2.3 The “Impact Investing” Label
There are multiple perspectives at play in the dialogue around bringing more mainstream capital to impact investing. One perspective calls for broadening the definition of impact investing. Leaders of mainstream investing organizations often note that impact investing should be defined broadly enough to allow capital markets’ participants to embrace a range of opportunities. This argument contends that when impact investing is too narrowly defined, it risks reinforcing the perception that it is a niche activity, hindering its ability to scale. The second perspective advocates that a limited and precise definition will not hinder scale but rather that it will actually drive adoption and advance development of the impact investing approach. A commonly cited hurdle to scaling impact investing is a lack of robust data. A precise definition of impact investing will facilitate creation of more robust datasets which in turn will allow for creation of risk/return profiles, definition of benchmarks and standardisation of impact measurement. As reflected throughout this section, this report aligns more closely with this second perspective. While recognizing that impact investing is closely related to other sustainable/responsible investing approaches, it remains distinct in intentionality, approach and implementation.
The philosophical debate over the “impact investing” label and whether something qualifies as an impact investment is important but should not prevent an interested investor from engaging. Indeed, we can examine investments not labelled “impact investments” made by investors not self-identified as “impact investors” and find examples of impact investments according to the definition described in this report. In such cases, investors may have engaged in processes to pursue an impact objective (possibly for the sake of impact or because a financial case follows from that impact), identify investment opportunities and measure impact – such processes reflect the core principles of impact investing, including intentionality. In short, formal labels and self-identification are not concrete delineators of what is “in” and what is “out” when it comes to impact investing. Organizations such as the European Venture Philanthropy Association (EVPA), the Global Impact Investing Network (GIIN), B Lab and the Social Impact Investment Taskforce established by the G8 Countries are actively working to bring standards/definitions to the management of impact, the outputs of which are likely to simplify the philosophical debate.
This report recommends that interested investors begin engaging in some capacity, re-evaluate, assess different strategies and then course-correct based on experience and developments in both the overall sphere of impact investing and in the investor’s unique circumstances. In short, don’t let perfect be the enemy of good. If we take as given that all approaches within the sustainable and responsible investing universe have merit and can have a positive impact, then experience in any of these approaches may be an “on-ramp” toward future additional engagement with other approaches in sustainable and responsible investing.