The Editors' Post: Investors fall short on 'critical' impact management practice
Impact investors have a long way to go to get impact management right, in particular when it comes to engaging with stakeholders. They need to get better at it, or risk meeting the same fate as ESG investing: being branded as a scam. Worse: impact investing will fail in its mission to save people and planet.
When it comes to managing and measuring impact, you’d think the first thing an impact investor would do is ask its stakeholders – the people on the ground who are the ultimate beneficiaries of the “impact” bit – what they think about it. Turns out, most of them don’t.
This is one of the findings of the latest report from impact verification provider BlueMark. The report is based on independent verifications it conducted for 60 impact investors – from DFIs to smaller impact venture funds – that together manage US$160bn of impact assets.
Consulting stakeholders – social entrepreneurs, workers, beneficiaries – is hard and expensive. How many times have I been told “the quality of the data isn’t always good enough”, “it’s difficult to compare”, “we don’t have the resources”. Someone once told me that measuring social impact at portfolio level was basically impossible, and it was misleading to pretend it was. So why even bother trying?
Well it’s a matter of survival, really. Investors are getting seriously nervous about green- and impact-washing. Look at the backlash against ESG investing: fund clients are asking for proof that it works as critics say ESG has become a bit of a joke (an angry Elon Musk even called it a scam). Impact investing is no different: “The market is rife with false promises and exaggerated claims,” Christina Leijonhufvud, founder and CEO of BlueMark, says.
The whole credibility of the impact sector relies on strict impact management and measurement practices. Reports like BlueMark’s are an invaluable resource because they provide an independent and transparent reality check on how thorough impact investors are with impact management. Some investors are demonstrating exemplary practice, and the report rightfully commends them. But it’s clear there’s a long way to go for the sector as a whole. Will it get there soon enough? It needs to, if we want to avoid ending up in the same position as ESG investing; and crucially: we’re running out of time to change the world.
So many people in the UK love to hate Big Society Capital. Every time we talk about social investment, we hear how the country's wholesaler of social investment is doing things wrong, how it’s responsible for everything that’s not working in the sector, etc etc. Objectively: Big Society Capital still does some things right (cutting target rates of return for example); and having it is better than nothing, right? I’ve heard people around the world saying they envy the UK for its Big Society Capital.
Most importantly, before blaming Big Society Capital for all the ills of social investment, maybe we should remember one thing: with its £600m, it only represents 0.14% of total business lending in the UK, and social investment as a whole just 1.4%, as Danyal Sattar, the CEO of Big Issue Invest, reminds us in an opinion piece this week.
So before getting so upset about Big Society Capital, wouldn’t it be time we look for money elsewhere? Sattar argues that we need mainstream banks to play a much bigger role in the social economy – and that requires serious reform. He outlines a few realistic, practical proposals on how that could be done. This is what systems change looks like.
This week's top stories – 1 July:
Top image: Freepik.
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