Saving Impact Investing from Itself

Impact Investing is increasingly under scrutiny, from Charities[1] to Popstars[2]. The heady years of double-bottom line optimism have been replaced with the reality of concessionary returns for high impact interventions and ‘a lot of bad deals done by good people’[3]. Institutional investors and multi-billion dollar ‘Impact’ funds have further muddied Impact’s water. We face a real danger that the definitional difficulties of Impact will replace a move towards consensus with pitched battles arising from different corners of the ‘returns continuum’.

Oxfam’s latest report: Impact Investing, Who are We Serving? [4] Presents a sobering analysis of the expectations of these double-bottom line investors. Market returns, the report states, cannot be achieved when seeking to fight intractable global poverty, prolific disease and chronic illiteracy. The debate once more centres on the ‘ends’ of Impact Investing: do we invest in order to create maximum impact or do we focus on attractive sectors to maximize returns, whilst at the same time achieving some good?

At Effective Investing we argue that neither of the above approaches are inferior, however we must avoid being trapped in a tautological vice: Impact should be owned by those seeking maximum Impact, Investing should be owned by those seeking market returns. In short, we need to save Impact Investing from itself by creating alternative structures to analyse the Value that companies create, across the returns continuum. Impact must once more become a singular goal, approached by multiple stakeholders who seek to maximize the efficacy of their interventions. Investment, therefore, becomes one route among many of achieving this Impact.

By detaching Investing from Impact we remove pitched battles and refocus on our collective ends. In order to do this, however, we need an alternative conception of economic intervention to protect Impact from dilution. At Effective Investing we have created a robust, holistic methodology to measure the Value any given company creates. This Value, be it positive, negative or neutral can be financial (profits and taxes), internal (treatment of its employees and the environment), external (the product’s Value to its customers) or indirect (the company’s Value in its wider industry or geography). Our assessment provides a single, comparative Value metric across all companies and asset classes, that can be broken down into various Value components. From here, we can see those companies that are creating both the most Value and the most Impact. Those companies that create optimal Impact may well require and attract concessionary capital. Those companies that create optimal Value, through a blend of the aforementioned Value components will likely attract mainstream capital.

By providing a metric that seeks to identify company Value, we move away from the definitional challenge of Impact Investing, towards a consensus opinion that Companies should optimise their Value, Investors should seek to maximise their Value Return on Investment, and effective Impact should once more stand alone as our ultimate ends.