Impact Investing: (I just Wanna) Feel This Moment Looking for 2040
By: Pablo Lacasia
Tags: Entrepreneurship, Impact Investing, Sustainability, Sdgs, Business

Impact investing is being propelled by a powerful set of opportunities that appear likely to continue or even strengthen (…) But there are also many existing challenges that stand between the promise and the reality for impact investors, and these will need to be tackled for the industry’s development to accelerate. Understanding this in light of the Global Trends by The National Intelligence Council will be paramount (March 2021).

In this more contested world, communities are increasingly fractured as people seek security with like-minded groups based on established and newly prominent identities; states of all types and in all regions are struggling to meet the needs and expectations of more connected, more urban, and more empowered populations; and the international system is more competitive, and at greater risk of conflict as states and nonstate actors exploit new sources of power and erode longstanding norms and institutions that have provided some stability in past decades.

Jessica Freireich and Katherine Fulton from the Monitor Institute released an 86-page document entitled Investing for Social & Environmental Impact completed in January 2009 with lead funding and support from The Rockefeller Foundation, Annie E. Casey Foundation, W.K. Kellogg Foundation and JPMorgan Chase Foundation.

It was a seminal paper of its kind and the one that drafted the name impact investment for the ‘using [of] profit-seeking investment to generate social and environmental good’. Here I share some extracts, links on the subject, orientations to understand more and several tumble ideas to discuss and further develop.

Opportunities

1.Growing interest among capital providers: with a growing set of ultra-wealthy investors seeking diversification and a different approach. Interest is also being spurred by the pull of growing emerging economies and more values-driven consumer behavior, as well as the push of current and expected regulatory incentives and mandates.

Wealthy investors seeking a new approach to money management that enables them to also “make a difference.”

This is the first time that so many enormous fortunes have been created by people so young

Consumers are incorporating values-driven considerations into their purchasing and investment decisions

Regulatory incentives and mandates.

2. Greater recognition of the need for effective solutions to social and environmental challenges: increasingly urgent threats and growing inequities.

3. A steadily developing track record with early successes: in community development, microfinance, and clean tech attracting positive and extensive popular press and broader interest.

IGNIA Partners

4. A flock of talent interested in careers in this space, creating a next generation of leaders.

The infusion of talent will lead to higher-quality investment opportunities as well as more effective intermediaries and service providers over time.

Challenges

1. Lack of efficient intermediation, with high search and transaction costs caused by fragmented demand and supply, complex deals, and a lack of understanding of risk. The compensation system for traditional intermediaries also impedes getting small deals done which may have less lucrative fees.

The lack of mechanisms to connect capital and impact investment opportunities is caused in large part by an investment industry structured around the historical binary of philanthropy (for impact) and investment (for returns).

“People don’t want hippies managing their money.”

We need a new generation of money managers who are open-minded to the possibility that values and returns are not bifurcated

2. Lack of enabling infrastructure to help people identify and function as a part of an industry since the market is structured around a history of bifurcation between philanthropy (for impact) and investment (for returns). Networks are underdeveloped, and a lack of reliable social metrics makes the suspected trade-off between financial and social benefits even harder to assess.

Still an emerging industry, impact investing lacks the models, theories, policies, protocols, standards, and established language that would enable it to flourish.

3. Lack of sufficient absorptive capacity for capital with an imminent lack of impact investing opportunities into which large amounts of capital can be placed at investors’ required rates of return.

In some sectors and regions there are plenty of deals in which to place money. But even in those places an imminent challenge will be whether there is sufficient deal flow, particularly large, bankable opportunities into which investors can place significant amounts of capital.

Five themes will shape our world

1.Global challenges. Including climate change, disease, financial crises, and technology disruptions are likely to manifest more frequently and intensely in almost every region and country.

2.Fragmentation. As the world has grown more connected through communications technology, trade, and the movement of people, that very connectivity has divided and fragmented people and countries.

3.Disequilibrium. The scale of transnational challenges, and the emerging implications of fragmentation, are exceeding the capacity of existing systems and structures. There is an increasing mismatch at all levels between challenges and needs with the systems and organizations to deal with them.

4.Contestation. This encompasses rising tensions, division, and competition in societies, states, and at the international level. Many societies are increasingly divided among identity affiliations and at risk of greater fracturing. Relationships between societies and governments will be under persistent strain as states struggle to meet rising demands from populations. As a result, politics within states are likely to grow more volatile and contentious, and no region, ideology, or governance system seems immune or to have the answers.

5.Adaptation. The most effective states are likely to be those that can build societal consensus and trust toward collective action on adaptation and harness the relative expertise, capabilities, and relationships of nonstate actors to complement state capacity.

This article is a synthesys of Investing for Social & Environmental Impact (2009) for the then Monitor Institute now Monitor Deloitte by Jessica Freireich and Katherine Fulton and Global Trends 2040: A More Contested World (2021) by The National Intelligence Council (NIC).