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

Friday, December 21, 2018

By Wendy Abt

Impact investing has never been more popular nor more in peril. The field is wracked by confusion over basic principles, dubious practices that invite cynicism, and biases against large companies. If more clarity is not brought to the movement, it risks a hard fall.

The stakes are high, and the world does not have a surplus of money or time to spend. Achieving the Sustainable Development Goals (SDGs) by 2030 requires $5 to $7 trillion annually.

Impact investing can help, but only if properly harnessed. A handful of pervasive problems are responsible for most of the trouble:

• Muddled thinking about appropriate rates of return that saps resources and exacerbates in-fighting among practitioners.
• Questionable theories of impact that spawn confusion about the character and quality of evidence to demonstrate impact, even managing to obscure the value of conventional investment and economic growth.
• Unwarranted sidelining of global and large regional companies that could provide necessary operational and financial resources.

To overcome these challenges, impact investors should follow three guidelines.