NB Financial Health

Friday
September 27
2013

Tom Adams

Scaling Impact Investing: Are there lessons from aid?

Last week I attended the launch of the World Economic Forum report on impact investing. At the Forum’s New York Office a panel of Dave Chen, Audrey Choi, Alicia Glen, and Tracy Palandjian gave their respective and frankly, fascinating, takes on what is a refreshingly precise and measured report.

My only misgiving is that like almost every other conversation I have heard since my move to impact investing, the topic immediately lurched, and for the most part stayed, on the subject of attracting more finance. Some of the other important aspects of the report were left under-explored.

Perhaps that’s not surprising when the authors state boldly that impact investing is not an asset class, in direct opposition to JP Morgan’s prior publication that announced it as such and created such buzz. That leads to questions like, so if it’s not an asset class, will pension funds ever dip their rather big toes into the impact investing waters? Will the sector ever be big enough to really make a dent in the social problems it is trying to address?

To be clear, any qualms I feel are certainly not to say that attracting more finance to spur social gain isn’t a very good thing. Evidently it is. But as I listened, I couldn’t help but think of parallels to the history of the sector from which I came: Aid.

In 1970, following more than a decade of discussions starting as long ago as 1958, the wealthy countries of the world pledged that they would each give 0.7 percent of their respective Gross National Incomes to the alleviation of poverty. Five years is all they needed to get their accounts and politics in order, and then the coffers would truly open on grand scale and poverty would be a thing of the past.

Except the coffers didn’t open, not really. Where are we more than half a century since the idea of support large enough to tackle the world’s principal blight started? The reality is that only five (the UK will become the sixth this year) of the 24 countries that give overseas development assistance are at 0.7 percent. And most countries are far from it. In a world where half the world still lives on less than $2.50 a day, that is disappointing to say the least.

And what might be the reason for these unmet promises? It certainly wasn’t for lack of talk regarding the importance of scaling finances for aid.

The real reasons are undoubtedly complex, and politics is writ large. But I wonder whether the size of resources might have been greater and the implementation more effective if, from the off, more emphasis had been placed on evaluation of aid as is now increasingly standard. Had we truly understood where aid works and where it fails and not simply assumed that large sums of money inevitably lead to improvements in well being, might we have eradicated Malaria by now, or brought down the shameful disparities in maternal mortality rates across countries?

I would not be so bold as to suggest that all questions of poverty alleviation would have been solved, these are amongst the hardest in the world. But my feeling, and no matter what your personal view of aid may be, must surely be that we’d be further toward these goals.

This is why I am particularly thrilled that in its attempt to provide definitional clarity to impact investing, the excellent WEF report highlights the importance of two critical ingredients for an asset to qualify in its non-class. Specifically it defines impact investing as:

“An investment approach that intentionally seeks to create both financial return and positive social or environmental impact that is actively measured”

Intentionally seeks to create, and is actively measured; three cheers for Michael Drexler and Abigail Noble the report’s authors for putting this so succinctly. And now with this definition let’s hope that we invest the proper time, thought and conversation into improving how we collectively do both these things. Doing so should in turn make a better case for, and thus help drive, the scale of finances we all long for.

Tom Adams is Head of Impact for Acumen Fund, leading the organization’s global work to gain a richer understanding of the how and why of creating impact through patient capital investing.

Editor’s note: this post was originally published on Acumen’s blog, and is cross-posted with permission.

Categories
Entrepreneurship, Impact Assessment
Tags
financial innovation, Impact Assessment, impact investing, scale, social impact