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This article was first published on LinkedIn on 08/04/2019

The Impact Investing world is suffering from a severe case of hype(r)-inflation and excess ambition.

A report published by the Rockefeller Foundation in January 2018 noted:

“While impact investing has grown to an over $100 billion global industry, the scarce evidence of the social and environmental returns of these investments poses a threat to the continued growth of the industry.” (1)

Then, in April 2019, the Global Impact Investment Network (GIIN) publishes a report claiming that there are now $502 billion dollars of Impact Investment assets under management. (2)

GIIN notes that this “capital is at work to address the worlds social and environmental challenges.”

Two things come to mind:

First: that is a remarkable growth of nearly 500% in 15 months.

Second: So how are we doing now?  If there is scarce evidence of and social and environmental impact from $100 billion, what are seeing from $500 billion. The GIIN report is silent on impact, but if we look around us, we might say: “Not very much”.   Billions of people are as poor as ever, inequality is growing and the SDGs are way out of reach.

Perhaps its too soon to tell.  The GIIN report tells us: The industry must grow because “trillions of dollars are needed to successfully address the critical social and environmental challenges that face the world today such as the Millennium Development Goals,” and  “In order to meet global need much more capital will need to be unlocked for impact investing.”

Rajiv Shah, head of the Rockefeller Foundation concurs (3)

“The math is simple: The cost of solving the world’s most critical problems – poverty, hunger, disease, inequality, climate change – runs into the trillions of dollars.“ He too notes this thing called the “the financing gap” and says  “Together, we must find innovative and catalytic solutions to mobilize private capital to close this widening gap between those with hope and prosperity, and those without. Collaborative, catalytic investment is essential to fill the development-financing gap and help address pressing global challenges.

Come on people!  No other “asset class” or development endeavour would set out to attract trillions of dollars based on such poor evidence. This is myth making of epic proportions.

I am not blindly critical of what individual investors are trying to do.  It is a good thing:

• To support social enterprises with low-cost high-risk capital at below market rates;
• To bring some kinds of affordable financing and insurance to those who are excluded from mainstream financial services;
• To create market opportunities for small entrepreneurs including farmers
• To have corporations and investors be mindful about their businesses and the use to which their funds are put.
• To invest in distributed alternative energy systems.

But its never going to get us to the SDGs. And to link together all the different kinds of investors (from those seeking fortunes at the bottom of the pyramid with those willing to lose money to achieve their goals) into an “industry” or “asset class” called impact investors is to confuse rather than clarify the issue.

I don’t know who quantifies the “funding gap” but the concept is inherently flawed.  The problem and it’s solution it’s not only about money. It is also about corruption, governance, democracy and peace and therefore about activism and politics and power and policy.   As Brad Zarnett said in a recent Linkedin post about climate change: “The world didn’t defeat the Nazi’s because business saw a win-win opportunity.”

If there really is a funding gap then it will be filled by taxation of the rich and the international corporations who dodge it, closing down tax havens which facilitate tax evasion, by fixing the imbalances in world trade, by eliminating transfer pricing, by paying living wages and ensuring the spread of social security and all the other things that need to happen to create a sustainable and just global economy.

So, all strength to those who work hard to get business to behave better.  And there is no doubt much that can be achieved with well strategized investments by genuine social investors willing to subsidise beneficial innovations of all sorts.

But let’s not pretend that this is the route to eradicating poverty and reducing inequality to acceptable levels;  and, let’s not obscure what needs to be done behind the smoke of needing to raise trillions of dollars for an asset class or industry that is so diverse in nature that it cannot really be said to exist.

And when those who truly want to invest in change get their head above the smoke, it may be possible to have an honest conversation about where they should best be putting their money.

• Jane Reisman and Haley Millet: Putting Impact at the Centre of Impact Investing: A Case Study of Toniic’s T100 Project
• The Global Impact Investing Network: “Sizing the Impact Investing Market” April 2019
• See link https://www.rockefellerfoundation.org/blog/announcing-rockefeller-foundation-impact-investment-management-new-impact-investing-platform/