31 Dec 2012

Innovating with sustainable direct investing : the case of “meso IMPACT Finance”

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Today, prosperity has to go hand in hand with sustainability. That’s the vision shared by meso IMPACT Finance, a Luxembourg-based investment vehicule. Insights into the conceptual basement backing the business strategy.

 
 
 
 

An innovation in the Luxembourg financial industry

Human being and Earth are our most important assets. With increasing poverty and challenges arising from an ever larger world population, the requirements for food security and renewable resources to cover even basic human needs are intensifying. The assumption that the success of an investment should be measured by financial return alone is increasingly contested and has been more hotly disputed in the wake of the financial crisis. Specifically, there is a growing belief in certain financial and political circles that investments should be judged by their ability to generate both a profit and a positive social impact.
Indeed, the challenges we are facing today can no longer be solved with a purely philanthropic approach. Water scarcity, environmental degradation, social instability resulting from unemployment, etc … have to be addressed by the private sector now through PPP – public-private partnership. But companies must also think differently and develop or adapt products and services that provide true solutions for the humanity instead of just breeding the consumption’s pace. Consumption as such is not sustainable, if non-renewable resources used to support it runs out and if it produces an uncontrolled flow of waste.

meso IMPACT Finance directs investment capital to sustainable SME businesses generating profit and measurable benefits for the society. Some sort of social private equity …This is an innovative approach comparable to the investment in microfinance where Luxembourg has forged its reputation as getting the largest centre for the domiciliation of MIVs (microfinance investment vehicules) in the world. Unlike the microfinance sector where the fund managers are used to being located abroad (*), meso IMPACT has developed and kept the investment processing in Luxembourg. It includes the entire value-chain going from the projects’ selection to the follow-up and reporting of the investee companies.

Investing in sustainable growth and development of the private sector in growing countries

Eligible businesses are small- to medium scale companies operating in any economic sector – industry, agriculture, services – that generate social and environmental measurable outcomes. The focus is put on this type of structures as they can easily capitalize on operational efficiencies, create jobs, serves as the engine for local economic growth and effect lasting change.

Creating the expected shared-value for all the parties involved can be obtained by the mean of achieving a blended return : a social and environmental positive impact in the locations where the investee companies operate ; sound financial returns for the investee companies as well as meso IMPACT Finance.
A specific focus is put on the working-relationships between all the stakeholders as a way to enhance returns, tap additional professional services, and reduce risks.

To achieve this goal, meso IMPACT Finance utilizes an in-house methodology (get more info about the PDI-inspired methodology), that provides an analytical framework and tools for impact investing which could measure both financial and social impact. This methodology is composed of : an appraisal check-list along with a scoring system aimed at screening valuable projects likely to deliver a significant social / environmental outcome ; a monitoring toolbox to support technical assistance on demand ; last but not least, key-performance indicators to follow up progress of the projects over time.
The project’s assessment should be seen as a constructive dialogue where every parties tend to reach a common and unique objective : how to develop economic activities being socially and environmentally sustainable, resulting in better livelihood for the population and a good financial return on the investment.

Projects sourcing and selection

meso IMPACT Finance benefits from a longstanding and reliable network of collaborations with numerous stakeholders to generate the deals flow and identify strong transactions. The geographical focus is Europe, South-East Asia, Africa.

An Investment Committee has been set to support the projects’ selection process. The principle of geographical and sector-based diversification applies in order to mitigate risks.

meso IMPACT Finance aims to build a portfolio of 8 to 12 companies within the next 3 years.
Investment in the selected businesses should take place under a minority stake in equity, with an exit mechanism agreed between the parties at entrance. A key-principle is to keep the local management on board as it has counted as a significant criterion in the selection process.
Investment purpose is to provide companies with fresh capital for business development including purchase of fixed assets, expansion financing, working capital and seed money. The funds should be exclusively channeled on mid- to long-term investment’s needs.

Discover examples of selected projects.

More info. :
meso IMPACT Finance
 

(*) except the LMDF (Luxembourg Microfinance Development Fund) and a few others from Luxembourg-based banks

 

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