Impact investing: financial supply chain required
Despite the fact that a universially accepted definition of “impact investing” is still missing, new actors are progressively entering this market. What this sector needs most is the creation of a dedicated market place where the various actors can meet, exchange views and make deals, Professor Dr Harry Hummels, European Liaison of the Global Impact Investing Network (GIIN) and Professor of Ethics, Organisations and Society at the University of Maastricht, said at the 24th Midi de la Microfinance in Luxembourg.
Simply said, “creating a better world and at the same time making some money” is what impact investing is all about, Hummels stated. A slightly more sophisticated definition says that impact investments are those investments made into companies, organisations and funds with the intention to generate social and environmental impact alongside a financial return.
Yes, the intentions – of both the investors and the investees – are very important, since there is no single entity to define what is impact and what is not. This is decided by the community of the actors involved. There is no clear line defining how much return an investor has to sacrifice to make his investment an impact investment, either.
Given that impact investing is focusing on financial returns, too, it is clear that it goes beyond philantropy. Further to this, trying to achieve a positive impact implies the ability to measure that impact, which is definitely very tricky.
Professor Hummels also identifies some barriers detering institutional investors like banks, insurance companies or pension funds from the impact investment sector. The size of the investments for example, that is often too low to attract institutional investors, as well as the costs of impact investments. Further to this, institutional investors don’t appreciate the complexity of the products and the fact that these are often offered by small boutiques that tend not to meet large investors’ expectations in terms of business model, governance, size... And last but not least, the assurance of impact remains a challenge.
However, Professor Hummels welcomes the growing interest of institutional investors in the impact investing sector because these actors bring capital, market discipline, efficiency and scale.
Now, there is a need for the creation of a sustainable impact investing market place that leads to the development of an extended financial supply chain in which various actors – beyond “family, friends and fools” – have a role to play. JJP