There is no such thing as impact, but only proof of impact (first part)
Oct 26, 2018
I. The impact investment market is taking shape and gaining momentum...The impact investment market is currently experiencing strong growth, fueled by the keen appetite of investors around the world and by the ever-increasing needs present on the ground. In 2018, 229 organizations took part in the Global Impact Investment Network (GIIN)'s seventh Annual Impact Investor Survey and reported having invested $35 billion into more than 11,000 deals in 2017 alone. Respondents also indicated they expected their business to grow by 8% in 2017, confirming the positive trend anticipated for this market. Many investors have indeed begun rethinking their approach to impact investment, adapting existing tools or creating specific instruments to this new form of financing. Some such examples include the Social Business facility fund created by Proparco, the private sector affiliate of the French Development Agency, and an "Impact Investment" envelope now managed by the European Investment Bank. Others, such as the European Commission and the World Bank, have built major impact investing vehicles from budgetary resources. These dedicated financing tools reflect a growing interest in impact investment on the part of development financial institutions (DFIs) and may be the first steps of large-scale deployment with private capital crowding-in. Private funders are also showing a growing interest in impact investment. A large number of banking and insurance groups have created and now implement "funds of impact funds". This approach is not only part of their CSR policies, but also responds to a strong demand from subscribers and clients who wish to mobilize their savings for causes with a social and/or environmental impact. A particularly noteworthy initiative in terms of size and approach can be highlighted in this area: AXA Investment Managers, which is currently investing a €150 million fund of impact funds. The AXA IM team, composed of financial professionals and impact and specialized lawyers, is able to study with a cross-cutting approach all impact investment opportunities that may exist today on the market in all sectors and all geographies. Other leading French players, such as Natixis (Mirova) and Amundi are also involved moving in the same direction, with their own terms and conditions. Along with this growing interest in and proliferation of “impact” initiatives, endless discussions in the world of impact investing are being had to try and define what "impact" is. In fact, it is very difficult to define it precisely because there are as many forms of "impact investment" as there are impact funds. Each impact team determines a cause of general interest to which it intends to contribute, defines an investment strategy to support a target - often under-served - and designs an impact measurement system adapted to its targeted issue. Finding a common framework for measuring impact has seemed to be the answer to these definition problems. But here too, each impact thesis has its own indicators and its own impact measurement system. Impact Washing - A Threat to the Impact Industry As impact investment has gained in popularity, the temptation has become ever greater for profit-oriented public or private funds to complete their investment thesis with a speech on their social impact. In some cases, companies declare themselves impact vehicles in order to optimize their chances of attracting investors.
These practices are known as “impact washing”. In the vast majority of cases, the impact speech consists of a presentation of the fund’s contribution to employment, growth, or a particular sector or theme. However, these are typically impacts that any well-managed company could generate. Well-managed companies indeed have positive net impacts on society and the economy: if this were not the case, there would be no legitimacy for the capitalist or liberal system. To qualify such effects as “impact investing” is misleading: it implies that there is no trade-off, in any case, between profit and impact - and therefore that investments with weak returns are simply bad investments. Defining a common framework is the key challenge that will be faced by the impact investment market and all of the actors that drive it. Making a clear distinction between serious, rigorous and resolutely oriented public interest initiatives and those which tint conventional or responsible investment strategies with the polish of impact is vital to the integrity and legitimacy of true impact investment. We are at a critical stage in the development of the sector. In order to enable it to grow on sound and solid foundations, it is essential to provide it with common, concrete and measureable frameworks. The Global Impact Investing Network (GIIN) defines impact investments as “investments made in companies, organizations, and funds with the intention of generating a social and environmental impact coupled with a financial return.” Intentionality is at the heart of the definition of impact investing. However, intentionality is by definition of a declarative nature and does not necessarily translate into action. The purpose of this article is to provide a frame of reference for those who wish to make their intentionality more tangible, to adhere to the transparency and credibility of the sector as a whole and to make it more difficult to use the claim of impact investing as a trendy marketing strategy… Our goal is to:
- Enable a better understanding of the sector through an open and transparent approach
- Share good practices and proven tools, promote their harmonization and increase the professionalization of actors
- Mobilize additional funding towards impact funds by promoting better knowledge and ownership of backers.