Impact investing – we want it all!

A recent commentary in the Globe and Mail, by Philippe Le Houérou and Paul Lamontagne, kicks off as follows:

  • Across the world, the appetite for impact investing is growing. The prospect of investing in funds that deliver solid financial returns while doing good can be appealing, especially for young investors who are showing an increasing desire to put their money in investments that address global or local issues such as poverty, inclusion, education, employment, health, gender and climate change.
  • But how can investors trust that their investments are delivering impacts as intended, and that asset managers are not simply exaggerating the social and environmental benefits of their products – a practice known as “impact washing?”
  • The key is common standards – from how investments are managed to achieve impact to how impacts across projects and even asset managers are assessed. Unlike financial return, impact assessment has not reached the point where common approaches and metrics have become widely accepted.

The article leads from there into the Operating Principles for Impact Management, introduced in April 2019, described as “a market standard for impact investing in which investors seek to generate positive impact for society alongside financial returns in a disciplined and transparent way.” The sixty initial signatories “collectively hold over $350 billion in assets invested for impact, which they commit to manage in accordance with the Principles.” Here’s a summary:

Impact invetsing

I’d somehow overlooked this initiative, but perhaps that’s partly attributable to there being only three Canadian signatories at present. The article places significant faith in its potential: “with common standards, impact investing can harness the forces of the market economy in powerful ways to help fight poverty and help save the planet.” The initiative certainly seems like incremental progress. It’s hard though not to notice that the principles leave much to judgment, and might therefore be implemented quite differently from one entity to the next.

For example, the fourth of the principles requires assessing the expected impact of each investment, using indicators that “shall, to the extent possible, be aligned with industry standards and follow best practice.” It’s footnoted that such standards “include HIPSO (https://indicators.ifipartnership.org/about/); IRIS (iris.thegiin.org); GIIRS (http://b-analytics. net/giirs-funds); GRI (www.globalreporting.org/Pages/default.aspx ); and SASB (www.sasb.org), among others” and that best practices “include SMART (Specific, Measurable, Attainable, Relevant, and Timely), and SPICED (Subjective, Participatory, Interpreted & communicable, Cross-checked, Empowering, and Diverse & disaggregated), among others.” This seems a long way from ensuring a common approach. Likewise, the fifth principle requires that where appropriate, the Manager shall engage with the investee to seek its commitment to take action to address potential gaps in current investee systems, processes, and standards, using an approach aligned with good international industry practice. It’s footnoted that examples of good international industry practice include: IFC’s Performance Standards (www.ifc.org/performancestandards); IFC’s Corporate Governance Methodology (www.ifc.org/cgmethodology), the United Nations Guiding Principles for Business and Human Rights (www.unglobalcompact.org/library/2); and the OECD Guidelines for Multinational Enterprises (http://mneguidelines.oecd.org/ themes/human-rights.htm).

I point this out only to emphasize, as I have before in different contexts, that our collective reach consistently seems to exceed our grasp. We realize the gaps and deficiencies in our current reporting, but lack the coordinated force that would be required to make more than incremental improvements. With so much left to judgment, I worry too that such exercises may become objects in themselves, divorced from much in the way of real-world impact. In a previous post I talked about natural capital and the premise that “to value something means to understand what it is worth to us,” and cited a contrary train of thinking, that to think “we can defend the living world through the mindset that’s destroying it” is merely deluded, and that “the natural capital agenda reinforces the notion that nature has no value unless you can extract cash from it.”

As I cited above, the object of the current initiative is “to generate positive impact for society alongside financial returns.” But given our current circumstances, it’s arguable that for many industries (maybe for all of them, ultimately), the ability to extract a financial return is an inherent indication of an ultimately negative impact for society. Even airlines are capable of putting out corporate sustainability reports referring to “innovative ways to reduce our environmental footprint” and suchlike, even though it’s readily determinable that by its very existence, the airline industry is among the worst contributors to climate change, and that any points of progress they might point to will be heavily offset elsewhere in their operations. But we can’t do anything about that without addressing the nature of society itself, and such a conversation lies nowhere on the current horizon.

The article concludes by quoting Emmanuel Macron from 2017: “There is no Plan B, because there is no Planet B.” But such tentative reporting initiatives hardly amount to a discernible “Plan A”…

The opinions expressed are solely those of the author

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