Abstract
Impact investing is a style of investing that self-consciously aims to allocate capital for beneficial environmental and social impact alongside financial returns. We begin with a history of impact investing emerging from the confluence of philanthropy, development finance, social enterprise, socially responsible investing, and traditional investing. We survey the landscape of impact investing, including the main actors in its ecosystem and new investment instruments. We then discuss challenges that limit its scale, such as the test of additionality, impact evaluation, and the dominant influence of plutocratic investors, and speculate whether it is time for a paradigm shift, one that moves the field away from focusing on investors alone and toward a participatory approach that elevates the stakeholder to a level on par with the investor.
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Notes
- 1.
Author translation of the principle 君子爱财、取之有道, as collected in the volume Zeng Guang Xian Wen (增广贤文), a compilation of idioms by scholars from the Ming and Qing Dynasties.
- 2.
For model of information externalities and the spillover value of an initial investment, see Caplin and Leahy (1998).
- 3.
Traditional investing in the present sense which aims exclusively at monetary returns on the purchase of a good or an asset is rather a recent development—essentially a move away from what was historically the point of investing. We are now going back to a more balanced approach, with increasing number of investors instead of focusing on single line returns start to embrace social and environmental impacts with their investments in a double (or triple) bottom line model. Triple bottom line was a term that John Elkington claimed to have coined in 1994 (Elkington, 2018). Instead of focusing solely on the profit and loss accounts, the triple bottom line is a sustainability framework to also evaluate companies based on the social impact of their products and services, as well as the environmental impact of their business model and production processes.
- 4.
As part of the trend, more and more international brands paid attention to the working conditions of their employees, and promoted EHS (environment, health, and safety) awareness in their supply chain companies. Organizations such as the World Business Council for Sustainable Development (WBCSD) and the Business for Social Responsibility (BSR) that provide networking and sustainability consulting services boast hundreds of members comprised of some of the largest brands in the world (Business for Social Responsibility, 2019; World Business Council for Sustainable Development, 2019). CSR companies may even decide to allocate part of their revenue to charity and use more renewable energy, measures that are not traditionally tied to short-term profitability.
- 5.
According to The Global Family Office Report 2017 by UBS & Campden Wealth (2017), 20% of the family offices worldwide are engaged in impact investing.
- 6.
It is unclear whether GIIN’s estimate of 1340 impact investors include any sovereign wealth funds.
- 7.
- 8.
Data is as of August 2017.
- 9.
Refer to Flynn, Young, and Barnett (2015) for a more comprehensive list of impact assessment tools.
- 10.
See Jackson (2013a) for details on how to build a theory of change evaluation model.
- 11.
For example, Hiromichi Mizuno, who oversees Japan’s Government Pension Investment Fund, cites “the lack of mainstream impact investing products” as a hurdle to allocating significant institutional assets to this strategy (Kapadia, 2019).
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Bose, S., Dong, G., Simpson, A. (2019). Impact Investing. In: The Financial Ecosystem. Palgrave Studies in Impact Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-05624-7_11
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