1. Inclusive Business Impact Assessment Why Harmonization and How? 2 nd Asia Inclusive Business Forum 17-19 Feb 2016, ADB headquarters, Manila For inquiries: Dr. Armin Bauer, Principal Economist, coordinator of ADB’s Inclusive Business Initiative, Asian Development Bank, abauer@adb.org, Tel: 0063-2-6325550 abauer@adb.org

2. What we will discuss 1. Impact assessment is as good as your definition on IB 2. Impact assessment should inform for project design; it is good for self rating 3. Ex-ante impact assessment is easy and cheap 4. The more complicated tool 5. How do others measure Impact? 6. ADB’s proposal to measure impact  The 5 steps 7. IB+SE accreditation is necessary if we want any support program from government 8. Partner and Harmonize 2

3. What is Inclusive Business ? Inclusive Businesses are  Commercially viable private companies  Whose core business  Is to provide in scale  Systemic and innovative  solutions  To the relevant problems  of the poor and low income people 3 impact

4. Why impact assessment ex ante  Its not about  measuring rate of returns or size of profit  General impact investing (environmental or other impact)  Reporting for “branding”  It is about using impact assessment for better project design  that is It has to be ex-ante  Focus on contribution rather than attribution  Understanding the impact chains  We favor assessment over self-reporting  Quantifying before and after / with and without solutions  The tool has to be simple and affordable; and easy to report on 4

5. What are the key questions” Relevant for the poor ? Solution or just a little contribution? Reach Depth Systemic Change What are the innovations? 5

6. Monitoring impact investments - what the others do  Global Impact Investors’ Network (GIIN): developed the Impact Reporting and Investment Rating (IRIS) and a Global Impact Investing Rating Scheme (GIIRS)  IRIS:  Set of indicators  companies or funds can chose from for self reporting  Common langue for reporting social and environmental impact, Not context specific  GIIRS  Social and environmental impact  Weighting and rating (1-5 stars)  Can we compare?  Aspen Network of Development Entrepreneurs (ANDE)’s core set of metric: Revenue, employees, wages, additional finance mobilized, greenhouse gas emissions avoided  IADB: number of beneficiaries, cost per beneficiary, innovation factor, role of BoP, scalability, replicability  KfW/DEG: impact rating system: combination of social, financial and economic returns  IFC’s Development Outcome Tracking System (DOTS): focus on growth and jobs; financial performance, environment-social=governance standard, private sector development 6

7. ADB Impact Assessment Tool - 5 Steps A tool for a fund manager to assess individual possible deals, not for portfolio screening 5 steps  Eligibility gate: financial soundness, good business case, social inclusiveness  Routes to Impact (smell test): how does the company achieve the combination of financial and social objectives: unmet development needs, proposed inputs, planned outputs, anticipated outcomes, anticipated impact, alignment of social and financial objectives  investment decision 3. Scoring: social impact and inclusiveness; direct beneficiaries and poverty ratio, distribution benefits, gender, percentage change, systemic impact (innovation and scalability), distribution and use of company profits, relevance and critical need for the poor, internalization of inclusiveness in the company’s business culture 4. Setting Targets 5. Assessing the Fund Manager’s performance 7

8. Company Self Rating Tool 8

9. Accreditation 9

10. Harmonization Why? How? 10

11. Further information 11

12. ADB Impact Assessment Tool - 5 Steps  Eligibility gate: financial soundness, good business case, social inclusiveness 12

13. ADB Impact Assessment Tool - scoring 1. Eligibility gate: financial soundness, good business case, social inclusiveness 2. Routes to Impact (smell test):  how does the company achieve the combination of financial and social objectives:  unmet development needs, proposed inputs, planned outputs, anticipated outcomes, anticipated impact, alignment of social and financial objectives  investment decision 3. Scoring 4. Setting Targets 5. Assessing the Fund Manager’s performance 13

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16. ADB Impact Assessment Tool - scoring 1. Eligibility gate: financial soundness, good business case, social inclusiveness 2. Routes to Impact (smell test): 3. Scoring (1-10, or high-medium-low; weights depending on ADB strategic priority):  social impact and inclusiveness; direct beneficiaries and poverty ratio, distribution benefits, gender, percentage change, systemic impact (innovation and scalability), distribution and use of company profits, relevance and critical need for the poor, internalization of inclusiveness in the company’s business culture  Good business case conditions: alignment of financial and social objectives, value for money (cost per beneficiary), management of negative social, environmental, governance impact, proven quality of financial performance, quality of strategy 4. Setting Targets 5. Assessing the Fund Manager’s performance 16

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18. ADB Impact Assessment Tool – setting targets 1. Eligibility gate: financial soundness, good business case, social inclusiveness 2. Routes to Impact (smell test): 3. Scoring 4. Setting Targets for systemic change on poverty reduction and inclusiveness  Fund manager will set targets for each project, in consultation with company and ADB  Along the routes of impact  Direct and indirect  Data point should be referenced to the IRIS set of indicators 5. Assessing the Fund Manager’s performance 18

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20. ADB Impact Assessment Tool – assessing fund manager’s performance 1. Eligibility gate: financial soundness, good business case, social inclusiveness 2. Routes to Impact (smell test): 3. Scoring 4. Setting Targets for systemic change on poverty reduction and inclusiveness 5. Assessing the Fund Manager’s performance (impact coefficient)  Principles  incentives to select business ventures with significant pro-poor and inclusive business impact Maximize not only commercial returns  Nothing without social impact  Quantitative and qualitative matrix to determine the impact coefficient (UBS):  Impact coefficient  Investment policy target  Investment target on Pro poor reach  Achievement of specific targets (incl. innovation of IB business models promoted)  Quality of reporting  annual impact assessment (Aureos Health Fund) or carry (15%+5%+5%) or combination 20

21. ADB Impact Assessment Tool – assessing fund manager’s performance 1. 21

22. ADB Impact Assessment Tool - Reporting For the investment committee  Initial screening  Investment approval  Portfolio management and monitoring Reporting to ADB / development partners  Core metrics: number of beneficiaries, route to impact, revenue and profit generated, additional capital mobilized,  Company specific metrics: output and outcome indicators  Additional qualitative indicators, e.g.: empowerment of the poor (organizing in cooperatives, involvement in company’s decisions), engagement of NGOs, change sin government systems 22

23. ADB Impact Assessment Tool –  In sum  A rating instrument 23

24. ADB Impact Assessment Tool – in sum 1. 24

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