Source:
- Busch, Timo, Peter Bruce-Clark, Jeroen Derwall, Robert Eccles, Tessa Hebb, Andreas Hoepner, Christian Klein et al. "Impact investments: A call for (re) orientation." SN Business & Economics 1 (2021): 1-13.
Learnings
- “Impact investing” is vague
- Impact investing has roots going back thousands of years to aligning financial investments with Jewish values
- Impact investments have historically been dependent on “exclusionary” facts, i.e. divestment and avoiding participating in specific aspects of society
- Divestment and exclusionary investment don’t inherently alter social outcomes unless a large quantity of investors follow suit
Four distinct dimensions of impact investing
- ESG screened funds - the bare minimum which includes any basic consideration of E, S, or G. Typically exclusionary.
- ESG managed funds that include at least one other pre-investment decision approach, for example, best-in-class, ESG integration, or thematic funds.
- impact-aligned investments, still an exslusionary focused approach.
- impact-generating investments, focused on actual impact generation.
Many studies show that investments in private markets generate the greatest impact.
Intentionality and additionality, while interesting dimensions, are very hard to quantify and prove. Intentionality and additionality both do have an effect on the investment deal, the return ratio, and inspiring investors to take part in it. However, methods for proving what it "good intentions" and correlating it to dollar values are unclear at this time.
Financial markets experienced a substantial mainstreaming of sustainability related investment practices in recent years.
We need to change that "sustainability" umbrella over to impact.
