‘We can solve poverty’: How will impact investing change the face of charitable finance?

euronews (in English)

Save The Children Global Ventures is aiming to raise $1bn in new forms of innovative funding for the charity’s mission by 2030. Here’s how.

Transcript

00:00There are over 1 billion children living in poverty across the globe and an estimate 3.8

00:11trillion euro shortfall in funding to solve the problems they face. In this episode of

00:16The Big Question, I'm joined by Paul Ronalds, the founder and CEO of Save the Children Global

00:21Ventures to discuss the future of finance for impact.

00:24So thank you very much for joining us. Many people will have heard of Save the Children

00:28as a charity and so they might be wondering what you do in the business here. So can you

00:32just explain to me what is Save the Children Global Ventures? Many of your viewers will

00:36have heard of Save the Children. We're one of the world's largest non-government organisations

00:41focused on children's education and health and protection. But 99.9% of the income that

00:48Save the Children generates comes from what I would call traditional means,

00:51generally philanthropy or grants, and that's really important. But actually if we look at

00:58what's needed to solve some of the biggest social environmental problems facing this planet,

01:03it's woefully insufficient. We need more tools in our toolbox and the only way that we're going

01:10to find the capital at the scale that we need is if we start tapping into private sector markets.

01:22Let's do a little bit of a deep dive and look at the impact investing that you do.

01:26Can you explain a little bit what is it and how does it work? Yeah, so impact investing is very

01:32similar to traditional investing except that an impact investor intentionally seeks out impact

01:39on social environmental issues. And so from our first impact investment fund that we

01:47launched over four years ago, we've made 11 investments mostly into education technology

01:54and health technology businesses. We've invested in one health tech business where some very smart

02:01doctors actually based out of the US came up with software that helped frontline health workers

02:08more effectively diagnose child and maternal health issues. This software on a tablet or on

02:14their phone takes them between probably 30 to 40 percent as effective as maybe a doctor here in the

02:21UK diagnosing child and maternal health issues to be between 85 and 95 percent as effective. So we're

02:28getting a, you know, doubling in productivity but we can also charge. So ministries of health and

02:34others saying right well yeah we're willing to pay for that service and there are about 15 million

02:40frontline health workers around the world. So that's actually a reasonably sized market, really

02:45great impact story and also potentially a good financial story. What makes it appealing to

02:50investors and kind of what sort of return can they get on their investment? Yeah, so there's a sort of

02:54I think common misconception that impact investing means concessionary investing and that's not

03:00necessarily the case at all. It can be. What we see is a broad spectrum of financial returns

03:06and actually different emphasis on impact as well. For Save the Children we're obviously an impact

03:13first investor but we also see some pretty exciting financial returns as well particularly in the

03:19health tech space because we've been investing through closed funds. We haven't exited any

03:25investments so it's too early. We're only four years in. Now we've got some positive signs, things

03:35like the TARO which was the AI fundraising business growing 600 percent. You know we've got two or

03:41three of those in our first fund that look pretty significant. So we're targeting, you know,

03:47sort of certainly a double digit return on fund one. So you know better than 10 percent

03:54and we think we're on track to achieve that but you don't know until the last two or three years

03:58of the fund. Okay, interesting. Who are the sort of people or organisations that are doing this investment?

04:04Like who is it for? Our products are absolutely targeted sophisticated or institutional

04:09investors. We don't have any retail investing products yet. We're traditionally looking at

04:15different groups, family offices for example, particularly what we call next generation

04:20philanthropists are looking to use some of their capital to have an impact on the world

04:26aligned with their values so they tend to be attracted to our products. Foundations are

04:31sitting on billions and billions of dollars and they give away maybe five percent of that a year

04:37but the other 95 percent sits in often very traditional stocks and bonds. If just a small

04:42proportion of that endowment money was put into impact investing aligned with the foundation's

04:48mission, suddenly we unlock a lot more money. And so looking at the other side of what you do and

04:54away from the impact investing, can you tell me a little bit what is the Children's Impact

04:58Multiply Fund? Well we talk to a lot of investors about our impact investment funds and not all of

05:05them want to go down that route and actually invest. So what we've designed here is essentially

05:12a halfway house between a traditional donation and an impact investment fund. The person that's

05:18providing the capital still gets a donation, a tax deductible donation, but we treat it like we do

05:24any other investment into one of our funds. So what we do is we look for opportunities where we can

05:31use a small amount of our multiplier fund capital to crowd in much larger amounts of private sector

05:37capital. So we're looking at one at the moment where we'll put in about one dollar and we'll get

05:44about ten dollars of other private sector because of the way that we've structured it. So you get

05:49this really good leverage impact through the multiplier fund. The second way that we multiply

05:55the donation is that we're investing in businesses and our hope is that over a period of time, often

06:01a little bit longer than our impact investment funds, we'll be able to sell that investment

06:05and return the capital to the multiplier fund. It's not an investment so we don't have to give

06:10the money back to an investor, we're able to reinvest it in the next great startup that's

06:15aligned with say the children's mission. So you get that sort of if you like evergreen or revolving

06:20fund. Do you have any kind of projections on how an initial donation kind of will multiply up?

06:27Well it will depend on how successful we are, but I mean most of the investments that we're

06:34looking to make are going to be leveraging other forms of capital at least four to five times and

06:41then of course that all gets revolved and that is in perpetuity. So you know so long as we continue

06:46to make good investments it should be there forever. Wow, I can't do those maths but it's lots.

06:54So thinking about the sort of the value that Global Ventures adds, you know how much is it

06:59kind of currently contributing and how does that grow again in the future? Well we've got grand

07:04plans. It's still a relatively small part of Save the Children's overall funding mix, but we're

07:11actually targeting to raise a billion dollars in new forms of funding for Save the Children's

07:15mission by 2030. However if it's an example that other charities start to follow and if we start

07:22to make this sort of impact investing something that is just what most foundations, most investors,

07:29maybe even pension funds start to do, then we can have the sort of impact on you know our most

07:34significant global social and environmental issues. We can solve poverty, we can address

07:40the capital needs. So this is important for Save the Children's but we also think it's

07:46important for the charity sector. Thank you so much for joining us on The Big Question today.

07:49It's been a pleasure to talk to you.

07:59you

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