Did you know that even a teacher in the United States can use her retirement savings plan, such as the 401k, to help solve some of the most pressing development issues in Latin America and the Caribbean?
Countries traditionally develop public policies and projects to meet basic needs of the poorest in Latin America and the Caribbean, financed through tax revenue and sovereign-guaranteed loans from multilateral development institutions, such as the Inter-American Development Bank (IDB).
Investments in education, youth and employment areas are a sign of change in the options and trends for investment. How is that possible? Ben Taylor, Senior Vice President of US consulting firm Callan Associates, talked about the evolution of social and responsible investment: “The scope of investing has changed—from Socially Responsible Investing (SRI) to Environment, Social and Governance (ESG) screening, and now impact investing too.”
Investments in education, youth and employment areas are a sign of change in the options and trends for investment.
The Forum for Sustainable and Responsible Investment estimates that in sustainable, responsible, and impact investing, has grown 33% in the past two years, an impressive fourteen-fold since 1995, and today it accounts for $8.72 trillion USD—a whopping 22% of assets under professional management. However, Ben Taylor points out, “the challenge is finding projects with actual social impact, given the greater degree of difficulty inherent in evaluating so many unique fixed income issues.”
Ensuring measurable outcomes of social bonds, those that raise funds for existing and new projects with positive social outcomes, can be a concern for investors. Perhaps this explains why – since its launch in 2014 – the IDB EYE Bond has received more interest than it could accommodate when the first issuance was announced. The EYE Bond is a social bond that finances projects in education, youth, and employment (thus the EYE in EYE Bond). “As the green bond market began, IDB pioneered the development of social bonds, which has provided investors with the opportunity to participate in investments that target positive social outcomes,” said Marilyn Ceci, Managing Director and Head of Green Bonds, J.P. Morgan.
The Education Quality Improvement project in Belize is a good example of how the framework is applied. Each of the components of the project is accompanied by a specific metric tracked through an available Project Monitoring Report (PMR). If needed, course corrections take place to ensure the project is on track to meet its intended results. Once the project is completed, a public Project Completion Report (PCR) will detail whether the goals were achieved. In this case, the project will also include a randomized control trial to measure its impact. With such a framework in place, EYE Bond investors can feel assured that at any given moment, they can find out what their money is helping achieve.