Most nascent industries go through the same stages of development: first, they go through a phase of uncoordinated innovation. A few products are made available, with exciting new features and – nearly always – obvious design flaws. These products are targeted at early adopters who fall in love with the new concept and will overlook the product’s imperfections – as long as it stands at the forefront of innovation. The products are designed, developed and sold by small boutiques that are known only by specialists. Volumes are very low and costs high.
The second stage is about building a marketplace. It requires working on the adoption of the innovation by a wider audience. This involves removing the flaws which could be deal breakers for most buyers, working on the packaging and marketing, and demonstrating the added-value of the newly conceived product. Usually, this can be done only by larger companies who have the distribution channels in place, can produce at scale with the right design, quality and costs. If successful, the newly launched product soon becomes a "star" and is quickly adopted by mainstream consumers.
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Finally, the industry gets into the "maturity" stage. The initial innovation is replicated in different contexts, copied by a large number of competitors and applied to a wide array of new products. Touchscreen technology is one such example of this evolution. It was not invented by Apple, as many believe, but by many different labs, universities or R&D platforms across the globe throughout the 1980s. Though Apple is not credited with the technical innovation itself, it was certainly the first company to popularise it. They were the ones who made touchscreen a really useful and daily-life technology. The "star" product was of course the iPhone, and today, touchscreens are found everywhere: smartphones, tablets, GPS systems, ATMs, you name it.
Impact investing industry is going through the same process. It is now at a stage where it has to move from the first "uncoordinated innovation" into the "marketplace building" phase. Similar to Apple with the touchscreen, private banks have a crucial role to play because they have access to investors and the know-how to design products that can be subscribed by a prominent base. This requires working on adoption as much as on the innovation side, pioneering products as well as removing the barriers which are still preventing mainstream investors from subscribing to high impact financial products, such as liquidity, absorption capacity and costs.
By doing so, private banks can be at the forefront of this development through leadership – helping redefine the role of capital and the way we invest in the future. They can be the catalyst to bridge the gap between investors willing to mobilise their capital for impact and social entrepreneurs who are struggling to access finance. Ultimately private banks should send a signal to the market making it clear that impact investing is now ready to be shared widely. It is now time to take impact investing to the next level and bring social impact into all portfolios.
Bertrand Gacon is the head of Impact Investing and Socially Responsible Investment at Lombard Odier
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