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Vandana: Welcome to the Givology Impact Series podcast, in which we share the experiences and inspirations of social entrepreneurs and changemakers around the world in education. I'm Vandana. We're delighted to have Aunnie Patton Power from Intelligent Impact with us today. Aunnie founded an Intelligent Impact in 2017. A reformed M&A investment banker, she began her impact investing career in 2010 with Unitus Capital in Bangalore and has since worked in a variety of settings across Africa, Asia, Europe, and North America. She is currently an associate fellow at the University of Oxford Said Business School and an advisor to the Bertha Center for Social Innovation at the University of Cape Town's Graduate School of Business. In these roles, she lectures on Innovative Finance across both schools E.M.B.A., M.B.A., Executive, MCOM, and MPHIL programs and she is currently creating a massive open online course, or MOOC, with Coursera. Aunnie’ s work has been published throughout the world, including by the Oxford University Press, the Stanford Social Innovation Review, the World Economic Forum and more.
Thanks so much for taking the time to speak with us Aunnie!
Aunnie: Of course! I'm delighted to be here.
Vandana: Great! So, to start off, to familiarize our listeners, can you describe what is impact investing?
Aunnie: Sure! Impact investing is essentially investing capital, both for, some sort of financial return as well as the social and environmental return. And it doesn't always mean you need a full financial return; it's across the spectrum. So, it's a strategy of investing that looks at both social and environmental alongside financial.
Vandana: And what are the differences between impact investing and philanthropic donations?
Aunnie: So, there's a lot of differences but they’re really what I'd like to say is impact investing and philanthropy are on a spectrum. Capital is designated towards impact. So, at one level you might have philanthropic donors that are willing to take very high risk from both a financial and social perspective and they might be willing to give their money away. In other cases, you might have philanthropic donors that look to actually recoup some of their capital, so they might be acting more towards the impact investing spectrum. So, along this spectrum is another area it's in the middle, called venture philanthropy which often does things where they mix more philanthropic money with more traditional mainstream impact investing. So, it’s often referred to as a big tent so all the way from zero percent financial returns to market rate financial returns and different levels of impact and different levels of essentially social and environmental returns. So, while a strategy might be different for a philanthropist versus an impact investor, they might actually go into the same investment and operate in different ways. So philanthropic investor might say “I'm willing to do a guarantee,” which means that they would back the investment whereas the impact investor might put financial capital up. And they might end up being in the same type of investment, say, providing funding for rural farmers in East Africa, but then the type of capital might use look different. And that's actually one of the strengths of impact investing and innovative finance, is that, there's all these different pools of capital to pull from, and that's something that we have going forward where it is coming even more important linking these different types of investors and philanthropic donors together.
Vandana: Yeah, that’s very useful…And so what are the different types of innovative financing instruments and how do they work in the developing world?
Aunnie: Sure, so innovative financing, which is my area of specialty, is about, what we just talked about, it’s about mixing different types of capital. So my definition of innovative financing is capital that is allocated towards impacts that uses all available philanthropic and mainstream financial tools, and when those don't work, it creates new ones. So what innovative financing often does, in a way that I work with innovative financing, is actually starting from the outcome and working backwards, is to design financing strategies that can achieve that outcome. So that might be a pulling in types of very mainstream capital, next to government capital, next to philanthropic donors, next to corporates, next to community donations and community organizers and so there's different types of innovative financing vehicles. Now there are dozens of them, probably even more than that, it's hard to keep up. But things like guarantees, which I mentioned, can be used very innovatively. Other type of innovative financing vehicles looks like impact bonds. These are often cited as innovative financial vehicles. There are funds that are setup with innovative financing structures where different types of capital come into the innovative financing structures. There's a whole host of different types of vehicles that have been designed with the impact in mind, and not just the financial return. And that's why these look a little bit and that’s why these are interesting because the capital is allocated based on the impact often, as opposed to just the financial returns and so it's an interesting place to pull in different types of funders to be able to work towards a single, which is you know a set of social or environmental outcomes.
Vandana: And how effective is impact investing?
Aunnie: Well that's a great question! I wish we knew more! One of the things that I'm very excited about, which I think we’re going to talk about in a moment, is the role of technology in understanding our impact and being able to measure impact. Right now, even though impact investing is trying to work towards data driven capital allocation i.e. finding the interventions and the projects that are the most effective from an impact perspective and also sustainable. The data we have you know is still quite piecemeal, so there's a lot of opportunities to be able to compare different impact metrics across different sectors and within sectors to be able to understand what is effective. What we do know is that the conversation is changing and I think that's probably the thing we can point to that is the most effective around impact investing for the past ten years. So this idea of being able to invest well and do good, you know, has and still does have lots of resistance but the conversation has changed significantly from when I first started in the space years ago to now. And you know it's different varying levels of return and understanding that there are ways to do impact investing strategies and that it is not an obvious tradeoff between financial return and social or environmental return. And in some cases what we're seeing with things like inequality and climate change is companies that are addressing social and environmental issues are actually more sustainable and actually a better investment long term. So, what's interesting is that the capital is still being allocated and—I guess the jury is still out on the total effectiveness. We have lots and lots of data about how capital that is allocated, but certainly the conversation has completely changed and now you have every single major bank in the world has an impact investing division or impact investing experts. We have billions of dollars of financing vehicles that’s done in impact investing—the impact investing market is growing, you know, thirty or forty percent a year. And so, there’s certainly more momentum, and it will be up to us to continue to evaluate this from an impact standpoint and how does this capital actually behave. Is it behaving in ways we thought it would and we are having the impact we need to have.
Vandana: Right. So, in evaluating impact what kinds of qualitative or quantitative metrics do you look at or in other words, how do you measure social impact?
Aunnie: So, do we have five or six hours? Because that’s how long teach this. You know there’s one other thing around impact investing and philanthropic donation. You can choose the metrics that work for the type of impact you are trying to have. The IRIS set of definitions that is created by the global impact investing network, which is available online, has been really useful to give a lot of investors a terminology to be able to understand what to look at when they're looking at farming, what do you look at for measuring unemployment, what does a job look like. I think there's a lot of you know interesting pieces to be able to have the language. Then the next step of how do you measure and you know what does that actually look like really depends on the investor and depends on the project. And because often it's [very focused], that's where you often get measurements that is very difficult to compare. So one of the things that I'm really excited about is the use of technology, particularly blockchain and artificial intelligence, to help us create global impact ledgers that will be able to measure via things like third-party verification, different impact metrics that would be measured globally. Similarly, to be able to be compared, and be able to be transparent, and independently analyzed. There's a much longer conversation we could have about impact measurements but I think that's the salient piece there that you know right now we’re measuring small pieces. Not because we're not trying to be transparent, because it’s difficult to be transparent. And the future of this industry is going incredibly and radically transparent and also be able to use technology to get into the places that are the [] and being able to venture in ways that’s transferable and comparable.
Vandana: Right, so I know you kind of started an organization on this goal, so can you share with us a little more about the story of Intelligent Impact’s founding and mission?
Aunnie: So you know I've been in this space for what is not a very long time for a career, eight years, but it's a very long time it seems like for the space that's only about ten years old. And so it's you know a lot of the growing that it’s done. I’ve been really really privileged be a part of it on multiple continents that I’ve been working on in the past few years. And what I've realized is that you know there's a lot of information asymmetry, there's a lot of issues with people that are new to the space understanding where to go, there's issues with you know funders not being able to have the right type of capital to be able to find the right type of organization, and the list goes on and on. And the issues often are not what people think they are. You know I often start up a lot of my lectures and my conference presentations talking about how there is-- I present you hundreds of investors and everyone in the room tells me there's not enough deals. And I’ll be standing up in front of three hundred entrepreneurs and they’ll tell me there’s no capital. And both of these are true. So the idea of Doublethink from 1984. So you can hold both of these things true even though they do not work with each other. And that's because investors struggle with I mean the right capital, or the right type of investor, and there's a real mismatch error. And also the distribution error, because oftentimes the need is very small for capital and the ability to distribute that is very low. So people need fifty thousand dollar loans, and you have a hundred [] funds, you can't do that level of funding. So the reason I founded Intelligent Impact is to really start to explore what is the opportunity to around artificial intelligence and blockchain, to be able to meet some of these issues. You know because both technologies are in their infancy, it's a really interesting opportunity to start to build things from the bottom up for impact as opposed to taking things built for corporates and adapting them with is just kind of how we have done traditionally financial markets. We try to adapt for impact and you know corporate social structure is [] for impact. And so being able to be at the grounds level and actually build the platform with impact in mind seems like an incredible opportunity. So the first piece is really starting to build out the applications and platforms working with partners and really figuring out who exists beneath the system, just thinking about this. And then next year, 2018, is really going to be pushing forward and launching hopefully some of these products and putting together some meetings and hopefully that—I don’t want to say conferences—but some gatherings around impact and AI and blockchain.
Vandana: Yeah, I think that’s really exciting and what do you think is the role of AI and machine learning in impact evaluation, like what does the future hold?
Aunnie: So imagine if you [] where someone can put up—anyone--so let's say Givology gets together, a bunch of your funders, and you say, “we would love to fund 10,000 girls becoming literate.” So you could put that up on the global impact ledger—you are willing to fund that. You are willing to pay 10 dollars per girl who becomes literate. And you are willing to do this anywhere in the world. What happens then is you have non-profits or social enterprises that are working around literacy, they could see that, and they could go in and essentially provide verification that they had worked with 3000 girls, and had gone from illiterate to literate based off of 3rd party verification i.e. either through GPSing cell phones, or through an intermediary that was verifying that these girls were literate through a test potentially that was put out the girls were taking through a school, through an education. Essentially there might be multiple levels of verification but then what the non-profit could do is they could submit their verification of these girls becoming literate and there would be 3rd party verification and other people would look at those claims and say—well you’ve already claimed this, or this doesn’t make sense, that doesn’t exist—and essentially, that would all be transparent. So once that was verified by multiple sources, depending on the type of verification that you would ask for, once that was verified by multiple sources, the money was automatically transferred over to that nonprofit. So you could set up a huge project, like we’re going to get together a 1000 donors and put 20 million dollars into water and sanitation in this area of India. And those donors could come from all over the world, and put money into these foreign contracts that would then be able to be distributed once those contracts are paid, and might even, with artificial intelligence, use good bots to go out and find organizations that are working on those projects to pull them into this funding. So suddenly, instead of having a bunch of donors going on a trip and trying to find organizations, potentially doing diligence, you might have this marketplace out there that is constantly itself seeking out and trying to match these donors with the organizations that are doing the work and then verifying that they are doing the work and distributing the capital. And that could all potentially be done by technology which reduces the cost, reduces the distribution effort, and increases the effectiveness of what’s being done and how capital is being allocated.
Vandana: Yeah, I think that’s really cool. So what are some projects your organization is working on?
Aunnie: So we’re working on building a supercomputer! Every time I say it I laugh because it sounds like something out of a James Bond film! But she’s…Her name is…She’s a she…I have named her Athena, which is the goddess of wisdom, and so the idea is to essentially equip her to be able to do some of this work and potentially do [induction] with a few other organizations that are building underlying platforms for blockchain. I can’t say too much about her now because she’s a little under wraps, but she’s pretty much Impact Toddler right now; she’s read about 80,000 pages of impact reports, and interacted with people a bit. She’s certainly not very capable yet so it unfortunately takes a while to be able to build the underlying infrastructure and figuring out how to get good data to her. But we’re working on it and there’s a few great partnerships that I’m building next year that are going to be really pivotal to being able to take her forward.
Vandana: That’s exciting—So what obstacles you’re facing in evaluating impact?
Aunnie: Everything! You know, working within very difficult areas, I live in Cape Town and worked in South Africa as well as across the work, and the many, many forms of data are paper-based. So we have done some work with the government here, setting up an impact bond for the childhood development. And there were times that we asked about data and were just taken into a room that was just full of boxes, like paper-based surveys and you know, that can be very difficult a) to verify and b) to be able to understand and comprehend and figure out where it came from. It’s just so many pieces there. And the other thing around evaluating impact is there is a lot of preference that goes into it. I might be really passionate about female education and someone else might be really passionate about the environment. And in most cases, those should go hand-in-hand, but there might be times in which a human might have impact on the environment that would be a positive impact for the human but a negative impact for the environmental considerations. So it can be difficult to be able to compare across sectors, and it’s also just difficult to understand where information comes from and what it means. So what’s going to be interesting about using technology to be able to at least get the data around impact is to allow individuals then to make preferences based off of those data around how they allocate their finances and capital. So there’s going to be a lot of issues—one of the things we’re working specifically of using the technology to be able to create global impact ledgers is that there’s going to be quite a few competing organizations that are going to try and do it. And that’s fine and that’s great—competition is amazing—but I think one of the things that I’m going to try to do is pull together these different organizations and individuals that are working on this to try and make sure that we’re working on this hopefully towards a similar standard and goal. We’re working together towards the same goal—like that’s a similar standard for platform—because it’s concerning that we might end up having 15 different platforms like we have 15 different ways of measuring impact or a 150 ways of measuring impact. So you know the real goal is that we can standardize and get together and around specific ways speaking about it. So the organization that has done the best job so far around evaluating impact and getting the whole industry together is called the Impact Management Project. Their reports are absolutely worth reading, they’re worth their weight in gold, they have worked with almost everyone in the industry to really come up with terms with how do you think about language around impact and cross-sector. It’s really excellent—it’ll be building off work like that and those global impact ledgers will have to be constructed hopefully to be able to work for everyone.
Vandana: That’s really exciting—So lastly, what are your goals for the years to come and what can our listeners do to help?
Aunnie: The world’s going to change quite a bit in the years to come! So my hope—my real hope—is that when I started teaching impact investing about 6 years ago, I’d spend the first part of probably several classes trying to have students understand that there’s opportunities to be able to do well, to invest well and do good. Now, when I start out, that’s not the question. So the question is, how do I do it? Not, oh yeah, that’s…you know…it’s people, a lot of students, a lot of times at conferences and presentations, that idea of being able to do this and do well and make money and allocate capital is understood and I think some of that comes from [] and some of that just comes from the data we have around impact. The conversation moves on from “is impact investing possible?” to “how do I do it?” What I’m really hoping is that we have a similar thing around technology—right now, we’re asking a lot of questions like “is it possible?” and hopefully the next piece that comes in the next few years is that it is possible, this is what the ledger looks like—how do we make it better? Right now, impact investing…the impact [] piece of impact investing is actually something that is constraining the growth of impact investing. So instead if it turns into an enabler, and technology suddenly gives us the ability to really measure impact that is standardized and very effective, then potentially the opportunity for a lot of millennials and a lot of individuals that I’m sure are listening to this is to just find ways to allocate capital using that technology. So what I would say to those of you who are listening, who have gotten this far, I would say, continue to be risky in what you are thinking about funding and supporting—whether it’s with your capital, with your time, with your energy, with your connections, because the world is going to change very quickly with technology but we have a great window in the next few years to ensure that some of the system is built with the social and environmental impact in mind, not adapting, because it needs to make sure it mitigates risk, but really built with that in mind. So if there’s the resources to be able to do that, there’s going to be lots really intelligent people around the world that are going to be building platforms that are actually making sure that the technology is creating impact as opposed to just creating harm, and I think that’s going to be a really important element of what’s going to happen in the next few years.
Vandana: Yeah, definitely. And thank you so much for taking the time to participate in our Impact Series Podcast! We’re excited to continue following your work and the many exciting developments to come!
Aunnie: Excellent, thank you so much!
15 JAN 2018