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Impact Investing and Social Renewal

Part II: Social Enterprises and Impact Investing

Social enterprises have the potential and capability to reconnect financial values with the public good. It is possible for impact investors to address pressing societal problems that are not addressed effectively either by the government or by the market.  If our analysis of the financial crisis makes sense, then social entrepreneurs and impact investors focus on excelling in adding value to society ('internal goods', 'excellence'); recognition of the justified interests of all stakeholders; and values like sustainability, stewardship, justice and peace.

In this section we will consider six varied examples of social enterprises and impact investing in the areas of finance, sustainability, health and agriculture. Each of these is an example of a profitable business, but also motivated by a desire to make a lasting positive social impact: Grameen Bank (microfinance) and Tendris (sustainability), two projects by the Noaber Foundation (healthcare) and two by DOB Equity for Africa (food). Paul Baan founded and leads the Noaber Foundation; and Pieter de Rijcke's family founded the Stichting De Oude Beuk, renamed the DOB Foundation, which trades under DOB Equity for Africa. With pioneering initiatives, they put social ventures and impact investing on the map in the Netherlands. They also took the initiative of endowing a chair in Social Venturing Economics at Tilburg University in the Netherlands.

Grameen Bank and Tendris

"I am in favor of strengthening the freedom of the market. At the same time, I am very unhappy about the conceptual restrictions imposed on the players in the market. This originates from the assumption that entrepreneurs are one-dimensional human beings, who are dedicated to one mission in their business lives - to maximize profit. This interpretation of capitalism insulates entrepreneurs from all the political, emotional, social, spiritual and environ- mental dimensions of their lives. This was done perhaps as a reasonable simplification, but it stripped away the very essentials of human life". – Muhammad Yunus, 2006 Nobel Lecture

The world's most famous social enterprise is the Grameen Bank, founded by the Nobel laureate Muhammad Yunus. He launched a research project in Bangladesh to study how to provide banking services to the rural poor. This research resulted in a bank that delivers small loans (microcredits) to the impoverished without requiring collateral. A group-based approach is applied to use pressure from the other members of the group to stimulate a responsible use of the money and to ensure repayment. The Grameen Bank gives small loans to the poorest of the poor, many of them women. In October 1983 the Grameen Bank was authorized by national legislation to operate as an inde- pendent bank. In the period from 1976 to 2009, the cumulative disbursement was $8.7 billion with nearly 8 million borrowers, of whom 97 per cent were women. In the year 2009, the total disbursement was $1.15 billion, with an end-of-year outstanding loan book of $790 million. The loan recovery rate is an impressive 96.7 per cent.

The second example is Tendris, established in the Netherlands in 2002 by a group of entrepreneurs concerned with sustainability. Tendris believes that the big issues of our era like climate change, depletion of raw materials, hunger and drought can be solved by thinking and acting differently. Tendris also believes that people can be invited to adopt a sustainable lifestyle by offering real solutions that increase the quality of life by using a commercial approach. Its mission is 'to make the world a better place' by offering 'relevant products that contribute to this way of life'. Tendris has established among others Lemnis, a company producing LED lamps, and Innolumis, a company that offers public lighting solutions. One of Tendris's new projects focuses on pumps based on disc stream technology to develop less expensive and more fuel-efficient pumps for developing countries. Its mission focuses on supporting the development of commercially viable and environmentally sustainable solutions.

The Noaber Foundation: VitalHealth Software and the Netherlands Institute for Prevention and Early Diagnosis

"Classical charitable foundations are limited, because the method of donating often does not result in a sustainable impact on society. It was decided to create a combination of a classical foundation and a commercial enterprise. This way of thinking was quite innovative: both the government and the business community were not used to it. The classical foundation hides a tension: it is fiscally and legally designed for the long term, but donating is mainly a short-term act. We wanted to run the foundation in such a way that it could make a long-term impact on society. However, in the financial world the word 'social venturing' did not come across. It was interpreted as a 'soft' way of investing. Later on, we used the term 'impact investing' and framed this way of investing as a new asset class". – Paul Baan

The Noaber Foundation pioneered impact investing in the Netherlands, and aims to achieve structural transformations in healthcare by encouraging innovation, especially in the nexus of healthcare and information technology. The objective is to contribute to sustainable healthcare, in view of demographic changes and the increase in costs. Our healthcare system's current activities are mainly triggered by the occurrence of symptoms. Our knowledge of risk factors that lead to life-threatening diseases is increasing, and preventive measures to influence specific risk factors have been shown to prevent or slow down relevant disease processes.

The increased acknowledgement of the importance of risk reduction and disease prevention has renewed a focus on developing effective prevention and health maintenance strategies. The Noaber Foundation was closely associated with the establishment of two social enterprises: VitalHealth Software and the Netherlands Institute for Prevention and Early Diagnosis (NIPED). Together with the Mayo Clinic, the Noaber Foundation launched VitalHealth Software in 2006. The key idea was to combine the best medical expertise of Mayo Clinic with the information technology and entrepreneurial experience of the Noaber Foundation by developing cloud-based eHealth solutions for managing chronic diseases such as diabetes, chronic obstructive pulmonary disease, heart failure, cancer, Alzheimer's and depression. Its headquarters is in Ede, the Netherlands, and it has locations in the US, India and Germany.

VitalHealth defines itself as an impact-driven enterprise. The idea of 'im- pact' determines its mission, vision, business processes and reporting. VitalHealth defines its mission as 'improving the health of millions of people through eHealth solutions'. This mission is made concrete for patient empowerment (2016 target: 10 million impacted patients), medical professional empowerment (2016 target: 50,000 impacted professionals), and number of diseases (2016 target: 10 impacted diseases).

Social Impact Indicators are reported quarterly and are part of the bonus and incentive system at all levels. Such a social return on investment calculations plays an increasingly leading role in sales pitches and development priorities.

The Netherlands Institute for Prevention and Early Diagnosis was established in 2004. It has forged an alliance of physicians, scientists, social investors, corporate partners and government agencies to develop and launch an evidence-based knowledge and decision support (KDS) system for personalized prevention. This system was marketed under the name PreventionCompass and developed in accordance with stepwise care principles and the Chronic Care Model. It is based on evidence-based algorithms, test and treatment thresholds, scientific guidelines and best practices.

To raise awareness and inspire individuals to take specific actions to pro- mote their health, design and communication is based on behavioral frame- works, including motivational interviewing, protection motivation theory, stage theories and social cognitive theory. The PreventionCompass links a personal risk profile to a tailored health maintenance programme, including self management modules, best-practice lifestyle services and medical follow-up.

The knowledge and decision support system also allows for regional adaptations. It has a modular structure that integrates risk profiling for various chronic diseases, including cardiovascular diseases, diabetes, kidney disease, common mental disorders, chronic obstructive pulmonary disease, musculoskeletal disorders and some frequently occurring cancer types for which early detection is meaningful. The risk profiling includes a web-based questionnaire (medical and family history, lifestyle, motivation, personality), biometrics (blood pressure, body mass index, waist circumference) and laboratory evaluation of blood, urine and feces. The application of the PreventionCompass supports the following goals:

a) To organize quality-assured multi-disease prevention without labor-intensive involvement of professionals;

b) To stimulate and facilitate behavior risk intervention and surveillance;

c) To facilitate scientific research and dynamic guideline development.

The PreventionCompass was first implemented and evaluated in the occupational health field where it has been shown to be feasible and to stimulate individuals to undertake health-promoting action resulting in a healthier lifestyle, a decreased cardiovascular risk profile and a 20 per cent reduction in absenteeism.  In 2010 the NIPED developed with a number of medical organizations the so-called PreventionConsult.  This is a web-based health risk assessment of cardio-metabolic risk and lifestyle management. 33 A large- scale feasibility and cost-effectiveness study of primary care was carried out.

This initiative was received with a lot of enthusiasm. However, the times appeared not to be ripe for preventive healthcare: the turnover of the enterprise did not meet expectations. The worsening economic conditions appeared to be the last straw: turnover dropped further and the company went bankrupt in May 2013. At the same time, a new marketing strategy was developed and new implementation plans were made. The Noaber Foundation was one of the impact investors who made a relaunch of this important social initiative possible. The new approach is gradually beginning to pay off: the company is now making a profit.

DOB Equity: Tanga Fresh and Prothem

"De Oude Beuk evolved over the years into DOB Equity. The objective of this foundation is to provide growth capital to enterprises in East African countries. Among others we invest in Burundi, Kenya and Tanzania. In these types of countries, particular initiatives and entrepreneurship are required to support economic development. We learned that investments could only be successful when there is a solid entrepreneur involved and when the activities are well embedded in the local context. We do not select entrepreneurs who offer the highest financial return on investment but entrepreneurs who focus their attention on sustainable businesses that contribute to the development of the local population. In other words, we pursue both financial and non-financial values". – Pieter de Rijcke

DOB Equity is an independent, long-term investor in companies in East Africa.  It invests in companies that will contribute positively to a more social and sustainable society while delivering long-term profitability. The fund is evergreen, with all proceeds from investments reinvested, making it a true long-term growth partner to portfolio companies. Here we highlight two of DOB Equity's Africa projects: tea growing in Burundi and milk production in Tanzania. Both cases show how the programmes provide stability and continuity for smallholders who were otherwise at the mercy of either state-based or private monopolies. This cup of milky tea is designed to change the social and economic context.

In Tanzania, the climate is divided between the wet season and the dry season: milk production is abundant in the wet season and low in the dry. Together with others, DOB Equity invested in Tanga Fresh, the main dairy processor in Tanzania, founded in 1996. Tanga Fresh is co-owned by Tanzania Dairy Cooperative Union (TDCU), a cooperative of more than 4,000 small- holders who are guaranteed that their milk will be bought by Tanga Fresh whatever the season. This continuity guarantees the income of smallholders, which allows them to invest with an eye on the long term. New mechanisms have emerged, with auctions allowing farmers to buy a cow on credit while paying it off with milk earnings.

Tanga Fresh has built and improved the whole supply chain of milk from the Tanga region production area to market in the capital, Dar es Salaam. The DOB Equity investment was used to develop a new processing plant with a capacity of at least 50,000 liters per day. The combination of ownership by the supplying smallholders and a private investor, in combination with independent management, was the key to the success of Tanga Fresh. There is a relationship between revenue, profits and the price of milk: when profits rise, these can be passed on to the farmer. And the farmers, in turn, are shareholders in the company; they share in the profits and participate in decisions. The impact of this cooperative has been great: the amount of money paid to smallholders in the Tanga region increased from TSH 2,800,000,000 (3,000 smallholders) in 2007 to TSH 9,500,000,000 (4,500 smallholders) in 2013.

Prothem is a private company in Burundi that buys, processes and sells tea, procuring it from over 10,000 smallholders and providing them with agricultural advice as well as payment and extension services. Prothem existed before DOB Equity became involved and was the first privately owned tea factory in Burundi to enter into competition with government-owned plants. Its example of paying its farmers market prices has led to a doubling of income compared to what government-owned tea factories were paying. This combination of better business practice and increased transparency set a positive example that made a nationwide impact: now all government-owned factories also pay market prices to their smallholders.

Today, DOB Equity is focused on further improving efficiency, quality and the implementation of automation in payment-processing mechanisms and operations, which will also be carried out by government-owned tea factories. It is also working on achieving higher quality certifications, which in turn will enable a greater revenue to be passed on to farmers.

Prothem and Tangafresh provide stability and continuity by guaranteeing purchase and a fairer distribution of revenue. Both cases address the legitimate interests of all stakeholders - investors, entrepreneurs, government and farmers. The pitfalls of a monopoly market that would leave smallholders at the mercy of the state or a conglomerate are avoided - whether in a public monopoly where too much money disappears into the pockets of the civil service, or a private monopoly where the maximum is squeezed out for the benefit of a few.

The very nature of milk and tea means that they have to be moved fresh to the processing plant within four hours of harvesting or milking. This ensures a continual stream of process, and a continual stream of income to the farmers. In the case of durable products like coffee or chocolate, large quantities are produced and hoarded and a buyer appears once a season to make a large, market-disrupting purchase. Prothem's tea is processed continually and the entire sector benefits. DOB Equity is working to enable its produce to enter the European market.