In the 10 years since the term was coined, impact investing has seen incredible success with a swell of support from governments and investors all over the world. But while it is easy to look at this momentum and interpret the growth of the industry as a triumph, when we start to look at the bigger picture it tells a different story.
The Paris Climate targets might have galvanised a lot of energy and momentum around climate change, yet not a single major industrialized country is on track to fulfill its commitment. At the current pace, the world will still warm too much and way too soon. And inequality and division in our society are more pronounced than ever before, as evidenced by the growing political and social division. On top of that, $9 trillion is currently sitting in negatively yielding debt instruments.
The current financial system is not serving the planet. It’s not serving the people. And it’s not serving investors. So, what does success mean for impact investing when the broader market is failing the global community? Impact investing is a powerful solution, but it’s not being applied at scale. We see elements of it seeping into the broader financial markets, but it isn’t happening fast enough. Instead of focusing only on how we can unlock more capital for impact, I believe we need to be thinking about how we can have an impact on investing itself.
I believe we can build a world where it is standard practice for all investors to consider their social and environmental impact – where these factors are built into the system. This is a world where the concepts of ‘value’, ‘risk-mitigation’ and ‘fiduciary duty’ include the wellbeing of our communities and the health of our planet. It is a world where businesses feel the same accountability to their customers, employees, communities and the planet as they do to their shareholders.
Let me be clear, this vision is bigger than impact investing. But impact investing can still lay the groundwork for this future by proving that money can do more than just make more money. So what needs to happen? Transformative innovation is needed in a number of areas, most notably in the field of education for future leaders in finance and business.
First, we need to educate wealth advisers, who are the gatekeepers to hundreds of billions in dollars of capital. Within this group, general awareness of impact investing and its various opportunities are sometimes lacking. So, even though there is growing demand from clients for impact investing, their advisers often lack the knowledge to meet this demand.
Even among wealth advisers that are aware of the concept, a handful of persistent myths and misperceptions constrain the growth of the market. For instance, it is often automatically assumed that impact investing requires a cut in financial performance, even though a growing body of literature has consistently provided evidence that risk-adjusted market-rate returns are achievable in impact investing.
Some people assume that the market is limited in one way or another: believing, for example, that only small deals are possible or only in high-risk emerging markets or only in private equity — in fact, the industry offers opportunities across geographies, asset classes, sectors and stages of business. More resources need to be developed to help wealth advisers understand and share the opportunities in impact investing with their clients.