NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, November 5, 2015

Demand for impact investing is surging – yet investors, even interested ones, have a hard time wrapping their heads around the practice.

Surveys conducted for a recent Barclays study found that more than half of respondents expressed interest in such investments, yet fewer than one in 10 (9 percent) had actively engaged. According to Barclays’ Greg Davies, “We believe the explanation for this gap is straightforward: people may want to use their investment for social good, but they don’t know how to.”

Getting started in impact investing can be difficult enough – first, investors need to figure out whether capital market strategies are even appropriate for achieving a social objective of interest, like alleviating homelessness, biodiversity, or girl’s education in developing countries. And then there’s the work of matching an investor’s financial and social preferences to the universe of available products, cobbling together limited information on context, purpose, and performance.

But even more troubling is the perceived lack of clarity about the impact envisioned or delivered by these investments. Without a clear understanding of what differentiates an impact investment from any other investment, new entrants fear an effort at “greenwashing” – repackaging the same old, non-impact strategies – or an attempt to camouflage deficient investment skills.