Photo Illustration: Lee McGorie / The National
Photo Illustration: Lee McGorie / The National

Socially responsible investments yield dividends



Investing money to make a difference goes by several names, with "ethical", "impact", "green" and "socially responsible" among the industry favourites.

But the definition is generally the same: returns are usually sacrificed in the name of doing good.

This view is set to change, according to a report titled Impact Investing in Emerging Markets, by the consultancy Responsible Research.

The report has found impact investing in emerging markets is becoming more attractive to fund managers, private equity companies and retail investors worldwide, because the returns are now more compelling.

The research cites a survey by the Global Impact Investing Network which found investors anticipate a return of between 20 and 24 per cent this year on their interests in impact companies working in emerging markets.

This return is comparable with, if not better than, expectations on emerging market indexes globally, the report found.

WillowTree Impact Investors, a private equity company that recently launched in Dubai, aims to take advantage of this growing trend. Founded by five managing partners, WillowTree believes it is the first private equity company in Dubai that invests in a socially responsible manner.

"The reality today is that pure altruism is not the main driver behind what we are doing here," explains Pasha Bakhtiar, one of the WillowTree founders. "We come in very much at a financial-first perspective.

"Why do people believe you can't make money by investing equity in a young, hungry entrepreneur who will build a business, create jobs, generate massive amounts of impact in society?"

WillowTree is raising cash from investors around the world and has nearly reached its target of US$80 million (Dh293.8m).

It will use these funds to take equity stakes in companies involved in education, health, food, poverty alleviation and community development, investing between $500,000 and $10m in each project.

The private equity fund is focusing on the Middle East, North Africa and south Asia.

"If you roll out a map of the region and put a compass point on Dubai and draw a four-hour plane ride around the emirate, you capture a third of the world's population," says Nic Farah, another WillowTree founder, on the group's decision to be based in the UAE.

"It's also [the] third of the world's population where impact is most needed."

Impact investing has experienced a shift in recent years. Previously, retail and professional investors would build a portfolio by excluding certain companies involved in what some would deem unethical industries, such as tobacco, deforestation or pornography.

Now, socially conscious investors prefer investments in projects that sustain and build economies, such as microfinance companies and medical institutions.

One investment WillowTree is considering is a company that produces a cheap form of power for rural villages throughout Africa.

"The impact side is usually ingrained in the way the entrepreneurs have built these businesses," says Mr Bakhtiar.

"We invest in the entrepreneur who can grow and finance himself in a three, five, seven-year timeframe. If we can't see that happening, the project hits the trash can."

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