James Bunch, Managing Director, AIMS Imprint, Investment Management Division, Goldman Sachs moderated a lively discussion about the usefulness of the term “impact investing.” The panelists included Josh Mailman, President of the Joshua Mailman Foundation, Preeti Bhattacharji, Vice President of Integrated Capitals of the Heron Foundation, and Robynn Steffen, Director of Impact Investing of Omidyar Network.
Audience instant polling was used to structure their discussion. Bunch posed three questions to an audience of approximately 240 participants: 1) Do you think the term “impact” is helping or hindering capital deployment? 2) How do you define impact? 3) How concerned are you with “impact-washing”?
When asked “Do you think that the term ‘impact’ is helping or hindering capital deployment?" of the 50 audience members who responded first, 38% indicated that the term was hindering, 36% indicated that the term was helping and 26% were unsure.'
The panelists similarly differed in their assessment of the term. Mailman, a Founder of the Social Venture Network and Businesses for Social Responsibility, was of the view that public portfolios (outside of shareholder activism) shouldn’t be classified as impact. He said he liked “impact” better than “socially responsible investment” as it is more targeted and active. “It’s attracted a new generation of investors.” Bhattacharji, on the other hand, takes issue with the word as unnecessarily vague: “All enterprises have impact through hiring people, using resources, and other business influences,” she said. The question that needs discussion is how much credit investors have for that impact. Moreover, we currently hold a very limited understanding of business impact on a day-to-day basis; we should first try to better understand this impact before starting to take credit for it.
For her part, Steffen admitted that the term has typically scared off capital-seeking market-rate returns, including foundations. “The pendulum is swinging,” she said. “Now people say you can have it all [impact and returns], which is not true either, because returns cannot always be market rate when we are investing for impact. There’s some confusion, she says, and “confused capital stays on the sideline.”
Bhattacharji disagrees with the widely held notion that only impact investing loses money by pointing out how many traditional investments lose money. The standards for impact investing are, for some reason, much higher than for conventional investments. Regardless, she says that for a Foundation, the priority should be impact, with money as a by-product. If money is not made on some investments, that should be okay as long as there is impact.
Using the analogy of a big tent, Steffen adds that real impact requires deployment of a spectrum of capital at different stages of market evolution. She cites the example of international microfinance and how significant grant funding was provided to support capacity building of microfinance institutions and policy reforms before commercial investors started realizing returns. She encouraged the audience to celebrate how far the impact investing movement has come in this regard, and others like it. She suggested that rather than debating what constitutes impact, investing we should develop shared language and generate data that better inform investment decisions.
In agreement with Bhattacharji, Mailman further added that it should be our responsibility take risk to drive impact. It’s not about preserving everything for the next generation, he says; it’s about preserving this generation. It is meaningless to grow our corpus through impact investing if the community isn’t better off by it.
On the question of bigger players, such as TPG Rise and Bain Capital, entering the impact marketplace, Mailman wondered about where they will invest their money if not driven by values. Steffen was optimistic about more capital flowing into the industry, but suggests caution. She would prefer that these players promise to deliver impact rather than just financial returns. She hopes that the participation of large investors will de-risk and expand the investable universe for impact.
When asked “How do you define impact?" of the 50 audience members who responded first, 44% voted for full-portfolio, 16% voted for catalytic capital and another 16% voted for market-rate. Twelve percent indicated other, 6% defined it as high risk and another 6% were unsure.
As demonstrated by the data above, defining impact has proven difficult. Investors exhibiting a wide spectrum of values and investment thesis are entering the market, each with their own definition of what constitutes impact. “If everything is defined as impact, then does the expression have any meaning anymore?,” asks Mailman. Ultimately, he said, the problem is that no one can control the term, so we each focus on our own definitions.
When asked “How concerned are you with impact washing?" of the 47 audience members who responded, 60% were very concerned, 32% were somewhat concerned and only 9% were not concerned.
As suggested by the findings above, the question of measurement is thorny, as well. Measuring financial return is easy, said Bunch, but measuring impact is “hard, nebulous and messy.” And sometimes, well-intentioned investors do get it wrong. Mailman highlights the role of players like Confluence, and the media, to hold asset managers accountable on their impact commitments.
“At the end of the day,” Bhattacharji said, we have to ask ourselves, “Who are your investments contributing to, and who are they extracting from?”
