarrhoea, and other waterborne diseases. Diarrhoea alone, the most predominant waterborne disease, causes two million deaths a year on its own, and it was estimated that 88% of this burden is attributable to unsafe water supply, sanitation and hygiene, particularly among children (WHO). In fact, according to the UN Human Development Report, half of the worlds hospital beds are occupied by patients suffering from diseases caused by not having access to safe drinking water. The water provided by Water Health Centres is a rapid solution to this rampant problem and has the ability to improve the health of the communities in which the centres operate. Community members and local doctors have all shared their stories on how Water Health has visibly improved the health 4. Hygiene Education Water Health recognizes that knowledge and community engagement are important factors in the widespread adoption of safe water usage. They develop partnerships with health care professionals and respected community service organizations to provide outreach and education programs in the communities where they operate. They communicate the relationship among clean water, hygiene and good health. Recognizing that children can influence the behaviours of the entire household, Water Health focuses on the education of school children, who carry the message of the importance of safe water home.
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A Safe Water Campaign is established in every community where Water Health operates to educate children and villagers on the importance of using potable water. Activities include: 1. School health education program 2. Teachers training 3. Formation of a School Cabinet 4. Education awareness activities 5. Visit of school cabinet members to the local Water Health Centre 6. School children taking an oath to use safe water 7. Child to community interaction, utilizing their knowledge to influence others in the community 5. Empowerment By reaching underserved markets, Water Health has contributed to not only the health of our customers, but also key development metrics such as economic development. Local entrepreneurs are able to generate income for themselves by offering to deliver safe water to their neighbours, or serving as a distribution point for more convenient pick-up by customers. 6. Case Study - Clean Water for Better Health in Ghana Overview Pokuase, a village with a population of 14,000, is located in the Greater Accra region of Ghana. The people of this area are mainly involved in farming and petty trade, and have been using the local Nsaki river as their source of water for many years. They use this water for all purposes, including washing, drinking, bathing and cooking. Problem The fact that the water from this river is not potable poses various problems for the villagers. People were afflicted by water related diseases common to the region such as cholera, dysentery, guinea worm, Bilharzia and the deadly Buruli Ulcer, among others. Skin irritations are also common from bathing in contaminated water. Most affected are women and children, who are the primary people in the household to fetch water. Often, when rainfall is inconsistent, they spend hours searching for sufficient quantities of water, which cuts into the time they could spend getting an education or working in the home. During the dry season, school children spend hours looking for water and often arrive late for school, are absent or too tired to concentrate when they do arrive. Child mortality rates and the hours spent by mothers in hospitals and on child care are also high. In addition to losing time spent on fetching water, those most in contact with the contaminated water are most likely to be sickened by it. The regions government has never had the full resources to provide water services to its people, especially as the population around the Greater Accra Region has been increasing at
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an extremely fast pace. This population increase is further exacerbated by issues of migration into the area; equitable distribution of national resources is a major governmental issue and one that is not easily solved. Alberta Kuwornu, a resident of Pokuase, notes that several projects initiated have taken a very long time to complete, or are left open ended. Benefits Things improved once Pokuase invited Water Health to build a facility in their community. Because water is easily accessible and pure, the amount of time spent searching for and attempting to sanitize ones own water is down to almost nothing. More than 65 percent of the community has been reached in some way by the Water Health Centre. The benefits to the areas children are clear. Aisha Sa-id, founder and President of Orphans and Needy Help, said, At first we had bad water from the dam, which gave us guinea worm and Buruli Ulcer and several other diseases. Thanks be to God Water Health came to save our lives. The water from the dam had all kinds of things in it: leaves, fecal matter, cows and goats drinking from it, and so it gave the water some brown color. So we have to cook [boil] it, cool it before we can use it and even then, when you bathe with it your body itches all over and sometimes you will see worms coming out of your body. About 100 of my pupils/orphans got Buruli Ulcer. To Water Health I say, you have saved our lives. Without you, I dont know how many more people will be infected. The water is so clean that when you look through it, its so clean that you can even see yourself. The gallons [containers] they provide will prevent people from putting their hands inside. When you drink it, you know you are drinking very safe water. I know with this there will be no more diseases, there will be more cleanliness and we are drinking safe water, so we say a very big thank you to Water Health. Justice Nyarko, head of the primary school in the area, has praised the centre for solving many of his students health and attendance issues: Formerly, the water here is not good at all. We used to drink water from the dam with animals. People also defecated around there so we were afflicted with lots of diseases, including Buruli Ulcer. We are all happy about the Water Health facility, especially the student. I used to lose a lot of them due to Buruli Ulcer, tummy aches, diarrhea, headache, etcetera. And you know, when someone gets Buruli Ulcer, they will not come to school again. But now, we dont have that problem. The water helps us with saying bye-bye to Buruli Ulcer. The facility is near my school so the children can easily get drinking water. We hardly spend money these days on health issues, so I am personally very happy about the Water Health Centre.

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IFC is an equity investor in WHI and along with the AK Khan Group in Bangladesh, an equity investor in the Joint Venture there with WHI. The IFC fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing capital in the international financial markets, and providing advisory services to businesses and governments. IFC helps companies and financial institutions in emerging markets create jobs, generate tax revenues, improve corporate governance and environmental performance, and contribute to their local communities 1. IFC Investment Services IFC continues to develop new financial products that enable companies to manage risk and broaden their access to foreign and domestic capital markets. Their broad suite of investment services can ease poverty and spur long-term growth by promoting sustainable enterprises, encouraging entrepreneurship, and mobilizing resources that wouldnt otherwise be available. In FY11, IFC invested $12.2 billion in 518 projects, of which $4.9 billion went to the poorest countries eligible to borrow from the World Banks International Development Association. IFC also mobilized an additional $6.5 billion to support the private sector in developing countries. 2. IFC Advisory Services Private sector development requires more than just finance. Experience shows the powerful role advisory services can play in unlocking investment and helping businesses expand and create jobs. To help the private sector in emerging markets, IFC provides advice, problem solving, and training to companies, industries, and governments. 3. IFC Asset Management Company IFC Asset Management Company mobilizes and manages funds on behalf of a wide variety of institutional investorsincluding sovereign funds, pension funds, and development finance institutions. A wholly owned subsidiary of IFC, it invests alongside IFC and all its investments adopt IFC Performance Standards. It raises funds targeted at large institutional investors who are looking to increase their exposure to emerging markets and who are interested in accessing IFCs transaction pipeline, investment approach, and track record of superior returns. As of June 30, 2011, IFC Asset Management Company had approximately $4.1 billion in assets under management.
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IFC Asset Management Company Funds:

IFC Capitalization Fund- The $3 billion fund consists of an equity fund of about $1.3 billion and a subordinated debt fund of about $1.7 billion. Since its inception in 2009 through the end of FY11, the capitalization fund made investments totalling $960.1 million in nine commercial banks in Bahrain, Honduras, Malawi, Papua New Guinea, Paraguay, the Philippines, Serbia, Vietnam, and in one regional African Bank. IFC African, Latin American, and Caribbean Fund- Since 2010, the $1 billion fund made investments totalling $172.4 million in Brazil, Mexico, Nigeria, Trinidad and Tobago, and in two regional African companiesone in cement and one in banking.

IFC with WHI

In 2002, IFCs Environmental Opportunities Facility provided a small grant to WHI to help the company assess its business model and identify target markets. In 2005, IFC invested $1.2 million in equity. Subsequently, in 2009, IFC provided a $10 million senior loan to Water Health India Private Limited. IFCs most recent investment in WHI was $5 million in equity in 2010-2011 to support the companys further expansion in India, Bangladesh, and West Africa. In Bangladesh, IFC partnered with WHI via IFC Infra Ventures, a fund created to support and proactively develop private and public-private partnership infrastructure projects. IFCs financial participation in WHI has been important in several respects. The success of a Water Health Centre depends on customer utilization. This in turn calls for changing consumer attitudes toward water and increasing willingness to pay for potable water, both require a long timeframe. IFC meets WHIs need for a partner financier that understands the role of long-term finance in delivering an affordable, high-quality potable water solution for low-income customers. Since WHIs model is relatively new, IFCs investment in WHI improves the companys risk profile and helps build the confidence of other commercial investors and lenders, which is critical for WHI to attract capital and foster further growth.

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CONCLUSION
What Impact investing isnt At $4 billion, and with 69 fund managers (General Partners), the market represents a small fraction of the more than $1 trillion11 in total private equity investments in the U.S alone, providing ample scope of expansion. While these are encouraging features we must also realize the shortcomings of the impact investing paradigm. We must also realize that this model is not all giving and where we must learn to draw the line. Accelerated Growth v/s Crippled Markets A very genuine Impact Investor would have to be consciously and wholly aware of the effect of the investments made on the sector that they are trying to develop. A well meaning investor can do a lot of harm by crushing the local competition rather than fostering the regional growth which was the initial intention of the investor. Many for-profit companies with relatively lesser resources have found it very hard to compete with companies which are obtaining funding from impact investors. Subsidies must only be used in those sectors where the for-profit business model has failed. For example in an imaginary scenario, a village has two major occupation sources- Cattle Rearing and Bee Keeping. A rich entrepreneur begins a business selling the produce from the cattle to the nearby markets under their brand name. The villagers see the opportunity and jump on board with the various operations involved in this business, leading to the ultimate destruction of not only the Bee keeping industry but also the local competition in the cattle industry. Thus, this has stymied the local market development than promote it which was the original intention. Propping up failure A Venture Capitalist who has purely materialistic returns in mind is surely capable of deciding when to call it quits and move on to a better business model than that of an Impact Investor who has more riding on the success of the venture. Simply put, an Impact Investor should know when to step away from a failed model so as to avoid wastage of resources which could otherwise be utilized in a more productive way. However we are well on our way to develop time frames and benchmarks to evaluate the success of models. After all, it is all about being objective in setting and measuring the success of target goals.

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The Huffington Post, November 13, 2012. Piecing together Impact investing by Ben Thornley.
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Impact Reporting and Investment Standards (IRIS) IRIS is a set of standardized metrics that can be used to describe an organizations social, environmental, and financial performance. IRIS metrics span an array of performance objectives and include sector-specific metrics for areas such as financial services, agriculture, and energy among others. Like financial accounting standards, IRIS provides a basis for performance reporting and organizations need only use relevant metrics from the IRIS library. The need for IRIS A growing community of impact investors, who deliberately invest for social and environmental impact, cannot fully evaluate impact investments with financial performance data alone. Though numerous organizations have developed their own social and environmental performance metrics, the resulting fragmentation is inefficient and expensive, and also limits comparability. IRIS was developed to provide a common reporting language for impact-related terms and metrics. By standardizing the way organizations communicate and report their social and environmental performance, IRIS aims to increase the value of non-financial data by enabling performance comparisons and benchmarking, while also streamlining and simplifying reporting requirements for companies and their investors. IRIS provides value to many key stakeholders in the impact investing industry:

Investors in Funds: As more investors dedicate a portion of their portfolios to missiondriven funds, they are demanding data about the social and environmental impact of their investments. IRIS provides a credible set of standards that can be applied across multiple sectors and geographies to serve as the basis for impact reporting by funds.

Direct Investors: Using IRIS standards enables direct investors to credibly track and report the social and environmental performance of their portfolio companies. Using IRIS also allows investors to compare the performance of an individual company with other companies across the industry that have also adopted IRIS.

Companies: Companies raising capital can attract impact investors by measuring and reporting both financial and non-financial performance. IRIS provides an objective set of performance measures that are compatible with many existing reporting standards so that alignment is straightforward and low-cost.

Member organizations/Intermediaries: Member organizations can use IRIS as the basis for a shared reporting framework to assess their individual member and aggregate impacts.
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IRIS Metric Framework Structure The IRIS framework consists of six parts:

ORGANIZATION DESCRIPTION - metrics that focus on the organizations mission, operational model, and location PRODUCT DESCRIPTION - metrics that describe the organizations products and services and target markets FINANCIAL PERFORMANCE - commonly reported financial metrics OPERATIONAL IMPACT - metrics that describe the organizations policies, employees, and environmental performance PRODUCT IMPACT - metrics that describe the performance and reach of the organization's products and services GLOSSARY - definitions for common terms that are referenced in the metrics

All of the metrics (with the exception of those in the Organization Description section) may be reported for the organization as a whole or for a particular product. For example, an organization that sells multiple products may choose to report on the total number of clients served by the organization, or the number of clients for a specific product, or both. IRIS also includes a set of sector-specific metrics that may be particularly relevant to organizations whose activities impact a certain sector. When navigating the framework, filters can be used to show or hide metrics specific to the sectors. That is for every sector such as Agriculture, Education, Micro financing, Healthcare etc, a set of standard metrics have been developed for evaluation. Sample Report The Finance Alliance for Sustainable Trade (FAST) and IRIS co-convened a working group to develop indicators to measure the social, environmental and economic impact of investments in small-to-medium enterprises (SMEs) that are active in sustainable agricultural value chains. The following report of their modus operandi will serve as a useful indicator of what IRIS is striving to achieve.

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Related IRIS Indicator(s) NAME INDICATOR DEFINITION

Organization Description
Name of Organization Reporting Currency Name of Organization Reporting Currency Name of the organization. The national currency used to report currency figures for this IRIS report. Indicate based on ISO Currency List. Choose one: (see IRIS website) Web address (URL) of the organization. Year the organization was founded. Address of the organization's headquarters.

Organization Web Address Year Founded Location of Organization's Headquarters Location of Organization's Operating Facilities (if applicable) Mission Statement Environmental Impact Objectives

Organization Web Address Year Founded Location of Organization's Headquarters Location of Organization's Operating Facilities Mission Statement Environmental Impact Objectives

Address of the organization's operating facilities.

Mission statement of the organization. Environmental impact objectives pursued by the organization. Choose all that apply: - Biodiversity conservation - Energy and fuel efficiency - Natural resources conservation - Pollution prevention & waste management - Sustainable energy - Sustainable land use - Water resources management

Availability of a Business Plan Report Start Date Report End Date Product Description

n/a Report Start Date Report End Date

n/a Start date of the reporting period for this IRIS report. End date of the reporting period for this IRIS report.

Crop Type Crops/ product produced by the farmer: Selection from Source

Type of crop produced. Choose one: Source: Adapted from Food and Agriculture Organization (FAO) of the United Nations (see IRIS website

Crops/ products produced by the SME/Coop/Enterprise

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Future Scope of Impact Investing in India

There is no denying the fact that India is an emerging economic powerhouse and one of the top investment destinations across the globe. But there is another face of India which accounts for over 90% of the Indian poor rural population lives less than 2 USD per day. The varied and complex Demographic, social, economic landscape of this country present us with just as many opportunities as the problems at hand. This large poorer section of the Indian society remains untouched by the development and economic advances that are usually urban centric drives. The relative ineffectiveness of the government of India and the existing industries give us the incentives to believe that something new like impact investing just needs a push to catch on as an idea with the masses looking to better the world around them. Although there is no shortage of rich Philanthropists in the country there are still many qualms about dabbling in this opportunity due to the absence of the documentation about the base of pyramid (BOP) markets which present various tribulations in the form of limited transportation, communication infrastructure, and product awareness and long timeframes needed to establish trust with customers. According to a latest figures released by the Planning Commission of India impact investment has brought massive investments to the tune of Rs 1,200 crore 12 in the social sector in the past five years. Since impact investing is still in its nascent stages in India, a lot of early stage investors who are usually first time institutional investors in any company but come well equipped with an understanding of specific customer needs and are able to better appreciate the processes followed by the companies. Most impact investment opportunities were initially confided to the micro lending and microfinance space but with the bad press for such micro lending institutions, a lot of impact investment opportunities have opened up for other social sectors including health care, sanitation, healthcare sector as well as cooperative businesses. So much has been the positive role of such impact investment in the social sector in poor nations like India that a recent JP Morgan report has estimated that high net worth investors are likely to allocate a minimum of 10 per cent12 of their portfolio to such social endeavours. With the advent of mechanisms such as those developed by the IRIS will obviously go a long way in streamlining the operations of this new budding field and help in cutting the excess with is ultimately very important to ensure sensitized impact on the target group. They are also instrumental in providing valuable guidance to social entrepreneurs looking to gauge the success of their operations. Even though there are many foreign investors investing in Indian entrepreneurs and schemes due to the visible market, Indian investors are taking longer to warm up to the idea of investing in this new model of philanthropy which is still, relatively, in its infancy. However, it is certain that this mechanism is certainly the closest harbinger of a win-win situation as there come.

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SmallEnterpriseIndia.com Tracing the Impact Investing trend in India.

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