How to Address the Power Imbalance in Impact Investing? Shut Up and Listen

8 January, 2018

Original source: NextBillion

Want to Help Someone? Shut Up and Listen! That’s the rather self-explanatory title of Ernesto Sirolli’s famous TEDTalk on the all-too-often neglected first principle of aid – respect for the local expertise of those whose lives we seek to improve. Sirolli humorously recounts a story of his enterprise going into Zambia with Italian tomato and zucchini seeds to teach the locals how to grow food in the magnificently fertile Zambezi valley. Things were going well, until 200 hippos emerged from the river and devoured everything overnight. “My God, the hippos! Why didn’t you tell us?!” they asked the Zambians. “You never asked,” they replied.

This illustration might seem simplistic, but the world of impact investing (particularly in emerging markets) is rife with examples of investments that failed or worse – did harm – because investors and intermediaries did not seek enough input and feedback from local communities. Some of these examples and the contentions around them are well-known: the distribution of anti-malaria mosquito nets in Africa that stripped waters of hatchling fish, or Bridge International Academies’ school facilities being judged as unsanitary in Uganda and losing US$1 million a month in Kenya.

However, many stories can only be told under fictitious names and circumstances because high profile investors are reluctant to share negative experiences. Afram Plains is one such case: An investor, let’s call him Wayne Fergusson, had an investment consortium that represented high profile impact investors from the U.S., E.U., Ghana and South Africa. They vetted an investment for US$22.45 million through a trusted intermediary, in a farm in Ghana’s Afram Plains District. The investment was to reduce hunger, create jobs, and provide economic opportunities for 80,000 smallholder farmers who would buy inputs and seeds from the farm. Environmental, social and governance (ESG) screens and IRIS metrics were applied, but no smallholder farmers were consulted on the products to be grown or the inputs to be applied. The new seeds were projected to increase the productivity of Fergusson’s farms and smallholder farms five-fold, and create 10-20 percent return on investment in three to five years.

The media attention that this deal generated piqued the interest of a new investor from Sweden (let’s call her Angela Wallingford). She began doing her own due diligence, only to discover that five of 15 pesticides used on the farm were banned in all the investors’ countries – and one was banned by 137 countries and the U.N. The farm was located on large wetlands and rivers, and these pesticides were toxic to aquatic species. Though legal to use in Ghana, a growing number of civil society organizations there were protesting against the “dumping of pesticides on developing countries.”

Should Wallingford and Fergusson continue with the investment? That is the question we pose to executive students when this case is taught at the Oxford Impact Investing Programme. Opinions typically vary about the nature of risks investors should care about, and the potential negative public health and environmental consequences they should be held accountable for—but in reality, the deal went ahead and the investment failed to generate its expected returns.

While deals like Afram Plains demonstrate a haste to invest without enough investigation of local context, other examples demonstrate investors’ unwillingness to invest in local expertise.



Our colleague, Clint Bartlett, recently returned to his home country of South Africa after a stint studying in the U.S. His work focused on non-profit sustainability, and on setting up an agriculture impact fund. Agriculture is a crucial sector for South Africa: It ensures food security, is a major employer of low-skilled labor (the large majority of South Africans), and is critical to social cohesion given the issue of “black and white” land ownership.

When Bartlett approached a major bank to request funding for a black farmer, the bank responded that the farmer was too risky to fund (lack of skills, lack of prior track record, no collateral, too small scale, etc.). And if they did offer credit, it would be at a rate that was 5-7 percent higher than the 10 percent typically offered to white commercial farmers (those with a great track record, offtake/purchasing agreements in place, large amounts of collateral, etc.).

“This equation fails to recognize how distorted systems (like the legacy of Apartheid or rampant capitalism that entrenches inequalities) and the responses thereto (like black economic empowerment/BEE policies forcing procurement from black suppliers, or Occupy Wall Street-style movements and a growing aversion to open markets) affect the elements of risk and return,” Bartlett says. “In this case, without significant and accelerated funding of black farmers in supply chains, the pressure exerted by BEE policy on upstream buyers to purchase only from black farmers will continue to grow and ultimately crowd-out the white farmer until a more balanced supply chain is reached. Furthermore, risks associated with the white farmer also increase with the higher likelihood of civil unrest as the ‘land issue’ becomes more political.” He goes on to add that these risks are often more systemic and manifest in the medium to long-term, which muddies the risk-reward relationship further.

Something is being lost in translation between those with the funds, the ventures and the issues they support in the developing world. How do we bridge that divide when impact investment dollars are on the upswing, almost doubling since 2015? According to the 2017 GIIN Annual Impact Investor Survey, a staggering 78 percent of total assets under management (AUM) – US$114 billion – come from impact investors headquartered in North America and Europe, while about half of that money goes to emerging markets (10 percent to Sub Saharan Africa). Food and agriculture was the most common sector to which impact investors allocate funds in 2016, and a quarter of investors indicated a desire to increase investments in the sector in 2017.

How should investors think about social and financial risks and impact in markets and communities they are unfamiliar with? Ultimately, conversations about what impact really means must recognize shareholder value, but must include voices from community stakeholders, as well as arguments around morality, ethics and stewardship.

To ensure that these factors are taken into account in social investing, pfc uses a framework of Deliberate Leadership for the Common Good, which helps investors tackle wicked problems using effective leadership strategies. Core components of the framework include: building solutions from the ground up, and recognizing that answers often come from local expertise; embracing and listening to divergent viewpoints, however slow and uncomfortable the process; and being empathetic with the people and communities the investments seek to serve and improve. These values-based strategies are intended to equalize the power imbalance that can surround impact investing. In the end, listening matters. It is the cornerstone of finding and keeping a moral compass in impact investing. This seems intuitive, but it is too often forgotten. These themes are addressed in greater detail, along with examples of emerging practices and cautionary tales, in a new brief from pfc Social Impact Advisors: The Power of Feedback: Solving Wicked Problems through Listening and Learning.



Gayle Peterson is Associate Fellow at Saïd Business School, Oxford University, where she is a founder of the Women Transforming Leadership Programme and director of the Oxford Impact Investing and Social Finance programmes. 

Sanjana Govil, is a pfc Fellow and MBA graduate, Saïd Business School, University of Oxford.

Clint Bartlett is an impact investing consultant with over 10 years experience in the development, social impact and corporate advisory areas.

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