Podcasts | September 10, 2018

Beware cures for ‘impact-washing’ that may be worse than the disease

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The impact investing community seems to be in one of its cyclical discussions about who and what should count as impact.

The latest Returns on Investment podcast takes up the growing concern about “impact-washing,” the use of impact jargon or marketing to raise money or burnish reputations without delivering real impact or, in some cases, causing negative impacts.

A spate of initiatives are underway to lay down principles and definitions to prevent such bad actors from undermining impact investing’s brand or diluting its, well, impact.

A roadmap for the impact revolution

“You’re seeing impact investing being used as a marketing tool by B- or C-list managers, who think they can use ESG or impact as a way to raise money from institutional investors they otherwise couldn’t raise money from,” said Imogen Rose-Smith, an investment fellow with the University of California. “People are going to turn around and say, ‘That didn’t work, so therefore impact investing is terrible.’”

Podcast host Brian Walsh suggested that the rush of fund managers and others to wrap themselves in the ‘impact’ mantle might be a sign of impact investing’s appeal; that is, a good problem to have. Until very recently, using the term impact in an investment pitch tended to scare investors away, not attract them.

The principle-making efforts coincide with a flurry of commentary around Anand Giridharadas’ new book, “Winners Take All: The Elite Charade of Changing the World,” which posits that many social-change initiatives actually reinforce existing privilege and systemic inequality. The debate over impact-washing likewise illuminates the divide between those who would find some good investments and make positive changes around the edges, and those with deeper system-change intentions.

Ford Foundation’s Darren Walker takes on opponents of impact investing — including his own trustees

But creating barriers to entry to impact investing and setting up some people or organizations as gatekeepers could be more harmful than any damage from a few bad actors, I argued in the roundtable discussion.

“Invite them in. Don’t bar the door,” I said. Each new level of impact creates proof points, possibilities and constituencies for further efforts. “There are all kinds of very sharp people coming up, making stuff happen within their own organizations. As they drive forward with their own carers and agenda, they’re are changing all kinds of institutions. It’s an ever-accreting movement of what we call Agents of Impact, inside and outside the system, within government and business.”

“There’s always a new hill to take, but we want to make sure that impact becomes the dominant paradigm.”

The Impact Alpha: Agents of impact start to infect their hosts

That doesn’t obviate the need for accountability and scrutiny. ImpactAlpha, for example, will be tracking the commitments from institutional investors, big banks, foundations and others at this week’s Global Climate Action Summit in San Francisco. How much capital has actually gone out the door? How much of an increase is that over earlier trends? How decisive a break have such players made from fossil-fuel investments?

Indeed, such announcements “implicitly confirm that these investments are concessionary, rather than a critical spoke of business going forward,” Rose-Smith said. If such investments were part of those institutions’ own growth strategies, they wouldn’t require “commitments” at all.

Likewise, defining “principles” for impact investing in some cases can be its own form of impact-washing, as the gatekeepers set themselves up as holier than thou.

A roadmap for the impact revolution

“It gets very meta very quickly,” I observed, citing Giridharadas term, ‘the elite charade.’

“The impact washers are part of that elite charade. But are the people writing principles to combat impact washing also part of that charade, because they’re similarly dressing up their own privilege and what not?”

“And then are the journalists, who are criticizing the principle-makers, are they part of the elite charade as well, because they’re selling newsletter subscriptions based on all that? It’s hard to know where to stand.”