Impact Investing: Why invest in education?
Did you know, investors around the world are making impact investments to unleash the power of capital for good? In this article, we would like to provide you with the core characteristics of impact investing digging into the education field.
Impact investing definition
Impact investing is first and foremost an alignment of an investor’s beliefs and values with the allocation of capital to address social and/or environmental issues. Impact investing refers to investments “made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return”.
Impact investments can be made in both emerging and developed markets and target a range of returns from below market to market rate, depending on investors strategic goals.
The growing impact investment market provides capital to address the world’s most pressing challenges in sectors such as renewable energy, sustainable agriculture and affordable and accessible basic services including housing, healthcare and education.
The Global impact investing Network defines the Core Characteristics of impact investing with the following four notions:
The investor’s intention to have a positive social or environmental impact through investments.
Investing with return expectations
Impact investing is expected to generate a financial return on capital or, at minimum, a return of capital
Range of return expectations and asset classes
Impact investing targets financial returns that range from below market (concessionary) to risk-adjusted market rate and can be made across asset classes such as cash equivalents, fixed income, venture capital and private equity.
This is the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing and building the field.
Impact investing in education
Many will agree in recognizing Education as the most powerful investment in our future. Research shows that education can make a lasting difference in people’s lives and it is not just good for individuals but also for nations. Investing in education is not just the right move but it is also smart economies.
Education lead path towards health, empowerment, and employment. Evidence shows that each additional year of education boosts a person’s income by 10% and increases a country’s GDP by 18%. Some investigations estimate that if every child learned to read this will mean 170 million fewer individuals would live in poverty. By 2030, over 600 million more children will need to be enrolled in school to achieve basic education for all.
So how can we get more people in school, learning skills that will help them to heal wounds and rebuild their societies?
- we must invest more in education. We need $26 billion more to get people in school and learning
- we must invest more effectively in learning, improving learning assessment. And being accountable to communities for education results
- we must invest more equitably to make sure people who are most in need have access to quality learning
Impact investing challenges
Financing is one of the key barriers to growth within the education sector. Most of impact investments are made to expand school infrastructure and capacity.
Impact investors are looking to strengthen the ecosystem which surrounds the emerging sector to offer quality education in a sustainable manner.
The objective is for institutions to be sustainable and managed independently, in order to generate market demand and drive intense competition between schools.
Invest in Education: Overview
Many low-income countries still lack the resources and capacity to provide Governmental universal basic education of quality.
The funding gap needed to provide basic education for all children, youth, and adults has increased to US$ 26 billion.
Education impact investing could mobilize new funding, enable private sector engagement in both public and private education service delivery, and introduce approaches or tools to improve efficiency in the service delivery, promote innovation in teaching and learning methods, and monitor outcomes and systemic effectiveness.
Impact investing in education remains nascent but could deliver immediate financial returns while reaching the most vulnerable beneficiaries.
Investors look at the risk and return of an investment as well as the positive and social impact it may generate.
Because of the perceived lack of innovation in education, private capital can fill a gap through funding direct service provision and spur innovations that increase equitable access, enhance quality, and ensure retention.
Impact capital differs from commercial private capital in that it seeks to reach the most vulnerable beneficiaries and differs from private philanthropic capital in that it seeks to apply market-based innovations to ensure financial sustainability, if not financial profit.
The challenge for impact investors is to catalyze models and approaches that target high impact and financial sustainability simultaneously.
Invest in Education: Recommendations
Investing in Education is a question of mindset. That’s because the decision to investing in this field has a far-reaching impact: on the environment, the economy and society. Investing in Education is investing in tomorrow with a proven commitment to a better world.
Sounds like a good plan? A few key recommendations:
- Maintain realistic expectations – finding high impact and high financial returns in the short-term remains a challenge
- Establish philosophical clarity upfront – funders need to be clear upfront about their priorities and timeline, taking into consideration the positive social and environmental impacts
- Look to interventions in the broader educational ecosystem – from low-cost tablets that revolutionize the textbook industry to back-office management systems to reduce teacher absenteeism
- Consider channeling capital through funds and intermediaries to deploy larger amounts more efficiently – dedicated education intermediaries with proven models that enable investors to overcome fragmentation, diversify risk and invest larger sums
- Adopt a more flexible definition of success – support a model that raises the bar for quality education, pushing the public sector to meet that bar
- Focus on innovation – seek innovation through collaborative processes
- Measure and evaluate impact on education quality and access – request evidence of model effectiveness
Impact investing has emerged in recent years as a potentially promising tool to mobilize additional capital toward the goal of broadening access to quality education.
Impact investing includes a range of funding activities in various sectors that combine financial return with social and environmental good.
Impact capital can help to:
- Experiment – “Prove the Concept”
- Catalyze – “Grow and Refine”
- Scale – “Deploy large-scale Capital“
Models that target higher-income populations with greater spending power present more investment opportunities and can offer attractive or even commercially competitive returns.