Impact Investment: intention is not enough

“For me, the impact revolution is going to be as pervasive as the tech revolution has been.” – Sir Ronald Cohen

We are all students. If you are not learning something new in your field then you are going backwards.

Despite having over 12 years of investment experience, working in the US and Ireland, advising private and institutional clients, my study of impact investing and the wider theme of responsible investing really began when I arrived in Guatemala in May 2017. What I mean by that is my leap from a high level understanding of the subject to a deeper exploration into the minutia through practical experience, research and some philosophical thinking in the context of the wider system.

I first wrote on impact investing in June of last year after meeting with Julio Martinez Anderson, Director of Acceleration at Pomona Impact, an impact investment firm in Antigua, Guatemala. That meeting ultimately led me to joining Alterna Impact in Quetzaltenango, Guatemala a few months later to assist in the development of their investment process. Since then I have continued to research and write on impact investing and the broader responsible investing theme as I conceptualise my own thoughts on the practical application within business and investments.

Divergent opinions in an evolving sector

Delving deeper into impact investing it became clear very quickly just how vague the sector is, the loose definitions and inconsistent impact measurement methods, with much time spent debating with colleagues what actually qualified as an impact investment and how return and impact interacted. They made for interesting debates but for me the fact there is still such divergent views on what impact investing stands for, even among the people working in the sector, is symbolic of a sector evolving.

Still, it is not surprising to find a sector finding its way given that the term “impact investing” was reportedly only coined a little over a decade ago with the Rockefeller Foundation laying claim to the term on their website:

“In 2007, the term “impact investing” was coined at The Rockefeller Foundation’s Bellagio Center, putting a name to investments made with the intention of generating both financial return and social and/or environmental impact.”

In the traditional investment world investors are primarily focused on the expected return and risk of an underlying investment. The above definition of impact investing effectively takes this concept a step further with the incorporation of some form of social or environmental impact objectives. Three considerations:

  • Intention is not enough; there needs to be some form of explicit and measurable commitment to delivering a social or environmental impact.
  • By establishing a term you are in effect looking to define a category of investment. However the broad definitions, lack of consistent methodologies and the high level of subjectivity applied has ultimately resulted in ‘the current impact investment landscape being broad and fragmented’, as recently described by the Principles for Responsible Investment in their recent “Impact Investing Market Map” report.
  • The origin of impact investing in the philanthropic world is noteworthy and is part of what fuels discussion on whether there needs to be a prioritisation of impact over financial return. (I will discuss this in more detail in another article)

Broad use of this recently coined term

Since there is no one framework for defining and measuring the social or environment impact return of an investment or even an agreed minimum standard for an investment to be considered an “impact investment”, the term has become wide encompassing, from social impact bonds directly targeting social challenges, development type financing in emerging countries to more traditional looking venture capital type investments and most recently the arrival of institutional funds investing in publicly traded companies.

Social impact bonds operate a pay for performance model where the financial return is paid based on the delivery of measured social outcomes. Classifying it is an impact investment is therefore straight forward given that the financial return is directly linked to the impact return. (I’ll be discussing social impact bonds in more detail in a separate article)

However, what constitutes an impact investment is much more open to interpretation when talking about investments made into a company. The actual securities and terms attached will vary just as it does in the traditional investment world but whether it is an impact investment will depend on the underlying company. What does the underlying company do and how do they conduct their business? Is the company delivering a product or service that can deliver a positive societal impact or are they pursuing a new more socially conscious approach to business? (This is a rabbit hole I’ll be going down in future articles)

Just as we have seen corporate social responsibility become a marketing exercise for many companies, there are claims that “impact washing” is occurring, a term used to describe those organisations advocating an impact philosophy but who in reality are looking to take advantage of the wave of interest from millennials and others in socially responsible investing. Of course, this practice is made easier for new entrants by the vagueness and inconsistent approaches applied by existing players in the sector.

Driving the definition and direction

Back in Guatemala one of the things I emphasised to Alterna was that if they and other impact investment firms in the developing world wanted to drive the broader definition and direction of impact investing it was crucial that they articulate a consistent impact investment philosophy – including definitions, metrics and standards to uphold companies to etc. – and to vocalise it publicly. Otherwise, the traditional financial sector would be the ones to move the theme forward and on their terms. I think that is what we are seeing.

In August, the Principles for Responsible Investment launched its Impact Investing Market Map report with the goal “to bring more clarity to the process of identifying mainstream impact investing companies and thematic investments so that asset owners and fund managers can better assess opportunities in this market”.

What is interesting is the conversation has moved from being about traditional investing and impact investing to now being about traditional impact investing and mainstream impact investing. Their message to the traditional impact investing firms is:

“As the impact investing ecosystem grows in size and complexity, traditional impact investing definitions, metrics, business models and investment vehicles need to be re-evaluated. Part of the evolution of this ecosystem involves expanding the scope of the original definition of impact investing to be more flexible and inclusive; in other words, to be more mainstream.”

Evolution for the better

The more capital that is allocated to impact investing the better, but the capital allocators such as the trustees of large pension funds and endowments, consultants and advisers are going to need to feel much more comfortable with the intentions of the underlying companies and organisations and whether it is matched by action and results. At the same time the capital allocators need to establish their own intentions with respect to responsible investment. Will it be a box ticking exercise or will it finally be taken seriously? (I’ll delve deeper into this in another article re the chain of fiduciaries from the executive management of an investee company to the end beneficiary e.g. pension scheme member)

We are all students. At the same time we can be teachers and my objective with this website is to bring the discussion more into the mainstream as I explore the intricacies in our current system that can make the practical application of socially conscious decision making in business and investment strategy challenging but also how it can potentially be a huge opportunity. I want to be part of this process of evolution for the better, to assist companies and investors in finding practical ways to apply a socially responsible philosophy. One thing is for certain:

Intention is never enough!

(First published on my social impact website. If you wish to receive future articles on this theme subscribe now for free at 

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