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Seven Social Investment Trends Taking Latin America and the Caribbean By Storm

By and - Apr 22 2014

Global Phil Forum II

The IDB’s partnership team is California-bound this week, flying out to Redwood, CA to participate in the Global Philanthropy Forum. In the years we’ve been attending this event, we have noticed an increase in the number of participants from Latin America and the Caribbean (LAC). Though steady regional growth means this should not come as a surprise, you may be wondering why. What triggered this heightened interest and participation in philanthropy among Latin Americans?  Put quite simply, the region is home to a paradox: impressive growth, an expanding middle class, and a Multi-Latinas boom matched by significant social, equity and sustainability challenges. As LAC’s very own rise up to meet them, we see a resulting explosion of social investment throughout the region.

So, where is this explosion heading? For the past few years, we have supported and accompanied diverse initiatives to promote cultures of philanthropy and social investment across LAC, encouraging strategic giving among local and regional foundations and working together on joint projects. We have learned a lot! We see that the future in social investment in general, as guided by seven major trends, looks pretty promising.

But before we dive into these trends, we have a basic question to address: what is social investment anyway? A broad term that encapsulates the provision of finance to generate social and sometimes financial returns, the social investment market includes such instruments as social impact bonds and social enterprise funds, in addition to traditional instruments such as private foundations and individual giving. Our definition goes beyond charity, as we define social investment to mean any vehicle led by the private sector with the aim of promoting social inclusion and innovation.

Now that we’ve cleared that up, what are the seven trends?

1. Impact Investment is coming to Latin America and the Caribbean. Intended to generate social and environmental impact while generating financial returns, impact investments are investments made into companies, organizations and funds that hit the double bottom-line.  Essentially, impact investments are a sustainable way of financing social and environmental goods, so we are happy to say that they are on the up and up. The impact investing market is expected to reach a worth of US$1 trillion by 2020 and a survey by the GIIN and JP Morgan revealed that 32% of respondents will focus on LAC for their impact investments. The Multilateral Investment Fund (MIF) of the IDB, for example, is launching a new $5.3 million facility to support Social Impact Bonds in Latin America and the Caribbean, making it the first development finance institution to commit resources to implementing SIBs. We think it’s safe to say that impact investment is here to stay.

2. A generational shift is here. According to the World Economic Forum, the next 40 years will see Generation X and the Millennial Generation potentially inherit an estimated US$41 trillion from the Baby Boomer Generation. These generations are also significantly more socially conscious. The 2011 Deloitte Millennial Report revealed that 92% of those surveyed believe success should be measured by more than just profit. In Colombia the IDB is partnering with Filantropia Transformadora a network of philanthropists, to develop an academy to train the next generation of social investors and transfer best practices in giving.  We expect to see an expanding working agenda with young Latin Americans interested in developing and expanding their social investment skills.

3. Focalization and targeting is a must. We see philanthropic organizations, from the Bill and Melinda Gates Foundation to the Carlos Slim Foundation, seeking impact-driven philanthropy. Many organizations are interested in making an impact where it matters the most, thus seeking biggest social return on investment. How? By focusing their programs on the biggest challenges, or on the groups of beneficiaries experiencing the worst conditions. Don’t believe us?! Check out Salud Mesoamerica 2015.

4. PPPs as a new paradigm of social collaboration. Formulas to promote cooperation among multiple actors, public and private, while leveraging resources and capabilities are becoming the solution of choice. But do these constitute a trend? Yes! While PPPs used to be a domain of the infrastructure sectors, those emerging in the social and sustainable development spheres are becoming more widespread and sophisticated.  We are witnessing a profound change in the way social investors relate and work with governments. Increasingly, both public and private sector entities are interested in leveraging every dollar in at least one to one, but we have even seen the leveraging of $4 to $5 for every $1.  Leveraging, of course, applies to more than financial resources, as social investors also bring innovation, know-how, access to networks and in-kind resources than can significantly expand the speed and impact of PPPs while developing and creating new capacities within our governments.

6. Social networks for social causes:  As recently stated by The Economist, Latin Americans spend as much as twice the number of hours a month on social networking as the average person in the rest of the world. Latin America and the Caribbean is a global leader in social networking, and it is therefore not surprising that social networks will be an important regional driver of individual social investment in the years to come. And this is not simply a futuristic vision, as organizations like Idea.me, a regional crowdsourcing platform, are already driving social impact across the region through social networking. The potential impact for our countries is significant, as stated in the recent Crowdfunding in Mexico report from the IDB’s Multilateral Investment Fund.

5. Shared value is embraced. Companies operating in Latin America and the Caribbean are recognizing tremendous opportunities for innovation and growth in tackling social problems as core business objectives. This brings us to the concept of shared value, a term you may have heard bouncing around in the development world lately. But what does shared value really mean? Shared value is a management principle that seeks opportunity for business in solving social problems, promoting the concept that companies can solve problems that simultaneously lead to competitive wins.  The 2013 Global Corporate Sustainability Report reveals this is on the rise, with 63% of sampled companies achieving corporate sustainability goals by aligning their core business. Findings in the  2011 State of Corporate Social Responsibility in Latin America Report reveal that LAC consumers see this effort: 72% said that the CSR practices of national companies improved from 2009 to 2011.

7.   A more robust and diverse philanthropic ecosystem. As philanthropy spreads throughout the region, we see families and industrial groups gathering in different countries to share best practices and think strategically about giving—such as with Padres e hijos.  We are starting to see growth among private foundations that goes beyond the corporate foundation model that currently prevails in LAC. We are also seeing the emergence of corporate foundation associations doing fantastic work in capacity-building and promoting knowledge and best practices. This includes organizations such as GIFE in Brazil, CEMEFI in Mexico, AFE in Colombia and GDFE in Argentina. Organizations like The Nature Conservancy are leading the way with initiatives such as the Latin American Conservation Council.

The social investment landscape is changing. As the ecosystem grows organically so do the social investment opportunities within it. With it, we can also expect challenges, but that’s a whole new post.

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One Response to “Seven Social Investment Trends Taking Latin America and the Caribbean By Storm”

  • The only potential hindrances to further expansion of capital markets in Latin America are inflation and political instability. A spike in inflation generally leads to political unrest. However, barring those unlikely complications, we believe the climate will remain hot as we along with our friends in the private equity community worldwide eye the enormous, still not fully tapped possibilities in the region.

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