Nudging the investment ecosystem by incentivizing impact

Opportunities in Incentivizing Impact in Financing Small and Growing Businesses in Developing & Emerging Markets

This paper is a summary of fresh ideas on how to channel more capital into impact investing and incentivize impact creation. Building on insights generated by experts at the BMZ hosted conference Financing Global Development – Leveraging Impact Investing for the SDGs, the paper furthers the conversation on Impact Measurement and Management, IMM 2.0, through brainstorming practical ideas and viewpoints in the impact investing value chain: those who provide capital, those who manage it, and those who receive it. This included close to 50 stakeholders, including fund managers, DFIs, intermediaries, entrepreneurs, governments, CSOs and others.
The discussion, conducted in the form of a ‘design lab’ by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Intellecap, and the Swiss Agency for Development and Cooperation (SDC), aims to start a conversation on how to maximize impact by channeling capital into small and growing businesses (SGBs) as a way to expedite achievement of SDGs (Sustainable Development Goals). During the session, industry leaders like FMO, Vox Capital, and Roots of Impact had shared case studies of good practices in incentivizing impact along the investment chain. This formed the basis of brainstorming on development of new ideas on innovative instruments that could nudge the ecosystem towards more actively pursuing and scaling impact.
The result is an analysis of the barriers in the impact investment value chain highlighted during the stakeholder conversations, and key insights on how to overcome them (for example, the need for transparency, standardization, leadership, etc.). In addition, the workshop collated a list of potential ‘wild ideas’ to like impact currency, impact rewards, impact index, online market places for impact auctioning, and a give-back distribution impact support system, designed to incentivize increased levels of investment along the value chain. The practical approaches suggested by stakeholders fit well with the existing impact measurement and monitoring frameworks like GIIN’s IRIS and Intellecap’s PRISM and hold the potential to guide impact capital more efficiently by leveraging good practices.