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MAPPING the IMPACT INVESTING SECTOR in Brazil

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MAPPING the IMPACT INVESTING SECTOR in Brazil MAPPING THE IMPACT INVESTING SECTOR IN BRAZIL Summary of fi ndings May 2014 Execution Collaboration LGT Aspen Network of Development Venture Philanthropy Entrepreneurs (ANDE) Established in 2007, LGT Venture Philanthropy (LGT VP) is a global impact The Aspen Network of Development Entrepreneurs (ANDE) is a global investor supporting organizations with outstanding social and environmental network of organizations that propel entrepreneurship in emerging markets. impact. Headquartered in Zurich with local teams in Latin America, Africa, ANDE members provide critical financial, educational, and business support Europe, India, Southeast Asia, and China, LGT VP is committed to improving services to small and growing businesses (SGBs) based on the conviction that the quality of life of less advantaged people in developing and emerging SGBs will create jobs, stimulate long-term economic growth, and produce countries. LGT VP supports portfolio organizations through financial capital environmental and social benefits. Ultimately, we believe that SGBS can help in the form of grants, debt and equity, transfer of business and management lift countries out of poverty. know-how, and access to relevant networks. To date, LGT VP has invested and donated more than USD 32 million into 39 organizations that have improved Members of ANDE include both for and nonprofit investment funds, capacity the lives of over five million less advantaged people. The organization works development providers, research and academic institutions, development with institutional and individual clients that benefit from the experience, finance institutions and corporations from around the world. Launched systems, processes and networks built by implementing the philanthropic with 34 members in 2009, ANDE now comprises over 200 members who engagement of LGT VP’s founder, the Princely Family of Liechtenstein/LGT collectively operate in more than 150 countries. Group. EQOM Partners University of St. Gallen Hub São Paulo EQOM Partners was founded by financial market professionals with the Established in July 2010 in São Paulo, the hub office of the University of purpose of incorporating the natural, social, human, manufactured capital St. Gallen (Switzerland) for Latin America aims at strengthening the ties and and governance (ESG – Environmental, Social and Governance) into promoting knowledge exchange between the University and its partner investment analysis methodologies (Risks, Opportunities and Impacts). QP organizations in the region. This is done through study trips, professors and believes that experiences related to human and social capital will be able to students exchange, joint research, as well as executive education. Moreover, promote a positive impact on society, redefining the word investing. the University of St. Gallen Hub São Paulo has the goal to promote grass- roots research and case studies in the areas of Impact Investing, Inclusive Business and Intercultural Management, and is incubating the research knowledge platform IILA (Impact Investing Latin America). Finally, the Hub Office supports the development of the entrepreneurial behaviour and a better understanding of the different business cultures, through a number of practically oriented student traineeships in SMEs in Latin America. 1 1 Executive Summary 2 Introduction 3 Overview of the study 4 Organizations that participated in the research 5 Analytical notes 6 The impact investing market in Brazil: Results of the market study a. Overview of players in Brazil ONTENTS b. Market (assets under management) and capital invested c. Investment landscape 7 Main learnings: impact investing in Brazil today F C 8 The future of impact investing in Brazil O 9 Forecast scenario for the next five years 10 Limitations and recommendations LE 11 Acknowledgments B 12 Research team and contact information A 13 Annex A: impact investing map T 2 1 Executive Summary 2 Introduction 3 Overview of the study 4 Organizations that participated in the research 5 Analytical notes 6 The impact investing market in Brazil: Results of the market study a. Overview of players in Brazil b. Market (assets under management) and capital invested c. Investment landscape 3 Executive Summary 1. Executive Summary During the past 10 years of impact investing in Brazil, we have • Expected commitments between USD 89m and USD 127m in observed a signifi cant development in the impact investing 2014. space. Five years ago, only a few players identifi ed themselves as impact investors, very few organizations in the social sector • Number of deals is expected to increase by 100% from 68 to were investor-ready, and there were almost no co-investment 136 deals in 2014. opportunities. A steep increase in the number of investors and amount of capital, greater coordination among players, and a • Priority focus areas include: education, fi nancial inclusion more professional workforce active in the industry today have and health sectors, followed by housing, pollution prevention, facilitated the development of impact investing. This market study waste management and renewable energy. of the impact investing sector in Brazil reveals signifi cant market growth. Nineteen of Brazil’s largest impact investors, including • Many investors are interested in expanding their geographical fund managers, banks, foundations, family offi ces and others reach within Brazil, particularly to the Northeast. surveyed expect to commit 40% to 50% more capital to impact investments in 2014 compared to 2013. • Financial return expectation varies between 10% - 35%. Among the key highlights of this study are: • 90% of respondents reported that they use metrics to measure the social and/or environmental impact of their investments. • Entry of 15 new impact investors between 2012 and 2013 indicates a signifi cant and growing interest in the market. • 100% of the respondents reported that they chose their investment based on its social impact, followed by management • Ambitious fundraising target of USD 150m is projected among (60%) and fi nancial sustainability (55%). fund managers in 2014/15 versus a total of USD 177m raised in the past 10 years. 4 Executive Summary This report has found a consensus among impact investors that the market will continue to grow and that there are many reasons to be optimistic about the future. For one, the Brazilian market itself is a great opportunity: not only has the middle class increased by 45 million people over the past 10 years, but there is also an unmet market demand for services and products off ered to the base-of-the-pyramid (BOP). However, the ability to prove that social and fi nancial returns can be combined is a key factor that will determine the pace of market development. These successful examples have the potential to attract talented entrepreneurs, and subsequently bring in mainstream investors and additional potential entrepreneurs in a virtuous cycle. 5 Introduction 2. Introduction Continuous economic growth during the last decade has • Over 64% of the population does not have access to banking equipped Brazil with better conditions to confront social services3. challenges. Though important progress has been made to reduce poverty and increase income distribution, social inequality in Reducing inequalities in income, improving public-service delivery, Brazil remains one of the highest in the world. Today, Brazil ranks as well as promoting the diversifi cation of economies beyond among the 15 most unequal economies in the world (OECD, primary-product exports are necessary to lead Brazil to the next 2012), making social equality a priority for Brazil’s long-term level of social and economic development. Impact investing development. Complex challenges encountered include the has the potential to address these issues by supporting market- following: based, scalable and measurable solutions that create social and environmental impact while generating positive fi nancial returns. • 80% of the population belongs to low-income class levels earning less than USD 9/day1. In Brazil, impact investing is still a nascent market with limited information available around its market size and trends. For the • Social indicators show that, out of 13.3m children between sake of deepening knowledge in this sector and creating more the ages of 11 and 14 years, only 3.5m will continue to attend awareness, LGT Venture Philanthropy, the Aspen Network of school, which equals a school drop out rate of 73.1%. In other Development Entrepreneurs (ANDE), EQOM Partners and the words, only one out of fi ve young persons will reach tertiary University of St. Gallen decided to conduct a study of the Brazilian education (i.e. university or college). As a point of comparison, impact investing market. This study is the fi rst report that aims to in 2007 the US school drop out rate was 8.7% and in Europe the present an analysis of the impact investing market in Brazil. This average rate was 14.8%. analysis is based on quantitative and qualitative data gathered from a comprehensive group of national and international impact • 75% of the population does not have private insurance and investors active in Brazil. relies primarily on the public healthcare system2, which is ineffi ciently managed, underfunded, and incapable of providing 1 PNAD, IBGE, 2011. quality healthcare services. In addition, waiting times for health 2 Data SUS, 2012. exams can be as long as 8 months. 3 INEP, 2012. 6 Overview of the study 3. Overview of the study Objectives Scope The aim of
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