Alumnus examines role of impact investing in development banking

In the sixth installment of the Ten Years Hence speaker series, Jozef Henriquez, Notre Dame alumnus and head of syndications at the Inter-American Development Bank (IDB), gave a lecture on impact investing Friday in the Jordan Auditorium of the Mendoza College of Business.

“More people are talking about impact investing, and there is one thing they agree on, which is the role of development institutions in development banking,” Henriquez said.

Impact investing is an approach unrestricted by investor or asset class that aims to create both financial returns and positive environmental and social impact, Henriquez said.

“You do need [the right] intention to make it impact investing,” Henriquez said. “In the traditional case, it’s profit driven. In our case, the intention is to make an impact.”

In contrast with philanthropic giving, impact investing also requires a financial return on the money being invested, he said.

“It’s in this area where impact investments differs from philanthropy. Here we need the money back,” Henriquez said. “What I like about impact investing is that it starts creating a market-based model to solve some of these global issues.”

Since impact investing is highly-results based, it is important to develop analytic methods to predict the success of the social benefits, he said.

“With the emergence of impact investing, anyone who puts money in these kinds of projects want to see results,” Henriquez said. “We’ve had to show our results to shareholders for a long time.”

“When we look at a transaction, being able to show the social or environmental results of that project is just as important as showing that it is a strong project.”

Henriquez said the IDB has developed its own “Development Effectiveness Model” to predict the success of potential projects.

“We look at development indicators, and we run these through a matrix to come up with the objectives of the project … and the outcomes that we’re looking to get.”

The increasing popularity of impact investing reflects several societal trends, such as a new focus on promoting social good in corporations, Henriquez said.

“Companies have woken up to what their role is in society … It’s not just about profits; it’s about your role in society and what your contribution to that is,” he said.

The rise of a middle class with greater disposable income also provides opportunities for growth in the impact investing sector, Henriquez said.

“Companies need to find a way how to channel the resources to the bottom the pyramid,” he said.

The IDB, a multilateral development organization consisting of 48 member countries, works with 26 recipient states in Latin America, Henriquez said.

“In the structured corporate finance department, we look for companies that are looking to contribute to the socioeconomic development of the Latin American-Caribbean region and companies that look for ways to mitigate the effects of climate change,” Henriquez said.

In particular, the IDB focuses its efforts on supporting environmental investments and developing small businesses in the region, he said.

“By 2015, we want to have enough projects that will improve the lives of 20 million people,” he said. “We want to support 12 billion dollars in climate friendly investments. And we want to support 700,000 Micro Small and Medium Enterprises.”

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