Giving Compass’ Take:
• Spectrum Impact’s Rehana Nathoo discusses common myths about impact investing and debunks them one by one, freeing funders up to face challenges and improve measurement tools.
• How many of the myths listed do you still cling to? One of the biggest takeaways here is that the field needs savvy investors in the fold, so the more we know about the opportunities out there, the better off we all are.
• Looking for a full primer on what impact investing is and why it matters? Click here.
The impact investing conversation is pivoting from past to future. One moment we were celebrating the 10-year anniversary of “impact investing” (though investing with values predates the term) and record levels of impact assets under management. The next, we’re paging through a new impact investing roadmap to transform global financial markets.
To achieve that ambitious goal, we have an additional task. It’s time to update our narrative to give it its full force. And that includes dispelling a number of outdated myths about the sector.
Some of these myths still, frustratingly, merit discussion today — such as “you have to sacrifice financial returns to generate real impact” or “impact investing is just for the large, rich and wealthy.” They shouldn’t disappear from how we speak about the sector. But if we can update what we know now — and acknowledge the myths that prohibit our growth — we stand a real chance of creating a self-sustaining, thriving and inclusive financial market.
Myth #1: It’s all the same thing. If our goal is to build a financial marketplace that embeds impact and is truly sustainable, we need to stick to some of what mainstream financial markets got right, including the concept of “choice.”
Social finance strategies, including socially responsible investing, responsible investing, venture philanthropy and many others, are not all the same. When we started talking about the field of social finance — and its sub-strategies — as a spectrum, we finally gave impact investing some legs.
Since you are interested in Impact Investing, have you read these selections from Giving Compass related to impact giving and Impact Investing?
Myth #2: Measurement is too hard. A financial marketplace inclusive of impact will need to demonstrate a close relationship between strong performance on impact measures and financial measures. While we have a lot of work to do on standardization, suggesting there is a lack of frameworks to measure at all needs to end. Here are some examples that are actively in use by a range of investors and entrepreneurs:
- GIIRS’s Fund Ratings, which evaluate a fund’s impact business model, operations, and management;
- The SROI framework, which uses monetary value to quantify social, environmental and governance impacts;
- SASB has created accounting standards that help public corporations disclose financially material information to investors with an eye to sustainability;
- And Aeris Impact Ratings have homed in on critically important CDFI loan funds, assessing the impact and performance across products.
Myth #3: It’s only investors — and their capital — that matter. One of the strengths of impact investing is its focus on capital markets as a force for change. That emphasis has ensured that we bring a systems-level approach to thinking about impact. But it has also meant that we sometimes think about investment capital as a single data point for success. That’s out of sync with the actual evolution of the field.
Read the full article about knocking down impact investing myths by Rehana Nathoo from Spectrum Impact, via Medium.
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If you are interested in Impact Investing, please see these relevant Issue Funds, Charitable Organizations or Projects where you can get involved.