When I was invited to give a presentation to MBA students at Instead Business School’s Singapore campus two years ago, I uttered the word “mainstream”. My bet was that in five years this investment form would move from niche to mainstream.
How was that possible? How could become of impact investing which started as a niche investment trend to support social entrepreneurs, serve the underserved and channel a fraction of philanthropic money into money-making ventures that would then replenish back the coffers of the philanthropic entities in a sustainable fashion?
There were three clues:
- A generational change from boomers to zoomers in play – which favoured that all investments should have a social and environmental purpose that transcended beyond the pursuit of financial gain
- A loss of trust with the ability of states, international development institutions and large corporations in prompting change permeated in society
- Eagerness of financial institutions to tap on the purpose-led trend to offer products and services to clients who are willing to invest in enterprises which balanced social gain with financial return
And now fast forward to 2020, just after two years and, the co-optation of impact investing into the daily workings of the financial circles is almost complete. A recent article published by Alastair Marsh in Bloomberg on July 26th outlines this move from niche to mainstream with examples:
- Impact funds managed $715 billion at the end of December, up from $8 billion in 2012, according to the Global Impact Investing Network, or GIIN
- The International Finance Corporation, the private-lending arm of the World Bank, last month sized the potential impact market for private assets north of $2 trillion
- Germany’s Allianz Global Investors and U.S. private equity giant KKR & Co. are among managers that have recently raised impact funds
While impact investing is pulled into the mainstream, what are the dangers? Can impact investing remain loyal to its core mission and at same time reach out to a larger public and become an investment instrument of choice? Here are some pitfalls to avoid:
- Impact washing is a real threat– a term that signifies inappropriate use of the brand “impact” to lure clients and create financial gain without creating social and environmental impact
- The measurement of social impact is an incomplete work – while impact is integrated into the terminology of finance, the measurement of impact lacks rigor, common standards and often rely on unmeasurable criteria and results
- Money is being deployed into where fund managers think should be invested, not where society needs the money the most, creating bubbles as too much money is being thrown at few projects
While the road is full of dangerous twists and turns, the potential of impact investing in transforming society and people’s lives is remarkable in the next decade. The work ahead for the impact investing community is to be cognizant of the dangers of the mainstream and put corrective measures in action so that impact investing fulfils its potential.
