Impact Investing: Will Hype Stall its Emergence as an Asset Class?

lanbranadmin Report 4 Comments

From when it was first coined five years ago, “impact investing” has now become more mainstream for traditional investors. However, Philo Alto argues that its development is lagging behind the promise of what it can do, and this, in turn, is hampering its emergence as an asset class in its own right.

 

lanbranadminImpact Investing: Will Hype Stall its Emergence as an Asset Class?
  • Julian Dench

    An interesting report and I would agree that the hype could ‘impact’ the ability of impact investing to deliver on its promises. As always, with anything that is, or is in danger of being, overhyped, there is a tendency to a) over expect and b) look for ways to bring it down or criticise it when it doesn’t progress at the (perceived) correct pace.

    But, if we look at the positives to draw here: at least people are talking about it, which has to be a good thing. The bigger issue, I feel, may be that there is an argument that by limiting the definition of impact investing to that of an ‘asset class’, it will only ever be companies who class themselves as impact investor/investee companies that will operate in this space. This is fine for now, but looking at the aim of impact investing, shouldn’t we be saying that all companies should be measured on their impact? The goal therefore being to introduce an impact metric for businesses, alongside risk and return?

    Business is becoming (or at least being demanded to), through shareholder and consumer pressure, to become more transparent; to better manage and measure its reputation, on an increasingly global scale. Impact investing should be linked in with this paradigm shift. However, whilst businesses put into their company reports any work they have done on CSR, they are not measured on this for their success. If we can move towards businesses having to report on impact as a third dimension, this would help move impact investing and its (move towards more standardised) measurement further forward.

    These are just my thoughts whilst travelling into work

    Kind regards, Julian Dench

  • http://www.value.asia Philo Alto

    Thanks Julian for your response and I can’t agree with you more in regards to the bigger issue that you highlighted in regards to impact metrics for businesses, which merits its own full discussion.

    My article’s purpose meant to, among other things:

    1) highlight the strengths and limitations of “impact investing” as a terminology. I wrote extensively on this topic in late 2011:

    http://www.bellagioinitiative.org/submissions/impact-investing-in-asia/

    2) articulate the practical segmentation of the various philanthropic funding tools (supply-side of capital) that are risk and reward appropriate (whether financial and/or social/environmental) across the spectrum of social businesses’ organisational life stages (demand side of capital). And lastly,

    3) provide a cautionary note towards the well-intended attempt by some players in the field to frame it as an emerging “asset class” (or “asset classes”) when the underlying development of the vast majority of seed- and early-stage social enterprises require venture philanthropic funding/impact giving (or any other terminology) that are not likely to generate a risk adjusted financial return on AND return of capital (to borrow AVPN’s Doug Miller’s quote).

    We need to distinguish impact investing as a mindset / approach towards philanthropic funding of a social issue (such as what Kevin Starr and the Mulago Foundation team eloquently highlighted in their SSIR blog “Trouble with Impact Investing: Parts 1 to 3″ — http://www.ssireview.org/blog/entry/the_trouble_with_impact_investing_part_1 ) as opposed to impact investing as a funding tool that require a risk-adjusted financial return in addition to an intended social/environmental return. It’s great that we have raised awareness about the promise of impact investing and what it offers to both philanthropic funders as well as social businesses. Today it’s time to have a more nuanced view about what it can and cannot do, and where and how it adds value to social businesses relative to other philanthropic funding sources.

    Kind regards, Philo

  • Frédéric

    unfortunately the link does not work anymore

  • Philo Alto

    The link above is broken. Please use this one instead.

    https://centres.smu.edu.sg/wp-content/uploads/2013/09/SocialSpace2012-PhiloAlto.pdf