Think about a brand you trust.
What inspires that trust? The brand may have a reputation for safety and reliability. Maybe the brand conveys transparency. It may have staying power, delivering consistency and quality over time. You know what you are getting in every interaction.
How can impact investing’s “brand” inspire that kind of trust? Trust has to be grounded in the shared purpose of impact investors to drive social and environment benefit. This commonality is what captures the imagination of like-minded leaders. It provides an on-ramp for those who feel compelled to join.
As the industry grows beyond the early adopters, we need to establish a stronger identity for impact investing. Distilling the core ethos of the movement will build cohesion amongst the diverse actors in the impact investing marketplace.
Nurturing this core identity will help impact investing to achieve its full potential to fuel solutions to global challenges. It will expand an informed consciousness of the impact of all investments across the broader financial markets.
By establishing clearer expectations and principles of the practice, we can create a smoother onramp for new investors to enter the market. We can ensure the brand of impact investing remains clear and consistent as it expands.
Rather than allowing impact investing to be swallowed back into traditional investment approaches, a clear identity will reinforce that impact investing remains a distinct new way of doing business, ultimately fueling more investment in global challenges, like progress toward the Sustainable Development Goals (SDGs).
This industry has been built on passion, goodwill, and a business perspective that prioritizes long-term thinking. This won’t be enough in the long run. As the industry expands, there are no real obligations for a firm that uses the term ‘impact investing’ to adhere to the brand values. And there aren’t strong mechanisms for enforcing best practices. We aim to create greater accountability by setting a bar that investors must meet to be considered impact investors.
As interest in impact investing grows, there is a real risk that new firms will apply the term as a marketing tool without adopting an intentional and thoughtful approach to generating impact.
A stronger identity will also help combat impact-washing—the misuse and dilution of the term ‘impact investing’ that may render it nearly meaningless. Whether this misuse or dilution is done deliberately or out of misunderstanding, the result is troublesome—it is stifling or diverting money from investments seeking a positive social or environmental impact. It weakens the impact investing movement by creating more confusion about its core ethos.
Filling in the Roadmap
The call to strengthen the identity of impact investing has received widespread support since we launched the Roadmap for the Future of Impact Investing this spring. Many investors, fund managers, advisors, and others in the ecosystem have told me this is vitally important for the success of impact investing. These folks, and many other industry leaders are committed to protecting the integrity of this industry.
This post kicks off the What’s Next series, produced in partnership with ImpactAlpha. Before and after the GIIN Investor Forum in Paris next month, practitioners and experts in impact investing will explore key elements of the Roadmap. In coming days, ImpactAlpha will host responses and commentaries about impact investing’s identity and brand from Tim Macready of the Australian superannuation fund Christian Super, Chris Jurgens and McKenzie Smith of Omidyar Network; Marilou van Golstein Brouwers of Triodos Investment Management; Marisa Drew of Credit Suisse, and others.
What common threads tie the industry all together? What practices or processes distinguish impact investing from other investment approaches? Would a set of shared principles be useful to you and how would you use and promote them?
We encourage you to engage the discussion and share your thoughts to: editor@ImpactAlpha.com.
Three steps forward
I believe that trust is central to everything else. A clear identity will fuel further growth and help the movement take hold. The field has already confirmed some criteria for what impact investing is and is not. We know that impact investing is an approach that can be applied across all asset classes, not an asset class itself. We have established that it’s defined by the intention to achieve positive social or environmental impact, and a commitment to measure that impact.
To kick off the series, I offer three action areas that you can start working on right away to build on that foundation to further impact investing’s trusted identity and brand.
1. Make your impact intentions known. One of the core attributes of an impact investing identity is the intention to achieve positive social or environmental impact. That intentionality establishes shared purpose across capital with different risk and return expectations. From clear intentions can flow principles and practices of accountability and trust.
Such intentionality comes with its own complexity. The GIIN is currently working with its members and other field building organizations to develop a set of principles, which we will propose to the broader industry for adoption. The principles will try to clarify, simplify, and normalize behaviors in the impact investing industry.
If the goal is to bring more investors into the industry, it’s time we got a lot more specific about what it means to be an impact investor by providing clarity around what impact investing looks like in practice.
Macready, chief investment officer of Christian Super, called for “clear guidance on the expectations that others have of us, and we have of each other, when it comes to being part of the movement.”
“Well-implemented principles for impact investing will need to be broad enough to encourage wide participation,” Macready says, but “targeted enough to ensure that impact investors are actually demonstrating real, tangible, positive impact that justifies the use of the term.”
2. Measure and manage for impact. The Impact Management Project’s five dimensions of impact are what, how much, who, contribution, and risk. Over the past year, a group of roughly 45 impact investing organizations in the GIIN’s Investors’ Council committed to testing the impact management framework in their own portfolios. By participating in this initiative, investors demonstrated a willingness to build on their existing systems of measurement and management for impact.
By digging in and getting better over time, we will be able to truly understand our contribution to addressing the global challenges we aim to tackle. That’s fundamental to managing investment portfolios toward the greatest impact.
One of the frustrations I hear most frequently, both from those in and outside of the impact investing market, is that there are as many ways to define and measure impact as there are impact investors. We are long overdue for developing a common language not only in how we talk about and measure impact, but how we manage for it.
3. Collaborate and co-invest with other investors. Different types of capital deliver different types of impact. All are valuable and needed to address global goals. Investors of all sorts, as well as entrepreneurs, intermediaries, and professional-service providers, all have roles to play.
The diversity within the impact investing market is a major strength for the industry, and also a source of confusion for folks within and outside the field. We all need to communicate more and better about the roles of these different capital types with different goals and risk-return preferences.
For example, a foundation making program-related investments can invest in a social enterprise offering an experimental solution to health access to help it test and prove its model. When that company grows, a pension fund might be able to provide the large scale investment that can scale that solution and replicate it in new markets.
Omidyar Network, for example, is helping the field get clear by articulating their own perspective on different types of impact and financial returns. Building on the article, Across the Returns Continuum, Omidyar Network is curating a collection of articles by leading investors discussing how they manage the interplay of risk, return, and impact.
The ability to better navigate the ‘big tent’ of impact investing will result in more capital for the field, reduced transaction costs, and more efficient matching of capital to opportunities and market segments it is suited for. We need greater recognition of the needs for capital up and down the capital stack and all across the spectrum of returns.
Looking back through history, we see that every successful social movement has a clear identity and shared sense of purpose. Importantly, such a shared identity protects the movement from being co-opted, misinterpreted, or misunderstood. The best way to combat impact-washing is by building a trusted identity and shared purpose across impact investing.
The actions we take today will determine the markets that we operate in tomorrow and the world that future generations will inhabit.
Amit Bouri is the co-founder and CEO of the Global Impact Investing Network.
Hannah Schiff, research manager at the GIIN, contributed to this piece.
Responses from impact investing practitioners and experts to Bouri’s call for the development of a trusted identity for impact investing.
1. Common goals, not just common language, will drive institutional impact. “We may need to embrace those whose motives are not as pure as we would like,” says Tim Macready, chief investment officer of Australian superannuation fund Christian Super. “We may need to call out behaviour and products that do not live up to the name impact investing or work towards our shared goals.” More.
2. Segmenting the market can unlock impact capital. “We need a set of shared definitions, tools, standards, and data that can enable investors to better navigate an increasingly diverse market,” write Chris Jurgens and McKenzie Smith of Omidyar Network. “Such tools will help them deploy capital to the investment opportunities that best fit their impact goals, financial return expectations, and risk tolerance.” More.
3. Philanthropy can champion the impact in impact investing. “Philanthropy has a unique role to play in keeping the entire field laser-focused on creating a more equitable and just society and a healthier planet,” writes Matt Onek of Mission Investors Exchange. More.
4. Global Goals provide impact investors with a model for collective action. The U.N. Sustainable Development Goals defined the challenge, articulated clear definitions and achieved far-reaching acceptance. A framework for “what good looks like” could do the same for impact investing, writes Credit Suisse’s Marisa Drew. More.
5. A theory of change sets impact investors apart. “Investors should ask themselves, ‘What do you want to achieve, how do you think you can achieve it, and what role does your investment play in achieving it?’” writes Triodos Investment Management’s Marilou van Golstein Brouwers. More.
6. Diverse capital, shared goals can make all investment impact investing. A shared identity means a commitment to avoid harm; measurement and accountability for impact; long-term impact investment structures and education and advisory services “so that impact becomes part of how people do business and invest,” says Tony Burdon, the head of private sector department at the U.K.’s DFID. “Shouldn’t our overall goal be: All investment is impact investment?” More.