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Reflections on Impact Investing from the GIIN Forum

What are currently hot topics in impact investing?  After attending the recent GIIN conference this year, I see a new focus on the people concerned with impact investing, the characterization of the “soul” of impact investing, and straight talk about what success means:

A new focus on the people: The largest impact investing conference GIIN started this year with a live poll, which revealed that while most attendees had the ambition to spend 100% of their personal savings in impact investing, most of us invested less than 25% this way. It was a good reminder to put action to our own words, and also a testament to the vast untapped opportunity of retail impact finance. This participant poll result is backed up by a survey of 6,000 citizens by DFID in the UK which revealed that >50% of the general public are interested in sustainable investing, yet the reported investment activity and awareness of sustainable investment products are as low as 13%. With the technical means of our day, it is actually easy to ask the general public and clients how they want to invest and what issues they really care about, yet only a few institutions ask that question so far (best practice: Dutch pension fund PGE). The voice of end-investors—most notably taxpayers and pension savers—is as absent from the impact investing field’s debate as the voice of the end-investee, e.g. the social entrepreneur in Ghana. One can only imagine how much we will learn now that we start to tune into these perspectives.

The “soul” of impact investing: It surely is important to clearly define what impact investing is for the general public and lay out the full risk-return impact continuum. At the same time, even long-standing practitioners find themselves in search of the original “soul” of their increasingly far-flung field. For those folks, catalytic capital was the word of the hour at the GIIN conference. It describes the capital that does not readily fit with commercial capital requirements but is invested with the same analytic rigor while taking calculated flexibility in the forms it is deployed to de-risk markets (e.g., pioneering new investment vehicles like volume guarantees for health access in developing countries). Rockefeller Foundation, MacArthur Foundation, and Omidyar Network launched their Catalytic Capital Consortium (C3) earlier this year and FSG supported CDC to unveil its Catalyst unit. There is lots of interest in this high-impact-higher-risk segment of the market from all types of players: commercial capital owners and managers wanting to keep track of the market segments, vehicles and fund managers this type of capital de-risks over time; development finance institutions looking to find their catalytic role beyond offering first-loss positions in blended structures; and, foundations wanting to help with research and elevation of the need and best practices for catalytic capital.

Defining, measuring, accelerating success: The field continues to push the impact measurement and management practice. The Impact Management Project (IMP) recently built consensus on how to define impact and key questions we should ask when assessing it. IRIS+ offers a library of metrics and measurement suggestions for any type of issue, with links to the SDGs. Yet, the space has little regulation and standards for how to define and reinforce success. Some participants feared that similar to the microfinance segment, the sector as a whole has to hit a crisis to spur more transparency on who produces real impact and who greenwashes. Adopting best practices on impact measurement and management more quickly would help avoid that scenario. Those investors that are most advanced in their practice stressed that is important to prioritize impact keep performance indicators (KPIs) that are inextricably linked with the operational success of the investee—to be very selective and to have a learning focus. A dollar-equivalent transformed impact score does not offer this type of learning. If the reach of core KPI is coupled with a financial incentive, performance can be accelerated. A great example comes from Enel, which recently issued a pay-for-performance Green Bond: If it meets its target to have 55% of assets installed be renewables by 2021, it pays a 25 basis point lower interest on the $1.5B bond. Indeed, the transaction featured among the most exciting innovations of the field and we stay poised for more.

Nina Jais

Former Director, FSG