WEBVTT 1 00:00:10.025 --> 00:00:13.005 line:85% So this is one of the biggest questions in impact investing. 2 00:00:13.019 --> 00:00:16.016 line:85% Is there a tradeoff between financial returns and social impact? 3 00:00:17.013 --> 00:00:19.022 line:85% The reality is that impact investing is a spectrum. 4 00:00:20.010 --> 00:00:23.001 line:85% It encompasses everything from strategic philanthropy, 5 00:00:23.014 --> 00:00:26.023 line:85% to what we call muted returns investing, to market returns. 7 00:00:27.008 --> 00:00:31.028 line:85% Strategic philanthropy is, think of it as you know, returnable capital or returnable grant, 8 00:00:32.005 --> 00:00:34.016 line:85% you give money but after a few years its gets paid back. 9 00:00:34.029 --> 00:00:38.015 line:85% so you don't generate return or there is zero percent return but you still get the capital back. 10 00:00:39.017 --> 00:00:46.016 line:85% Muted returns is when you are making anywhere between let's say 5% and 20% annual internal rate of return or IRR, 11 00:00:47.008 --> 00:00:51.015 line:85% which is often the case in several of these business models because they are much harder to execute 12 00:00:52.000 --> 00:00:55.010 line:85% then traditional businesses or businesses serving the high end market. 13 00:00:55.024 --> 00:00:59.028 line:85% That being said there are enough examples and enough opportunities that we have seen in impact investing 14 00:01:00.011 --> 00:01:03.029 line:85% which do generate market based returns while creating enormous social impact. 15 00:01:04.017 --> 00:01:08.027 line:85% In this case we are argue that the social impact is often sort of embedded in the business model itself. 16 00:01:09.014 --> 00:01:11.001 line:85% A classic example of this is microfinance. 17 00:01:11.023 --> 00:01:13.029 line:85% So impact investing encompasses this entire range. 18 00:01:14.019 --> 00:01:16.018 line:85% So we actually believe that no, 19 00:01:17.000 --> 00:01:20.016 line:85% there isn't really a tradeoff between social impact and financial returns, 20 00:01:20.027 --> 00:01:23.006 line:85% and the evidence increasingly, you know demonstrates that. 21 00:01:23.022 --> 00:01:26.027 line:85% We are going to hear now some different perspectives from some of the leading voices in the industry 22 00:01:27.016 --> 00:01:28.021 line:85% and hear what they have to say about this issue. 23 00:01:30.000 --> 00:01:33.011 line:85% A lot of people ask me this question would you compromise return for impact. 24 00:01:33.028 --> 00:01:36.015 line:85% I think the only thing I think we compromise for return on impact 25 00:01:36.029 --> 00:01:39.028 line:85% is that we are willing to live with unpredictable returns. 26 00:01:40.006 --> 00:01:42.004 line:85% If the company that we build in 27 00:01:42.015 --> 00:01:44.012 line:85% because it is dealing with a very mass market, 28 00:01:44.022 --> 00:01:47.013 line:85% if it becomes successful the returns are going to be extraordinary; 29 00:01:47.025 --> 00:01:51.000 line:85% but if it is not successful then you are going to get a zero return. 30 00:01:51.008 --> 00:01:53.029 line:85% Irrespective of whether you are a venture capital or a private equity guy 31 00:01:54.011 --> 00:01:58.017 line:85% given the markets and the risk that it takes, the returns always remain unpredictable. 32 00:01:59.011 --> 00:02:02.012 line:85% I think the only probable difference is that we are taking extraordinary risks 33 00:02:03.000 --> 00:02:06.017 line:85% and yet continuing with unpredictable returns, returns can be high and low. 34 00:02:07.001 --> 00:02:09.010 line:85% Unpredictability is really the risk that we are talking about. 35 00:02:10.018 --> 00:02:13.004 line:85% So impact investment on the broadest level if you look at the 36 00:02:13.026 --> 00:02:17.005 line:85% history of the asset class in India, if I were to call it an asset class, 37 00:02:17.023 --> 00:02:20.022 line:85% is that impact investment returns actually have been slightly better 38 00:02:21.028 --> 00:02:24.004 line:85% then the overall investment eco system returns. 39 00:02:24.038 --> 00:02:30.004 line:85% Now will that sustain its not clear and that's not something that as an industry I think we should hunt for, 40 00:02:31.004 --> 00:02:26.008 line:85% but clearly what we are seeing is that the idea of doing good and doing well are not two separate things. 41 00:02:37.004 --> 00:02:40.012 line:85% If you back entrepreneurs who are solving the largest needs of society 42 00:02:41.003 --> 00:02:43.004 line:85% wants of them, and they are able to do that at scale, 43 00:02:44.002 --> 00:02:49.013 line:85% in most cases we found that returns and impact go hand in hand so it's not really a choice. 44 00:02:50.017 --> 00:02:53.023 line:85% So I would say we have always followed an impact first approach. 45 00:02:54.007 --> 00:02:57.026 line:85% So the first test for an impact business 46 00:02:58.005 --> 00:03:01.004 line:85% is whether the product or the service it is delivering, 47 00:03:01.013 --> 00:03:05.005 line:85% is actually helping impact the clients' lives. 48 00:03:05.015 --> 00:03:07.012 line:85% So whether it's in education or livelihoods 49 00:03:08.002 --> 00:03:13.024 line:85% and soon after there is a very close test on are we delivering it at a price point 50 00:03:14.006 --> 00:03:16.020 line:85% that meets the client’s affordability levels? 51 00:03:17.003 --> 00:03:21.006 line:85% And also meets the enterprise's own financial viability levels? 52 00:03:21.025 --> 00:03:24.017 line:85% And once those two are proven, 53 00:03:25.014 --> 00:03:32.009 line:85% I think then, you know, there is a very strong co-relation between impact and returns because the more you scale, 54 00:03:32.029 --> 00:03:40.028 line:85% you will create more impact and of course you will hopefully create more returns unless you are selling each new product at a loss. 55 00:03:41.025 --> 00:03:43.026 line:85% I think sometimes the challenge comes 56 00:03:44.016 --> 00:03:49.017 line:85% when we are taking a very short-term or a microscopic view of a business versus a long term view. 57 00:03:49.029 --> 00:03:52.012 line:85% So I would take an example in our EdTech solutions. 58 00:03:52.029 --> 00:03:55.013 line:85% We often ask the enterprise to measure impact 59 00:03:55.026 --> 00:03:58.021 line:85% because I feel you know measuring quality 60 00:03:58.029 --> 00:04:03.020 line:85% is important for your future sales, to get your loyal customers, to establish yourself as a brand. 61 00:04:04.008 --> 00:04:07.009 line:85% And unless you invest in measuring that quality, 62 00:04:07.024 --> 00:04:09.020 line:85% you also don't know where the impact is. 63 00:04:10.005 --> 00:04:13.026 line:85% So in the short term it may look like a tradeoff that we are measuring impact, 64 00:04:14.006 --> 00:04:16.016 line:85% and therefore diverting profits to that purpose; 65 00:04:17.000 --> 00:04:18.018 line:85% profits or you know the business resources 66 00:04:19.012 --> 00:04:20.019 line:85% whereas we could have scaled up. 67 00:04:21.009 --> 00:04:25.029 line:85% But I think in the long term it just creates a much more sustainable and market friendly business. 68 00:04:26.015 --> 00:04:28.028 line:85% So yes we see those tradeoffs, 69 00:04:29.018 --> 00:04:34.029 line:85% but once you have the product right, once you have the customer segment right, and once you have the viability of the product right, 70 00:04:35.013 --> 00:04:41.027 line:85% I actually think in most cases there is a complementarity between returns and impact. 71 00:04:42.025 --> 00:04:46.000 line:85% It's not a tradeoff between money and meaning, 72 00:04:46.025 --> 00:04:47.024 line:85% it's a synergy. 73 00:04:48.018 --> 00:04:54.022 line:85% Businesses that pursue both profit and purpose achieve outperformance. 74 00:04:55.025 --> 00:04:59.028 line:85% They are able to focus far more on the end consumer, 75 00:05:00.020 --> 00:05:02.015 line:85% they are able to attract better talent, 76 00:05:03.015 --> 00:05:09.023 line:85% they are able to reduce the risks that come with corruption and with regulatory management. 77 00:05:10.017 --> 00:05:12.018 line:85% They are the owners of the future, 78 00:05:13.013 --> 00:05:19.019 line:85% because they see 3 billion customers coming online, 79 00:05:20.028 --> 00:05:29.017 line:85% they see that it's not about serving them today or next week or what quick quarter results you can get. 80 00:05:30.011 --> 00:05:36.007 line:85% It's about tapping an opportunity that is gonna run for the next decades and decades. 81 00:05:37.004 --> 00:05:43.006 line:85% We've shown that once you put this synergistic combination together of profit and purpose, 82 00:05:44.012 --> 00:05:47.022 line:85% the results you get on both sides are stronger. 83 00:05:48.018 --> 00:05:53.009 line:85% And that since the industrial revolution this notion of a tradeoff that has been practiced 84 00:05:55.007 --> 00:05:58.016 line:85% has actually been a fitter on humanity, 85 00:05:59.017 --> 00:06:05.023 line:85% and we can liberate businesses, and we can liberate investors, and we can really liberate societies 86 00:06:06.010 --> 00:06:08.022 line:85% to invest in a very different way 87 00:06:09.014 --> 00:06:13.004 line:85% because of this demonstrated performance of the purpose driven purpose.