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Supermodels

- 9th April 2011

Supermodels like Kate Moss make lots of money because of their universal appeal.   In her multi-decade career, mega-brands, lifestyle, art and media outlets have sought to exploit the image of Kate.  In this way, the world of public policy mirrors the world high fashion.


‘Impact’ investing,  a strategy which concomitantly uses financial, social and environmental indicators to make investment decisions, is developing the qualities of a public policy supermodel. Like Kate, who found admirers from different walks of commercial and artistic life, diverse types of public agencies are beginning to find the idea of ‘impact’ investing irresistible. The equivalents of mega-brands and media outlets in the policy world are donor organizations, development banks and cash constrained government organizations.


Local and national level donor organizations for example have found that they have more success marketing basic public services such as health and sanitation as opposed to providing services directly. Toilets are a case in point; when they were provided to communities free-of charge, donors found they were more often disposed of then used. In contrast, projects which focus on stimulating demand such as the Water and Sanitation Programme create markets and space for private financing of local entrepreneurs to furnish these services.


The ‘impact’ model is also attractive to agencies interested in financing large scale infrastructure projects.  Agencies like the International Finance Corporation and the Asian Development Bank, who have mandates to attract financing for green energy projects can certainly benefit from a model that encourages investors to consider extra-financial returns.


Government departments who are concerned about post-financial crisis risk management tools that are available to pension funds would also not be blamed for dabbling with ideas about impact investment. Many ‘impact’ investments such as forestry are after all believed to be negatively correlated to more conventional asset classes. A gentle push for institutional investors towards these social and environmental goods may therefore help to stabilize the traumatised portfolios of institutional investors.


Impact investing is also a great buzzword in the era of the ‘big society’. In countries like the United Kingdom, where government departments are expected to provide public services in spite of a shrinking budget, it doesn’t seem like a bad idea to search for opportunities for other types of financing. The social impact bond which provides returns to investors on the condition that inmates at Peterborough Prison do not reoffend is emblematic of the type of initiative that has the potential to replace public money with private financing.


Not only are public policy models similar to the supermodels of high fashion insofar as they may have widespread appeal, they also have the potential to be disruptive. When Kate arrived on the modelling scene, she pushed out the more curvaceous models that had been enjoying popularity. With her stardom, other models also began to emulate her.  The interest of governments in this model generates much excitement and speculation in the marketplace and new ideas for ‘impact investment products’ are beginning to appear in surprising places, for example from large asset managers such as JP Morgan. The arrival of these new players threatens smaller organizations who have for decades created equivalent financial products. Only time will tell, however, whether such models will ruffle feathers in niche sectors or whether the ‘impact’ mode will disrupt the world of conventional finance more broadly.