Today, it’s just so easy to be the bad guy. Playing the role of finger-pointing ire-filled guard of things staying in their narrow unimaginative lanes is all the rage. And impact investing hasn’t been spared the scarlet branding of “failure.”
But broad-sweeping statements as to whether profit and purpose can successfully co-exist seem particularly irrational for a pre-teen aged innovation. The world’s first democracy is more than 2,400 years old and we still can’t build stable and unfettered institutions within it.
The continual churn of clickbait-y headlines and articles that ferociously associate impact investing with “hype,” “failure,” “mindless” and “scam,” aren’t just frustrating. They’re dangerously poised to turn away both the capital and innovation needed to take problem-solving to the next level.
The amount of capital required to solve our biggest challenges is staggering. We need trillions to successfully achieve the Sustainable Development Goals (SDGs), not the billions currently allocated to global philanthropy. And our global capital markets —$100Tr and climbing — comfortably remain the largest allocated chunk of change already primed for market-orientation.
To reach this bold target, we need a surge of actors, capital, and ideas — throwing the door wide open to encourage calculated experimentation, not a snarling fury of finger-wagging.
In service to the kind of forward-thinking and productive conversation we all aspire to, here are some of the headlines I hope we’ve seen the last of:
- “Impact Investing can’t deliver returns”
It can and does. The continued insistence that concessionary returns are inherent in this type of investing is not just outdated — it’s also unhelpful. That’s not to say that impact investments can’t include concessions. In fact, many investors are seeking just that — maximization of impact by deploying concessionary risk capital. But to suggest that you can’t have one without the other is just plain wrong. Early but ambitious research makes clear that all other things being equal, impact investments do not inherently underperform their traditional counterparts. In 2018, a combination of data and portfolio-level experimentation saw a treasure trove of fund managers, wealth advisors, and even trillion dollar asset manager CEOs make public, commitments to integrate impact into their decision making processes. Yes, intention doesn’t mean positive performance. But the more we can come together to retire this worn-out excuse for inaction, the more we can focus on the hard task of measuring that intention and learning what we’ve achieved (or haven’t). Tradeoffs are there if you want them. But to do this work, you don’t have to accept them.
(For those interested, the Omidyar Network’s work on Across the Returns Continuum continues to serve as industry-best thinking on how to gauge appetite for risk and returns — across an entire spectrum of investments and outcomes.)
2. “Impact Investing can’t solve inequality”
Decades of old-fashioned philanthropy hasn’t done the job either. The free market hasn’t delivered on the ubiquitous promise of socio-economic equality that its’ creators envisioned, and we have no problem continually advocating for it in many parts of the world. Solving inequality is a bold, ambitious, centuries-in-the-making type of work. And no one approach should be responsible for solving that problem. By tying the fate of impact investing to a too-early, too-big, and too-vague goal, we undermine the smaller incremental change that has more fundamentally impacted the way we think about an investible universe.
Take the decades-old work of impact investing funds providing debt to those who need it most. Many fund managers have pointed to their own track record or personal investment decisions to show that when the going gets tough, those that get going are the working poor. The capital markets alone have no call-to-action to prop up the underbanked. Philanthropy would be handcuffed (at that time) by a grants-only approach. This small but meaningful finding — that we can uncover and invest in uncorrelated assets in the most unlikely of places — didn’t “solve inequality.” But it created a critical shift in providing track-record to back up the claim that you can align prudent investing with positive impact. That’s a skyscraper-sized accomplishment in changing the way we think about previously isolated outcomes.
3. “If you’re making money, you lose the impact in Impact Investing.”
The most grating of impact investing mis-assertions might be the claim that if “you can make money off of it, you immediately lose the impact.” Hidden within is the belief that once an investment is revenue-generating, it must meet the need of maniacal greedy bankers across the globe. Problem solved. The biggest issue with this view is that it overlooks many more primary motivations for investor decision-making. We’ve already contended with the incorrect belief that in order to generate a return, something (read: impact) must be sacrificed. But to assume that once something is making money traditional investors will rush to put in their own cash is also a mistake.
For many investors (impact or otherwise) risk can encourage a decision (or indecision) far more than the promise of payoff. The Global Impact Investing Network’s (GIIN) latest impact investing survey suggests that the allocation of “appropriate capital across the risk/return spectrum” still plagues nearly half of the 220+ survey respondents (see page 11). That’s been consistent across the last few surveys, in spite of overall sophistication around this work. There’s still uncertainty around where certain types of money belong, and the corresponding risks across the investment lifecycle.
Pricing, assessing and mitigating risk compels investors to act. And risk includes more than we think. Yes, financial losses are paramount, but so are reputational ones. If the last 2 years of venture capital’s cultural combustion is any proof, it’s the reputational mistakes that can cause the most damage. For many investors, the slow shuffle towards impact investing has been primarily about a lack of understanding risk — perceived or otherwise — not a disbelief in the balance sheet. Generating returns does not mean the hard work is done. Nor should mainstream investors swoop in no questions asked. It means we’re just getting started — there’s much more proving (and proof-type capital) needed.
As is the case in all types of innovation, mistakes are made. And impact investing practitioners, investors, and asset managers are responsible for self-inflicted damage. But we should dedicate word count to highlighting the successes along with those failures.
Take the renewed sense of commitment — field-wide — to the measurement and management of impact — like the Impact Management Project (IMP). Over the last twelve years, we’ve admittedly run astray in measuring intention and not outcomes. That’s collectively changing through efforts like the IMP.
But to inspire more change, more reflection and yes, inspiration, we need to do away with the wailing of premature failure. It’s simply too early to tell.