Impact investing enters its difficult ‘third act’

Impact investors must welcome newcomers by talking about the problems that can be solved – rather than putting them off with too much focus on the financial instruments. We report from EVPA’s Investors for Impact Forum in Porto.

Impact investing has reached its “third act”, and advocates must now talk less about financial instruments, more about the issues – before they put everyone else off.

So said Luis Jerónimo, director of sustainable development at the Calouste Gulbenkian Foundation, at the Investors for Impact Forum, hosted by EVPA in Porto, Portugal last week.  

Calouste Gulbenkian Foundation is one of Europe’s largest foundations, with assets of €3.3bn at the end of 2020. Alongside its work in art and culture, it aims to grow the impact investment ecosystem in Portugal, and has created an impact investing company called MAZE.

Let’s be honest, we’re not bringing many people to the table with this framing

Jerónimo said impact investing had already added impact to the risk-return equation (its “first act”), then developed many successful instruments (the second act).

Now, it was time to “flip the discussion” and focus on the problems to be solved – while listening more to the people on the frontlines – rather than on the tools impact investors used. 

“Let’s be honest, we’re not bringing many people to the table with [the current] framing,” he said.


“Ring fencing our own backyard”

After years spent trying to make impact investing mainstream, this was now happening, Jerónimo added – but many insiders were reacting defensively; in Jerónimo’s words, “trying to ring fence our own backyard”.

“[We are] trying to turn the spectrum of capital that we’ve been working on for many years as a divide in the playing field. I don't think that will actually be the best approach to bring this agenda forward, because I think there’s a role for everyone to play.”

They need the expertise, and you need the scale

The message was echoed by Cliff Prior, CEO of the Global Steering Group for Impact Investment (GSG), who said impact investors should work more with mainstream investors to try to fill the massive financing gap to achieve the Sustainable Development Goals. The outcome would not be perfect, he warned, but pushing even half of all ESG investments more towards impact would still be a “big change”.

Impact investors should also feel “much more confident” about their knowledge of the field – and use this to work with more mainstream peers. 

“They need the expertise, and you need the scale,” Prior said.


A narrowing field

Though the usual tone from impact investors is one of open arms, some see the “third act” differently. As one attendee told Pioneers Post, “We used to be the advocates, now we’re the police” – a more difficult role, they added. 

Others raised concerns that the climate agenda was now “hijacking” everything else, to the detriment of some social causes: funding would inevitably be diverted from less fashionable causes, they said. 

But Leslie Johnston, who runs the Laudes Foundation, said an intersectional approach to climate was “critical”, and urged fellow investors to team up with people from outside their usual field to achieve systemic change. 

The divide may actually be narrowing, though. The much-cited spectrum of capital sees pure philanthropy on one end, private equity on the other. “The reality is we're all kind of moving a little bit toward the centre,” Johnston said. 

Header image: from left to right: Margarida Couto, CEO of the Vasco Vieira de Almeida Foundation; Luis Jerónimo; Cliff Prior; and Steven Serneels, chair of EVPA, pictured at the Investors for Impact Forum on Monday 15 November in Porto (credit EVPA)