The impact principle: Widening participation and deepening practice for impact investment at scale
Developed from the contributions of The Global Steering Group for Impact Investment (GSG) working group and case studies, this report aims to accelerate and scale impact investment. Split into two sections, the first explores priorities for action to drive positive impact and the second assists actors to translate the priorities into action.
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OVERVIEW
This paper is designed for people and organisations who are new or existing in impact investment. It makes the case for why impact matters, and how it can be utilised as a powerful tool for meeting the needs and aspirations of people and the planet.
Founded on the principle that everything has impact, positive or negative (the Impact Principle), this paper explores how key actors in impact investment can widen participation and deepen practice for positive impact investment at scale. It highlights the opportunity for growing energy and momentum to drive the next breakthroughs toward this end, including the achievement of the Sustainable Development Goals (SDGs).
Split into two sections, the first, ‘Towards the Age of Impact’, maps the course towards impact at scale by examining the path we are already on, the objectives we wish to meet (the SDGs) and employing the theory of change to identify the actions we still need to take to meet those objectives.
Currently, the capacity for enterprises to generate impact is dependent on individual constraints, intentions and capabilities. The result is a sliding scale of impact described here as the ABCs of impact:
- Act to avoid harm
- Benefit stakeholders and
- Contribute to solutions.
At present, the contribution of investors to the impact economy (creating ethical bond funds, positive screens etc…) fit within these three categories and are underpinned by several archetypal strategies:
- Signalling that impact matters
- Engaging actively
- Growing new/undersupplied markets
- Providing flexible capital
By mapping the archetypal strategies used by investors to contribute to impact against the ABCs, the paper asserts that there are significant opportunities at present for widening and deepening impact. With the SDGs providing a framework for targeted action, these opportunities must be actualised through a quantum leap of progress. To drive this leap, three priorities are identified:
- Leadership
- Powerful advocacy
- Coordinated action
Underpinned by these three priorities, part two of the paper, ‘Navigating Impact’, takes the themes and actions explored in part 1 and presents them as opportunities and tools for actors across the impact value chain to engage and contribute to widening and deepening the field of impact investing. Case studies are used to complement and validate the above.
Guidance for leveraging and driving impact is targeted towards banks, institutional investors and corporations. Some of the means by which these critical actors might achieve this end are as follows:
Banks
- Widen impact: creating partnerships for impact solutions and integrating/operationalising impact
- Deepen impact: developing rigorous impact measurement and reporting systems
Institutional Investors
- Widen impact: increasing allocations to impact/SDGs, using mechanisms such as Request for Proposals (RFP) to engage the market and solicit ideas
- Deepen impact: ensuring strategic asset allocation has clearly defined goals for impact at scale
Corporations
- Widen impact: developing/contributing to thought leadership, proactively explore opportunities to advance stakeholder interests, and join networks
- Deepen impact: clarifying and communicating impact goals including collaborating with supply chain on impact and setting minimum impact standards on suppliers.
KEY INSIGHTS
- Leadership is required to amplify and connect the calls to action across different movements to the 2030 Agenda and put more collective focus on actions that will have a breakthrough effect for scale.
- Powerful advocacy will be critical to engaging governments and multi-lateral leadership bodies including the G-20, to further enable impact investment, invest in market infrastructure and provide conducive regulatory environments in which it can flourish.
- We must coordinate action to drive the practice of impact management and prioritise principles and standards for transparent, accountable impact practice and reporting.
- A number of levers have been identified that have the highest potential leverage to mobilise more actors for impact. These include: raising awareness and education, growing and strengthening impact networks, widening the opportunity set of products and solutions, and strengthening and deepening intermediaries.
- To catalyse positive development, the levers that must be activated include: collaborating for new solutions and to accelerate social and financial innovation, providing flexible capital to unlock innovation and investment, and encouraging constructive engagement of governments and policy makers to further enable impact investment.
- In order to design for the impact objectives, we must: set clear impact goals so the objective is defined, design for scale so (where appropriate) solutions can scale and investment can be aggregated, and develop impact leadership to increase the capability for impact practice.
- To develop impact integrity the levers required will include: embedding impact management so it is clear what is being achieved and whether that is generating measurable change, committing to accountable practice and governance to build trust and confidence, and developing industry-based principles and standards to set expectations and drive consistency and comparability.
- Achieving structured collaboration between and within actor groups (such as through collective alignment to the SDGs), developing industry standards in impact measurement and reporting, establishing strategic communication systems that facilitate dissemination of knowledge and acting to influence the policy landscape around regulations, standard setting, and incentivising impact should become the top priorities for all actors seeking to develop the impact economy.
- Impact investment optimises risk, return and impact to benefit people and the planet, by setting specific social and environmental objectives alongside financial ones, and measuring their achievement. Impact management is a critical practice to reach this potential.
RELATED CHARTS
RELATED QUOTES
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“Robust market growth proves out the powerful linkage between the more disciplined practice of impact investing that has emerged in recent years, and the arrival, with greater confidence, of new entrants and innovations. Deepening and widening constitute a virtuous cycle, in other words, that is both essential and unstoppable.”
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“The Sustainable Development Goals, and the world we face if we don’t get closer to achieving them, is urging investors to manage all impacts that matter – positive and negative, intended and unintended. These global goals therefore provide common ground for previously siloed tribes: they are as relevant to investors who want to mitigate risk as to those with an intentional positive theory of change. They apply to both public and private capital markets, as well as development finance. If these different tribes can share approaches to measuring and managing impact on the SDGs – behaving as one tribe that is both deep and wide – then we might just stand chance of achieving them.”
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“When you see the kind of progress impact investments have had in solving social and environmental challenges, it’s extraordinary to think about what could be achieved as the industry grows and becomes more efficient.”
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“The promise of impact investing – to deliver on both financial returns and social impact in the pursuit of innovative solutions to pressing challenges – remains compelling. Over the last decade, we have seen encouraging progress in mobilising capital, social innovation, and mainstream engagement. In order to realise the full potential of impact investing at scale, we will require a renewed pledge for inclusive stakeholder engagement, and an unwavering commitment to impact transparency and integrity. This report is an important and timely reminder for impact investing to retain its relevance and credibility as it thrives.”
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“We are running out of time. The global issues encapsulated in the SDGs require action NOW if we are to avoid the detrimental and irreversible effects of a failure to act for current and future generations. Impact investing is providing an important mechanism to collaborate, participate and actively engage around solutions to these issues but it needs broader engagement to reach scale. An important collaboration in itself, this document brings together a diverse and highly experienced group of market participants to outline immediate actions for readers to help in growing individual and organisational impact.”
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“To meet the sustainable development goals (SDG’s) it is estimated that we need financing of between US$5-7 trillion annually, much of which will need to come from the private sector. Impact investing has a significant role to play in financing the global goals and in aligning the needs of people, planet and capital. Widening and deepening the market is therefore crucial to ensure that capital flows can be directed to the SDGs.”
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“We live in a time of social and environmental crisis, with no time to lose. Impact investing has great potential to help us address these huge problems, but the road to truly realising that potential stretches ahead of us. We need to leverage the growing interest and excitement around impact investing to drive much wider and deeper change in the way mainstream finance works, towards a world where all capital not only avoids harm but also seeks to build a better future.”
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“We are today at a crossroads, as a small impact investing market already exists, but its edges are blurred, and it is yet to be structured. To scale impact investing (and avoid SDG-washing), it is crucial to organise this nascent market and equip it with the relevant tools and metrics – essentially, impact measurement methodologies; a common framework with widely shared definitions and concepts; and certification bodies. One key success factor for impact investing will be to establish clear links within the new triptych: (I) financial return, (ii) return, and (iii) impact; and to prove that social value also creates financial economic value, through the goodwill it provides. This working must be pursued to investigate the topic further, and to support the growth of the market.”
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“Based on our experience, we are certain that today’s impact investment market cannot reach its full potential by focusing on commercial forms of investment capital alone. Catalytic capital (patient, flexible, risk- tolerant financing) must be part of the mix. By cultivating innovation, scale and impact, it can be a powerful force that improves the lives of millions of people and protects the planet for generations to come.”Page number or webpage section: 64
