Here's something we've been cooking up for over five years: building the evidence base, and now we're ready to share it as our two worlds collide.
In our 20+ years in market systems development, we've learned a few things. How targeting particular people or firms can create a good impact for them but how this impact doesn't last and can often just displace impact elsewhere. We've learned how to intervene to make these things less likely. By analysing key leverage points and spending our money in ways that are aligned with the incentives for sustainable, large-scale impact, we've made the aid industry better. But we've also realised the limitations...
Aid can't do everything. Having 'skin in the game' really sharpens ones focus on what is likely to be sustainable and, ultimately, using someone else's money never quite leads to this degree of prudence. And, while we're on money, aid budgets have become increasingly constrained in a context of over one billion people living in poverty and countless other environmental and social challenges. At the same time, the global impact investing market has risen to 1.571 trillion USD.
And now the same concerns about scale of impact, additionality, and sustainability that struck us 20 years ago in the aid industry have become the focus of our work in impact investment. Indeed, we have found them to be more pronounced. The 'impact' departments of 'impact investors' are often siloed from the 'investment' parts. It doesn't suit any of the stakeholders involved to ask difficult questions and, rather, simple assumptions and poor quality measurement prevail to allow people to wear their halos unquestioningly. If you invest in a firm at a submarket rate and it grow to create another 10 jobs, but that comes at the expense of the firm next door who was trying to borrow on commercial markets and that firm shed 10 employees, how many jobs did you really create? And what of the commercial banking sector you just undercut?
Over the last five years, we have developed and implemented the Lean Systems approach to improve outcomes from impact investment. It is a comprehensive approach encompassing the whole investment lifecycle from:
Helping investors to decide where to invest,
Helping funds to determine the best geographies, sectors and functions of an industry to invest in to realise their return and impact objectives,
Improving due diligence procedures to better consider genuine additionality and system-wide impact,
Impact management in the form of intestee-level interventions and technical support to improve impact both within and beyond the firm.
Improve measurement at the system level, showing how all of the above processes have contributed to impact across the systems and economies into which the investments have been made.
And why 'lean'? No self-respecting investor is going to fund a $10m development programme to go alongside their investment which typically only exists in one country, in one sector. This has to be done in a way that makes sense to the investor, the fund manager, and the investee. The intent is that any money spent on interventions by an investee, for example, has to be at minimum cost neutral to the investee. At the fund manager level, this has to be economically rationalised as an integral part of the fund management fee - a way to generate greater impact and attract greater capital as a result. And it actually makes sense from a purely economic perspective. There are countless examples of failed impact investments caused by a failure to understand the key drivers of success, behavioural and political systems into which investments are made.
In short, this has to be done not as a philanthropic 'side-show' but as a core part of the business of impact investment.
Our partners throughout this period have been varied and the momentum has been significant. We have the ears and the investment of DFIs, guarantee providers, fund managers, investees and even bilateral donors who are seeking to embed the approach across 'investment ecosystems' such that the underlying constraints in the investment systems itself can be addressed. We have real case studies and lived experience of this working in practice, building on 20 years of experience of what work across 100 countries and countless sectors to create systemic change.
And now we're ready to take it to scale:
With the support of FCDO's IMPACT programme and in partnership with the Bertha Centre at the University of Cape Town, Agora are mainstreaming Lean Systems through three interrelated workstreams:
Developing Systemic Impact Standards (SIS) which allow investors to know which funds are able to deliver on these objectives of sustainable, large scale impact from their investments.
Developing a toolkit and technical support pilot to funds to allow them to work towards and get accredited according to these standards.
Developing and implementing a training course on lean systems, primarily targeted at fund managers, to raise awareness and build capacity to enable them to adopt aspects of the approach within their organisations.
All of these projects will be completed with by the end of March 2025 and are free to participate in for funds, investors, and others. If you're interested to hear more or are interested in participating on one or more of the above aspects of our current project, please reach out to zferdous@agoraglobal.org.
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