Impact Investing: India Philanthropy

The EdelGive Hurun India Philanthropy List 2023, which was released on November 2, has 119 philanthropists who gave away ₹8,845 crore in 2022-23. Philanthropy is welcome, but impact investing would benefit society more.

What is impact investing? It is investing that prioritizes an intentional, measurable social or environmental benefit over maximizing financial returns. Impact investing is gaining traction among asset managers as a superior alternative to vaguely defined ESG integration. They aim to generate decent financial returns while helping achieve identified social and environmental goals. The global hunt for impact investing opportunities is welcome, but Indian entrepreneurs should model themselves on the Omidyar Network rather than chase after an ESG gloss to their returns.

The Omidyar Network spends to generate greater degrees of inclusivity and equity in society. Their spending is a mix of capital infusion and grants, the appropriate form of funding determined by the funding opportunity.

In many cases, philanthropy might be most appropriate, but in some cases, the same goal could be achieved by an income-generating investment, the returns from which could be ploughed back into the investible corpus to increase the funds available for generating the desired impact.

With the political economy turning towards welfare and care across both the political spectrum and geography, the case for pure philanthropy is diminishing. Free food, free hospital care, free houses, subsidized Bharat flour, subsidized cooking gas, subsidized fertilizer, the realm of what is available for free is expanding.

Quality and effectiveness might still be lacking, even if gross access targets are met. One solution is to make the public offering work better. Another is to supplement the public offering. The Azim Premji Foundation seeks to improve the quality of the state school system. Shiv Nadar runs a quality school for the poor.

Global Healthcare is a low-cost private healthcare provider that uses technology and innovation to offer healthcare services, ranging from remote physician consultations on a phone and kiosks that can carry out extensive pathological tests to full-fledged but low-cost hospitals. It is an ideal hub for an accountable care network, in which a per-capita premium is paid to the healthcare provider to proactively keep an assigned patient population healthy and treat them if they fall ill.

This avoids the misaligned incentives of a conventional health insurance-hospital pair, in which the hospital seeks to inflate costs and the insurance company seeks to minimise payout. India needs more outfits like Glocal, presenting an ideal avenue for impact investing.

Khan Academy champions a mastery model of primary education, in which children only move ahead from their K+12 grade once they have learnt 100% of what they are supposed to learn at their level. This makes intuitive sense on two counts:

Students master the building blocks, on which real comprehension of what is taught at the higher level depends.

They learn that if they apply themselves long and hard enough, they can master anything they are expected to. This would lead to an exponential gain in the quality of education across the board.

While this sounds simple in theory, to put it in practice, teachers and parents/counsellors need the tools to assess progress towards mastery, entirely separate from the conventional terminal exam. That calls for technology besides a network of counsellors. Someone must develop them. It calls for impact investing, not philanthropy.

Climate change is another area where technological innovation is required. Changes in crop duration and agro-climatic conditions call for innovating new varieties, locations and agronomic practices. Investment is required for all this.

The biggest challenge is CO2 removal from the atmosphere and using the captured carbon. Nasdaq-listed LanzaTech has bred bacteria that can convert CO2 into ethylene, a building block in organic chemistry. Chemical and biological processes need to be identified to convert, economically, captured CO2 into useful things, ranging from diamonds and sand-substituting aggregates to carbon fibre, graphene, and Vantablack. This calls for lots of investment.

Nor is it enough to limit impact investing to early-stage venture capital. Once some ideas mature into the potential promise, they need lots of follow-through funding, which again might need to prioritise impact over financial return, at least in the short run.

A peculiar feature of the EdelGive Hurun list is the preponderance of South Indians. There could be two explanations. North Indians might follow the maxim of not letting one hand know what the other gives. Or they might pursue their do-goodery through impact investing rather than outright giveaways.

Let fund managers create impact capital pools, to which do-gooders can contribute funds that receive upfront tax concessions, which can be taken back if the investment generates financial returns. Let the capital pools be managed by those incentivized to generate measurable impact and financial returns. Let the milk of human kindness flow, channeled to maximize impact, carefully measured and accounted for.

TK Arun is a senior journalist based in New Delhi.

This article was first published in The Economic Times on November 15, 2023 as In the Goodness Business.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

Read more by the author: Global Impacts of The Killings in Gaza.

Posted by Samprikta Banerjee, Research Intern at IMPRI.