The GSG is entering its second decade at a time of rapid change for the industry it is helping to build. CEO Cliff Prior believes the diverse nature of global economies should be considered when shaping the sector’s future.
- GSG has expanded its network of NABs to 42 institutions across both developed and developing countries.
- A further 30 NABS are due to be created in the future.
- An overly prescriptive approach to defining and measuring impact risks prevents some useful investments being made, according to CEO Cliff Prior.
- GSG is pushing to ensure that the voices of developing countries are well represented when international frameworks are created.
The Global Steering Group for Impact Investment (GSG) has come a long way from its roots as an organisation founded to promote social impact in G7 countries, evolving into a guiding hand and facilitator for the growth of all aspects of impact investing around the world via its network of National Advisory Boards (NABs).
Cliff Prior has been CEO of the organisation since May 2020, when he moved from the CEO’s role at Big Society Capital, following a career mainly working in the third sector and the nascent impact investing sector. His involvement with GSG goes back to its roots as the Social Impact Investment Taskforce established under the UK’s 2013 presidency of the G8, before it broadened its scope to become GSG, tasked with global market building for the impact sector, in 2015.
“It’s been a constant re-evaluation of what is possible, and what can be achieved. Focusing on small-scale impact investing work with SMEs in a set of developed countries – the G7 plus Australia – felt absolutely groundbreaking in 2013. Since then, there has been almost a revolution in the development of GSG every year or two,” Prior says.
Those revolutions have resulted in the expansion of GSG’s network of NABs – expert country panels charged with developing impact investing – to 42 institutions, across both developed and developing countries. A further 30 NABs are due to be created in the near future, bringing the network’s reach to around two-thirds of the world’s population.
GSG has expanded its role beyond driving SME growth in the West to become a global market builder for impact investment, promoting effective use of an expanding toolkit of financing mechanisms, which now includes green, social, and sustainability-linked bonds, blended finance, catalytic capital, and guarantee mechanisms. In that capacity, the organisation was one of the partners in the WEF-backed Humanitarian and Resilience Investing (HRI) initiative, announced at Davos in mid-January. The initiative aims to mobilise $10bn from a range of actors to enable businesses in frontier markets to scale up their operations by 2030.
Prior says that NABs in the network are not only becoming more numerous but also more capable, engaging with investors, business and government to tailor investment to the needs of the local market in developing economies.
One way of doing that is to provide capital in local currency which can be disbursed in smaller amounts more straightforwardly than large-scale foreign currency-denominated capital pools.
In 2023, Ghana’s GSG NAB – Impact Investing Ghana – started implementing the Ci-Gaba Fund of Funds, a $75m target vehicle to blend international philanthropic capital with domestic pension funds, for which Savannah Impact Advisory has been appointed fund manager. The GSG has supported initial capital raises from the MacArthur Foundation, World Economic Forum, and Collaborative for Frontier Finance.
Elsewhere in Africa, the Nigeria National Advisory Board for Impact Investing is sponsoring the Wholesale Impact Investment Fund (WIIF), a $1bn fund to finance social enterprises and micro, small, and medium-scale enterprises in the agriculture, education, health, energy, and creative industries sectors. Smoothing the way for local investment, 90% of the fund will be naira-denominated with the rest dollar-denominated. GSG is providing learning and research support, while German development agency GIZ is providing design funding.
Meanwhile, the Zambia National Advisory Board for Impact Investment and the Bank of Zambia are collaborating to design a $150m credit risk guarantee scheme that will provide low-cost credit to formal and informal SMEs operating in the agriculture value chain.
Prior also notes progress in several developed countries, such as France and Spain. In Japan, the NAB has been party to a strong expansion in the impact investing sector, driven by a supportive regulatory framework. It had been relatively small-scale before the Covid pandemic, but now has more assets under management than the UK impact sector.
Maximising real-world impact means being pragmatic about getting investment to where it is needed, according to Prior. An overly prescriptive approach to defining and measuring impact risks prevents some useful investments being made at all, he believes.
“There are many people in our field who focus on exactly what impact is, and that’s good. However, the important thing is really impact on the ground. We have in the region of 10 years before quite catastrophic climate change causes serious harm, so we should not be too focused on how many angels can sit on the end of an impact pin – that’s not what it’s about,” he says.
Prior cites healthcare, a sector in which he has worked extensively, as an area where an insistence on nothing but positive impact would not have yielded the advances it has produced.
“There is nothing 100% in any part of healthcare. A medicine you take might be 70% effective, but it may also have 20% negatives. You’re always balancing things. If we hunt for perfection, we will not achieve our goals,” he says.
Prior welcomes signs that the European Commission is now considering making changes to the EU’s Sustainable Finance Disclosure Regulation (SFDR) framework, whose existing regime has caused problems for fund managers and developers of financial instruments in categorising their sustainability-oriented products appropriately, due, in part, to the shifting, complex conditions required to qualify for greenest Article 9 classification.
GSG was a co-signatory of a stakeholder letter to the EC calling for reform, following a three-month consultation on the SFDR, which ended in mid-December. The industry is pushing for a clearer labelling system that makes it easier for asset managers to flag up to their potential investors the benefits of funds and instruments that generate mainly positive impact, even if some elements of investments have some negative consequences.
Incorporating diverse approaches
GSG is also pushing to ensure that developing countries, which tend to be at the sharp end of climate-change impacts, are well represented at the table, when changes to the international frameworks shaping impact investment flows are hammered out.
“The GSG, and the National Advisory Boards give you a clearer sense of what’s happening globally. What works in Thailand is different from what works in Colombia or Turkey. That is hugely important and it’s what we’re focused on now. Half of our team is scattered around the world making sure that countries have a voice in big financial system changes that are coming along,” Prior says.
He says it was a positive sign that the International Sustainability Standards Board (ISSB) had sought out support from the GSG when designing its standards for climate and sustainability reporting to ensure that diverse voices from around the world were part of the process.
“To me this is the biggest success we’ve had so far,” he said.
Another focus for GSG is heavily populated South-east Asia and China, where impact investing is relatively under-developed but gathering momentum.
GSG is working with institutions in China to raise the profile of impact investing in a country where, Prior points out, 500m people still live in rural poverty. He concedes that China provides a challenging environment in which to operate, but says engagement is growing, noting there was a strong Chinese representation at a blended finance capacity building workshop held by GSG in Bali on January 23.
Elsewhere in Asia, where impact investing is gaining traction, GSG is building its support. NABs in Malaysia, Thailand and Bangladesh are already part of the network, while Cambodia, Vietnam and Indonesia could join the network in future.