Save the Children Global Ventures started out as a small-scale Australia-focused operation to show there was an appetite for “child-lens” investing. Now it’s taking advantage of a range of impact investing tools to scale up.
Over the last five years, Save the Children has been developing its own model for impact investing to help fill the funding gap for its activities. Pioneered in Australia and Asia, Save the Children Global Ventures (SCGV) is now bolstering its activities in Africa via a new debt fund, and leveraging its connections and community-level expertise to move into climate finance.
At the heart of its strategy is the concept of child-lens investing – modelled on the now established idea of gender-lens investing – that aims to provide a new funding avenue for impact investors interested in supporting child welfare and education.
Paul Ronalds, SCGV’s chief executive, has led the initiative throughout its evolution, which started when he was CEO of Save the Children Australia, a job he held for nine years until 2022.
Funding crunch
He was faced with a funding crunch at home in Australia, while the international organisation had to tackle the broader question of where to find the trillions of dollars needed to support the more than one billion children living in poverty globally, at a time when several major donor countries were paring back their development spending.
“The original pitch back to my internal colleagues was to say, we’re kidding ourselves here; there is no way we’re ever going to achieve our ambitious goals for children unless we actually crowd in significant private sector capital – and increasingly we have various mechanisms for doing just that,” he told Impact Investor.
The result was the launch in 2019 of the world’s first child-focused impact investment fund, a A$7.5m (US$5m) fund primarily investing in Australia and Asia. Investment came from global insurance firm QBE, Save the Children itself and various philanthropic foundations, amongst others. A second fund with a target size of A$25m will make largely late seed-stage investments and is due to reach a first close later in 2024.
Ronalds, now based in Switzerland, reports no shortage of viable potential targets for funding through SCGV’s child lens-investing strategy.
“Sometimes impact investors say to me they are struggling to find a project pipeline. We are seeing perhaps twenty to thirty investment opportunities every month, so we have no problem with the pipeline, which allows us to be highly selective in what we invest in,” he said.
Tech gains
SCGV’s portfolio currently consists of investments from its first fund in eight companies aligned with Save the Children’s goals and expertise in education, health, and child protection start-ups. Ticket sizes are in the US$0.25m-$1m range thus far. SCGV has also made three investments via its evergreen Children’s Impact Multiplier Fund, which is donation-backed rather than an investment product.
Smart technology is central to the impact of some of its most successful investments. One, US-based ThinkMD, provides phone-based software that dramatically improves the ability of less-educated, poorly paid community healthcare workers in the developing world to diagnose maternal and child health issues accurately. Initially piloted in Bangladesh, diagnosis by workers using the software is said to be 90%-95% as effective as US doctors diagnosing the same problems. It is now being used in several African and Asian countries.
Another is Zeraki Analytics, software developed by a Kenyan firm that taps into current thinking that improving education in developing countries is about more than building new schools and teacher training. Again with a focus on phone-based software, the platform helps schools to understand academic data, offering real-time tracking of student attendance and performance, which can be easily shared with administrators and parents. Over half the high schools in Kenya now use Zeraki’s software, which is now also being used in other African countries.
“We’re very excited about the impact that Zeraki’s software is having on education, but it’s also starting to become quite a good financial investment too because of its growth. We’ve used our relationships with ministries of education in neighbouring countries to make introductions, so Zeraki can continue to expand,” Ronalds said.
Africa debt fund lined up
SCGV’s third investment fund, the Generation Empowerment Fund, an Africa-focused debt fund, is currently at the development stage with plans to launch it at the COP29 climate change meeting to be held in Baku, Azerbaijan in November.
Ronalds hopes that the fund can achieve a first close of US$20m, ultimately growing to around $50m. Some $5m of support has already been earmarked by Save the Children itself, with further interest from a major government investor and various foundations, according to Ronalds.
The decision to make this a debt fund rather than an equity fund reflects the perceived risks still associated with equity investments on the continent.
“We had initially planned an equity strategy for Africa, but as we looked at the maturity of capital markets there and the need to be able to return capital back to investors, we just weren’t confident that we could do that effectively with an equity strategy in Africa,” Ronalds said.
However, significant demand for debt funding to support education and health in Africa, and interest from development finance institutions encouraged SCGV to adjust its strategy accordingly.
“We saw there was still an opportunity here to create a lower-risk product for Africa, with enthusiasm from investors for children’s education and health, but just leveraging that in a slightly different way through the debt mechanism,” he said.
Carbon credits move
Save the Children is also moving into climate finance. SCGV recently launched a nature-based solutions (NBS) hub, which aims to tap the fast-expanding global voluntary carbon credit markets to fund community-based projects that support children and combat climate change.
The plan is to use carbon credits to fund a variety of projects including, among others, improved water technology in Pakistan, mangrove rehabilitation in Vietnam, reforestation in the Philippines, and clean cookstoves in Nepal.
SCGV is already an investor in ATEC, which helps families in countries such as Cambodia and Nepal to switch away from LPG and traditional biomass cooking to cleaner, safer electromagnetic induction stoves, where they have access to adequate power supply. The technology also allows accurate monitoring of stove usage – key to developing trustworthy carbon credits.
Ronalds said two of the carbon credits projects were “well into the initial development stage” and that Save the Children was talking to a number of possible investors with an announcement expected in the near future.
He said local community buy-in was essential for nature-based solutions generating carbon credits in the developing world to work. A central part of the plan is to develop a standard to certify credits from projects that treat indigenous peoples and local communities fairly.
“If you can’t convince a community to treat a natural asset in a different way, you’re not going to be able to have the sequestration of carbon or the avoidance of carbon emissions that you’re looking to achieve in the long term,” he said.
Save the Children’s expertise in community behaviour change and project oversight in general meant the organisation was well placed to avoid some of the pitfalls that have stymied some NBS carbon credits projects in the past.
“One reason some of these nature-based solutions projects weren’t scaling was because there was no one to pull all those parties together in a way that was going to actually create a high-quality project, so that’s what we’re doing,” he said.
In order to develop a project producing verifiable, trustworthy carbon credits, this typically means pooling Save the Children’s relationships and community behaviour change knowledge with the on the ground environmental expertise of a local NGO and the technical and product development skills of a carbon markets partner. SCGV has already invested from its own balance sheet in one carbon markets partner, Carbon Neutral.
In terms of funding, the riskier early-stage funding for such carbon credits projects would likely come from philanthropic sources, with private sector investment coming in later to allow the project to go to scale.
Ronalds hopes SCGV’s impact investment model will serve as a blueprint for efforts elsewhere to mobilise private capital in areas that used to be the domain of development aid.
“From my perspective it’s a win-win-win, though there are still a lot of sceptics, who ask what an organisation like Save the Children knows about impact investing. But that’s because it’s new and hasn’t been done at scale,” he said.
“We’ve got to encourage NGOs to think about alternative business models that are sustainable in the long-term, when government cuts to overseas development expenditure in countries such as the UK have placed them under significant financial strain,” he adds.
