Social projects that once depended on aid from donor agencies are shifting to what are known as “sustainable businesses.” But to stay sustainable, they need funding. Fortunately, as social issues arise, investors have changed how they invest capital. Instead of the biggest profit revenue, they are looking for the biggest impact—not to mention the healthiest snacks.
ISTANBUL, Turkey — Somewhere in the middle of the lush, green mountainous region of Ecuador, groups of farmers are harvesting tons of potatoes, beetroots, parsnips and plantains. But instead of selling them as raw crops, they convert them into certified healthy snacks. Within a matter of days, these high-quality crops are processed, packed and sent thousands of miles away, branded as Kiwa chips.
“We started this business because we see that the farmers here harvest mostly commoditized raw materials, like corn and potatoes, and are … easy prey for intermediaries who buy very cheap from them,” says Martin Acosta, general manager of Inalproces, the maker of Kiwa chips. “With this problem in mind, we decided to connect these small farmers to world markets.
“The job was never easy, but it has proven to be effective,” Acosta continues. “By providing them with technical assistance, we have managed to increase their productivity by 30 percent, thus increasing their income by 50 percent on average.”
Thanks to globalization, healthy Ecuadorian potato chips can now be enjoyed anywhere. “After selling our products in more than 10 countries, including Canada, Germany, France, Saudi Arabia and South Korea, our sales have grown at an average of 115 percent in just three years,” Acosta says.
But this ingenious and impactful business is not without its challenges; funding remains a central issue. “Since February 2012, when I committed … 100 percent of my time to Inalproces, funding has become tougher, and I am now looking for more investments, both as equity and debt,” Acosta says.
Indeed, access to finance is one of the main discussion topics among entrepreneurs, especially those who try to make a social impact with their businesses. But as the businesses shifted to being socially engaged, investors started to change the way they invested.
“[The] global financial crisis in 2008 and the pressure on government budgets, as well as the search for purpose and value creation, partly accelerated this shift in investments,” says Anja König, a Mercator-IPC Fellow from the Istanbul Policy Center at Sabanci University in Turkey. “In the past years, asset managers are observing an increased demand from asset owners for investments that not only minimize risk but also actively [create] social and environmental impact.”
Thus, the term “social investment” was born. “Social investment is [focused] on the deployment of capital in organizations with the explicit intent to create a social and environmental impact, in addition [to] financial return,” explains König.
Since the essence of social enterprises is generating profit while making a social impact, Acosta thinks the core purpose of his project is maximizing profits. “To be sustainable, we are increasing our sales and focus on profitability,” he says. “Our aim is to make our products reach markets worldwide.”
But when it comes to the source of funding, Acosta takes a firm stance. “I do not want it to depend on funding from development organizations or charity; we focus on profitability, all the time,” he says. “When it comes to financing, we have to be more profitable and expand our sales to attract more investors.”
A good example of a social investor is U.K. social investment bank Big Society Capital, which had more than 900 million USD in assets in 2012. Through its social investments, Big Society Capital ensures that social organizations are provided with a funding source and are able to fill financing gaps that would impede their growth and innovation. As of 2013, more than 15 social organizations have benefited from a Big Society Capital investment. According to the bank’s website, these organizations varied in type, from renewable energy companies to affordable housing institutions.
Harry Hummels, managing director at SNS Impact Investing, an investors group that focuses on social development, says that “impact investments are made into companies, organizations and funds with the intention to generate measurable social and environmental impact alongside a financial return.” He adds, “They can be made in both emerging and developed markets and target a range of returns, from below-market to market rate.”
These kinds of initiatives that focus on social projects are seen as an opportunity to further develop and sustain Inalproces. They have certainly not escaped Acosta’s attention. “We currently have a lot of impact investors and Ecuadorian investors interested in financing our activities,” he says.
And to ensure his business’s future, he has already made ambitious plans. “We want to continue growing. In the near future, we want to create two more businesses that will stem out from our core business. One of them will [be] related to green tourism.”
Thus, through socially impactful businesses like Kiwa, revenues can co-exist with the sustainable livelihood of the farmers they depend on. Fortunately, the potato chip enterprise is not alone. Hundreds of flourishing businesses with social impact are emerging today across the globe. It is now the task of investors and policy makers to help them grow as lushly as the raw crops on the Ecuadorian mountainsides.