The international community regards impact investing as an important part of the effort to finance the Sustainable Development Goals (SDGs)  Impact investment, with its dual focus on financial returns and social impact, has, in theory, a unique role to play by combining aspects of development finance and private capital.

Dr. Gillian Marcelle discusses her magazine article, “Impact Investment Caught Out”   Watch the Full Program

In playing this role, the impact investment community has the potential, if not a responsibility, to build collaboration across divides and cultures that separate large institutional investors, specialist investment firms, philanthropies, and development finance institutions (DFIs). In this respect, the community has done well and there are a number of coalitions and alliances that are active. These include: the Tipping Point Fund, the community around GIIN and GSG, and the initiatives that the CDC is able to convene. Major players in these efforts include Confluence, Criterion Institute, Mission Investors Exchange, and the Impact Investors Institute. Major US Foundations, primarily bi-coastal – Ford, Rockefeller, Kauffman and the California Community Foundations are examples — provide another pillar. Notable specialist impact investment advisors and funds include Bamboo Capital, Root Capital, Capria, Convergence, and lesser known players such as Deetken. On the investment banking side, there are several players who are explicitly labeling themselves as impact-focused, including some very large players such as Triodos Bank, Natixis and the impact activities of the TPG Fund, Double Impact fund, and Citi’s Impact Fund.  

Despite the involvement of multilateral organizations, the impact investment community has not seemed to welcome, embrace, or even discuss approaches to governance that go beyond their own statements of being mission-focused and values-aligned.

While there are clearly many players active in the space, and while interest is growing and the understanding of impact strategies is deepening, there is still a marked concentration of activity in the major Western capitals, such as New York and London, as well as, to a certain extent, Paris, Zurich, and Geneva, where impact and wealth management are closely tied together. This is not to say that there hasn’t been some progress in applying impact investment principles to  global development. It simply is that the rest of the world is still not where the center of gravity of impact investing is located. IIX is an outlier to this trend; from its Singapore base, this impact investing initiative founded by Durreen Shahnaz has been able to develop impact-related products focused on the Global South, hand-in-hand with a sophisticated understanding of and aptitude for advocacy.  

Left Behind?

Impact investing functions essentially as a self-regulated community. There are many frameworks for the screening and measuring of the impact of investments and for classifying activities as being in accordance with the early definitions of the field. Most prominent among these are the frameworks developed and promulgated by the International Finance Corporation (IFC), the private sector arm of the World Bank Group (WBG). The professionalism of these efforts are beyond reproach; theirs are technical products that draw on the extensive expertise of the WBG in financing development activities to design, monitor, track, and measure impact results. This is similar to the early days of structured project financing. Having the IFC in syndicated deals improved the ability to mobilize finance, and adherence to IFC impact principles has helped to mobilize dollars.  

Despite the involvement of multilateral organizations, the impact investment community has not seemed to welcome, embrace, or even discuss approaches to governance that go beyond their own statements of being mission-focused and values-aligned. This is the ultimate self-referential and voluntary compliance community. Many participants in the political South take the view that it’s “their money”, and so, what’s also missing is robust critique and scrutiny.  Impact investment as a community has taken on then, in my view, the worst parts of  philanthropy – the wealthy do-gooder who knows best for their intended beneficiaries – while positioning as being more aligned to systems change than mainstream financial capital.   

There is no evidence and no effort to prove that this mission focus has produced different results in terms of internal demographics, diversity, inclusion, or even simple accountability.  The prominent and visible impact investors named earlier in this piece were just as guilty of what Daniel Smith calls “performative posturing” as any of their other counterparts. There have been, to my knowledge, no catalytic funds deployed to measure diversity, equity, and inclusion baseline in major impact investing firms and their programs to bring about much-needed change. There have been pledges, lots of tears, many commentaries, and countless webinars, but the dollars, mandates, and diversification simply haven’t followed. To those that will roll their eyes and claim that this is negative and leaves aside the many well-meaning gestures, let me remind you that impact investing, as a community, sets itself up to challenge mainstream finance and investment – to be the conscience of the investing world – and to demonstrate how finance could be a means to do well and do good simultaneously. 

Impact investment as a community has taken on then, in my view, the worst parts of philanthropy – the wealthy do-gooder who knows best for their intended beneficiaries – while positioning as being more aligned to systems change than mainstream financial capital.

Leaving aside the singularly abysmal failure with respect to supporting and catalyzing racial justice initiatives at scale, where impact investing was left in the dust behind bulge bracket banks, insurance companies, hedge funds, and all manner of institutional finance firms, it is the pandemic response that is truly the comeuppance for this community.  

The world is facing a public health crisis that requires actions based on solidarity. The needs include: behavior change communication programs, personal protective equipment, medical devices, deployment of community health professionals, low cost testing, upgraded health care facilities, vaccine production and distribution capability, virology systems to track and monitor variants and, of course, long-term educational and research efforts to produce epidemiologists and related professionals. Those needs cut across national boundaries and are most acute in countries that have limited financial means from their governments. In other words, a global public health emergency is exactly the context in which a community that claims that it exists to mobilize and deploy financial capital in ways that achieve positive social impact while producing financial returns should be showing its mettle.

There have been pledges, lots of tears, many commentaries, and countless webinars, but the dollars, the mandates, and the diversification simply hasn’t followed.

Instead there has been a response that can, if we are honest, be characterized as wholly inadequate. In the height of the pandemic ripping through the United States, the impact investing philanthropists stepped up with funds for testing, PPE and communication programs.  The U.S. federal government, under the Biden/Harris Administration, has also embraced the geopolitical mileage to be gained by donating vaccines and getting on the side of those calling for IPR waivers so that vaccines can be produced in more countries around the world. I hope that in response to this piece, there comes forth data to prove me wrong. It may be that I have not been in the rooms where billions of dollars are pledged and deployed. Perhaps there are program officers at major foundations busy designing the facilities and intermediaries that are needed to respond to this public health challenge. I hope that in addition to the upsurge in  investments in biopharma ventures, there are thoughtful investors hard at work, launching funds and blended capital facilities that use COVID-19 recovery grants and loans as first loss and  catalytic injections into capital stacks. That’s my vision of what an impact investing community ought to be doing, and it’s very possible that this is already taking place. If it isn’t, then we have the responsibility to make it happen — joining with AfriBio, the African CDC, colleagues across the global South, and with the Vaccines for All campaign and movement to bring all sorts of talent and treasure together. Let’s harness the intensity of this crisis to move forward.

Dr. Gillian Marcelle on “Tackling Asymmetry”    Watch the Full Program