The value of impact investing and doing it from Luxembourg

While impact investing is still a "young space", the sector has seen significant growth thanks to younger generations of investors, namely millenials, who are leading the way in demanding more principle-based investment opportunities.

In impact investing, unlike socially responsible investing, there is a more active approach in screening, tracking progress and supporting the development of environmental, social and governance (ESG) matters linked to a company's business strategy and operations.

And the sector is continually growing, explains Cyrille Antignac, pointing out that more and more entrepreneurs are emerging, new business models are being launched and usually more, younger people are pursuing a career in entrepreneurship.

The reality of the industry, as Antignac  explains, is that "you need to be diverse geographically," and those considering doing impact business, will sooner or later need to focus on emerging markets.

Developing a generation of social enterprising

While Africa has been long attractive for direct investments, the founder of Uberis Capital outlines that it is South-East Asia that is "becoming interesting".

Based in Phnom Penh, Cambodia and London, United Kingdom, the impact investing venture capital firm is managing a range of 20 funds, active in various sectors, including microfinance and education. 

While business competitiveness remains in scope, Antignac points out that the target in choosing beneficiaries is linked to making an impact and supporting an ecosystem. "It's about developing a generation of social enterprising," he said. 

And technology plays a key role in developing impact investing and helping small and medium companies (SMEs) grow their businesses and make a positive change in their communities.

"Be competitive and at the same time have a social impact" -- this is the pre-requisite of impact investing for Antignac, who further spoke about water purification in Cambodia, as "a good way to leverage on something available" and a project that Uberis Capital supported in the past.

Key sectors to invest in

Other concrete areas where a visible impact can be observed is agriculture. Impact investing can not only contribute to making more affordable products, but can also lead to more inclusive supply chains and easier access to markets.

Telecommunications, energy and agriculture technology (AgTech) are considered to be the main enablers of impact investing.

Antignac explains that through mobile phones "people access data everywhere". Speaking about the case of Myanmar, he argued that Facebook penetration is "massive" in the country. He went on to explain that having access to mobile phone applications leads to access to additional services such as accessing financing for farmers or making mobile payments.

The energy sector is also another area of growth for impact investors as technology brings "decentralised access to energy", through solar power and the need to build electricity grids. 

Investing in agriculture technology is a third concrete option for impact investing. For example, investors can fund businesses active in subsituting chemical fertilisers.

But impact investing has its challenges and requires "building the trust" of local communities and providing continuous assistance.

"Dropping new technology on people is not going to work", Antignac explained, further adding that educating stakeholders is a challenge, "showing them how they can best use it".

"You need practical change as well as a technological change", he argued, explaining that the outreach and the affordability of technology must also be considered.

Launching Luxembourg fund

Uberis Capital is currently in the process of launching an investment fund in Luxembourg, and aims to invest in six countries in South-East Asia, including Vietnam, Laos, Thailand, Myanmar, the Philippines and Indonesia.

The fund will be 40 million dollars in size and will include classic private equity. 

When asked why the firm chose Luxembourg, Antignac explained that "it was practical and easy to be here". Headquarted in London, in light of Brexit, the firm wanted to retain access to its European networks.

"Most of the investors the company is talking to are Europeans -- a mixture of institutional investors and family offices," he explained.

Measuring impact

As impact investing continues to grow, measuring and monitoring the development of funded projects will be essential.

Antignac explains that IRIS metrics are used annually to measure the social, environmental and financial performance of an investment. 

While key performance indicators (KPIs) are also employed and measured annually, he acnowledges that it's too early to make any conclusions.

"There is no real asset class record. This is a young space", he said, pointing out that nonetheless "it's important to maximise liquidity".

Main actors in Luxembourg

Based in Luxembourg, Innpact offers consulting services in establishing and managing impact finance initiative in sectors such as microfinance, climate finance, fairtrade, education, housing, biodiversity, responsible agribusiness and social entrepreneurship.

The Luxembourg Finance labelling agency (LuxFlag) is a non-profit organisation promoting the raising of capital for responsible invesmtents by awarding a label to investment vehicles.

Applicants must be domiciled in any jurisdiction that is subject to a level of national supervision equivalent to the one available in European Union member states.

Luxembourg has also been a pioneer for green bonds and climate finance. The Luxembourg Stock Exchange (LuxSE) listed the world’s first green bond in 2007 issued by the European Investment Bank (EIB). LuxSe also launched in 2016 the Luxembourg Green Exchange (LGX), the first platform to list exclusively green bonds in the world.

Luxembourg also launched a Climate Finance Accelerator last June, helping to fund managers wishing to invest in projects that have a highly measurable impact in terms of mitigating or addressing climate change.

(Roxana Mironescu, roxana.mironescu@wort.lu, +352 49 93 748)