It is also about a change in our economic thinking, about investing for the long term, about engagement and about an ecosystem that is prosperous for many. The biggest reason behind the rise of impact investing, in our view, is that it fits perfectly with some of the most powerful macro trends in the global economy. For investors, it is also the best way to invest in long-term sustainable growth. It attracts more capital and more talent to the sector.
Definition of impact under pressure
An important question when it comes to the future of impact investing is how measurement and reporting will evolve. More and more data is available, so measuring and reporting impact can and must become more transparent. The European Union is also starting to issue directives that will make it compulsory to communicate transparently about sustainability efforts.
This makes the question of how impact can be uniformly measured and thus how impact is defined more urgent. Five aspects that are important in the current definition are under pressure:
In the current definition, intentionality is important: do you invest in a certain solution with the intention of tackling planetary and social challenges or not? But the positive impact of investing in solar panels to make money is just as big as investing in them to save the earth, which raises the question of whether intentionality belongs in the definition of impact investing per se.
In addition, we often look at the positive impact of investments on "underserved communities" - i.e, communities that face barriers and difficulties in accessing and using financial and medical resources. This can be caused by socio-economic factors, extreme poverty, geographic isolation, religion, sexual orientation, gender identity, race, and ethnicity, among others. Investments in medical centres in Africa, for example, may be less impactful in Europe, but in Africa they make a world of difference.
With the current measurement methods, it is also very difficult to measure the additionality of investments: if there are a lot of candidates to step into an impact fund, your euro probably makes little difference, so it is better to invest in other funds. We also don’t always know where the impact is greatest; think of the famine in Africa: of course you can send food parcels, but you can also ensure less drought by investing in irrigation, you can invest in the knowledge of the farmer so he can use seeds that are more resistant to drought or you can give money so that people can move from dry areas to other areas. Fortunately, the impact of this large number of options is getting increasingly calculated more accurately by all kinds of organisations. Thus, in the future, it will become increasingly clear what is the best investment.
Timing is also an important issue when we talk about impact investing. Over what period are we going to measure impact? Because if you give someone a food package once, that impact will be the greatest in the short term, but if you teach someone to produce more food, that positive impact will last much longer.
Finally, positive impact can be caused by several parties at the same time. If a company, thanks to the capital of an investor, reduces carbon and makes a product that enables customers themselves to use less carbon, who is responsible for that impact? The customer, the investor or the producer?
There are many questions that impact investors are actively addressing so we hope to move to an era in which impact will be central.