Investing and giving strategically is of increasing importance if we are to solve the most important social, environmental, and economic issues facing the world today. Driven by targets set in the UN’s Sustainable Development Goals (SDGs), and free from many of the constraints of governments or big companies, individual investors, impact investors, grant-making organizations and philanthropists are well-placed to invest for impact — be that with pure philanthropic or blended return objectives. This freedom also means they are uniquely placed to use their capital and networks in collaborative and creative ways. However, to do this they need cost-effective intelligence and better data solutions that will allow them to identify and support the most promising solutions to the world’s pressing needs.
Virtually every cause supported by impact investors, philanthropists, and foundations is included in the ambitious scope of the SDGs. These goals represent an opportunity to bring about systemic change and can help impact investors and philanthropists frame issues, connect with other change-makers, strengthen partnerships, and communicate about their progress — all for greater impact. In short, because many have the decision-making freedom and the capital to take risks in both giving and investment, they can play a significant role in developing a collaborative ecosystem and impact economy.
Achieving the SDGs will require far more resources than are currently being applied if we are to ‘leave no one behind’.
But achieving the SDGs will require far more resources than are currently being applied if we are to ‘leave no one behind’. Scaling up impact investing and giving effectively still poses a real challenge. Aligning with the SDGs should enable a more collaborative approach. Yet often there is little support available for those who wish to fund shared causes together. Even though the benefits of collective action are well-known, it is easier to invest or donate independently. In addition, whilst the importance of capturing learning and progress across the SDGs is undeniable, this too has been difficult.
The challenge of the under-funded SDGs
As things currently stand, many of the SDGs will not be met by 2030. Out of the 17 SDGs, only two targets are close to being delivered: eliminating preventable deaths amongst babies and children under the age of 5, and ensuring children are getting a primary education. However, the rest of the targets are unlikely to be achieved by 2030 without significantly more support. These include targets to end poverty and hunger, and protecting the climate and biodiversity. In addition, in just a short period of time, the COVID-19 pandemic has significantly obstructed efforts to reach these targets especially in poorer countries.
In order to overcome this challenge and fund the SDGs, our roadmap towards a fairer future, action is needed not just from one but from a multitude of actors. Be it for companies, governments, investors or philanthropists, the pandemic has thrown a spotlight on the depth of our social and environmental issues. Each of these groups is looking at how to react in their own way; be it through responsible business, investment, or giving. Yet working separately will only have limited effects.
However, another repercussion of COVID is increased interest in collaboration and the adoption of technology to improve processes. This presents an opportunity for a step-change in collaboration within and across the aforementioned groups. Notwithstanding this opportunity, collective giving and impact investing remain inefficient. Reliable data is hard to find, funders with similar interests can’t connect, high impact charities are difficult to identify and the case for multi-year investment is often opaque. But many organizations are looking to align their impact with the SDGs. By rallying around an SDG or causal area, and aligning both investment and giving behind them, there is huge potential for more and better impact.
Key Challenges in the Impact Ecosystem
1. Fragmented impact measurement:
There is no objective impact measurement framework or tool to assess the efficacy or impact of projects on a global scale. For example, The Investment Association outlines the lack of a common language and framework with which to define and categorize different responsible investment approaches.
2. Lack of alignment:
Visibility and collaboration, both within the investor ecosystem and between the financial and philanthropic world, is limited. Similarly limited is the cross sector engagement needed to solve the world’s complex and urgent needs. For example, alliances between different players can be difficult to create, manage, and sustain.
3. Accessing appropriate advice
Research has also shown that millennials in particular find it difficult to access appropriate advice to find the best way to engage with impact investing solutions (Kramer, 2018). “Millennials desire to do well, they also want to do good,” says Joe Quinlan, the head of market strategy at U.S. Trust. “Now that they are one of the largest investing cohorts, the trend is more pronounced” (Block, 2018).
4. Maximizing the benefits and minimizing the negatives:
It is important that policymakers, investors and businesses share and co-ordinate their knowledge and resources to maximize the positive impact of actions whilst minimizing the negatives. For example, if investing to accelerate environmental impact, it is important to also bear in mind unforeseen social impacts. Krisztina Tora uses the example of the Waoranis, an indigenous tribe living in Ecuador’s Amazon rainforest. Increased investment in wind turbines has created significant social and environmental challenges for the tribe as their territory provides 75% of the global supply of balsa wood, a critical light-weight component in turbine blades.
Need for Innovation
Whilst the private sector has an enormous and unique role to play, the kind of systemic change that is needed is not something that can be achieved by one siloed group; it requires support from other sectors, notably the philanthropic ecosystem. Philanthropy has a unique role to play in supporting the emergence of an impact economy by contributing patient and risk-tolerant capital early on, as well as the passion and insights of its sector; a passion that can spur the financial world into action. The emergence of the impact economy requires larger pools of both philanthropic and blended funding, alongside more combined will power and expertise. It needs more infrastructure to enable cross-sector communication, project visibility, and impact tracking.
- Motivating people to fund more and better
- Strengthening people’s capacity to fund more and better
- Creating and facilitating opportunities to fund more and better
Reliable data is hard to find, funders with similar interests can’t connect, high impact charities are difficult to identify and the case for multi-year investment is often opaque.
COVID-19 provided a clear example of this challenge and opportunity. A huge, complex, global need required a collective response and this was made much easier by the use of structures, like a COVID fund, DAF, impact platform or collective giving vehicle. One key innovation is technology, which can help catalyze collaborative funding and reallocate capital towards the SDGs. For example, data-rich digital dashboards tracking the SDG or ESG impact of investors, companies or charities like Maanch. These solutions bring together multiple actors, allowing them to collaborate efficiently whilst providing the transparency and clarity that is needed to take risks and allocate funds with a sense of trust. Collaborating on impact means going beyond ESG
Increasingly, investors are making it clear that basic ESG considerations are not enough — they want to see impact and this is reflected in how they invest. Moving towards impact goes far beyond ESG, including steps such as materiality (impact importance and magnitude), intentionality (investors focus on positive screening and active engagement), additionality (improved outcomes due to that support) and measurability. Moving towards real, measurable impact in this way necessitates a systemic change that demands the collaborative attention of multiple actors.