Impact Investment: First Impressions
As a relative newcomer to the concept of impact investment, I couldn’t fail to be impressed by the seemingly antithetical outcomes that it produces: financial return coupled with a real social good. A win-win situation?
A4ID’s responsible business knowledge group on impact investment in the developing world, hosted by White & Case on the 17th of July, looked to tease out the nuances and practicalities of impact investment. Three fantastic speakers were received by a room full of lawyers, students, activists and people working in the international development space. The first speaker, Vinay Nair, discussed his role in and the work of the Acumen fund; the second speaker Tamzin Ratcliffe, the CEO of impact investment consultancy Nexii, explained her role in establishing the iX- the first exchange board for social enterprises- and her perspective on impact investment; and our final speaker Tim Wood, a lawyer at White & Case, explored the various legal practicalities of setting up such a stock exchange.
Tamzin Ratcliffe provided a useful definition of impact investment: “the provision of financial capital and risk products to proactive businesses or initiatives that promote or address a specific social or environmental need”. Impact Investment, it seems, falls somewhere in the middle of philanthropy and venture capitalism. A guilt-free, conscience-soothing, money making scheme? Not quite.
I was struck by Vinay Nair’s statement that the Acumen Fund looks to “stand with the poor”. Impact investment, he says, is not about hand-outs or aid, but about treating the poor as a customer and enabling them to lift themselves out of poverty. It is about patient capital, blending social and financial returns for long-term social impact. It is certainly not a quick-cash investment.
In our quick-fix culture- and our unstable economic climate- tempting investors away from mainstream finance is certainly an obstacle. Slow return, for investors whose sole purpose is financial, is far from ideal. As Tamzin asked, how big is the ‘I’ in impact investment? Can you be an Impact Investor if your own financial gain is the driving force of the investment, or are you in fact, an Impact Imposter?
I can’t help but feel that the ‘i’ in impact investment is a small one. The motivating factor should always be the desire to make a real social impact in the developing world, be it through a small start-up company in Pakistan, or a health centre in Africa- with the financial return as a happy by-product.
The really important ‘I’ in impact investment is Intent. The true Impact Investor deliberately, proactively, and intentionaly invests in social enterprises for the social or economic development that can be achieved. The Impact Investor stands with the poor with the intention of providing them with the financial means to help themselves. The Impact Impostor intends to see a financial return with a feel-good factor thrown in for free.
So, impact investment is not straightforward: it’s not a simple win-win situation. Who wins and how much they win is still very much under contention and discussion. But with stock exchanges like the iX in existence, I can only feel optimism and excitement about the role that impact investment can play in the international development sphere.
