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Making Impact Investing Work

After decades on the margins of finance and philanthropy, impact investing is finally moving into the mainstream, with most major asset-management firms having launched impact-investment funds and strategies. But without stronger standards, greater diversity of players, and a wider focus, a promising shift could become corporate whitewash.

NEW YORK – There is a growing consensus that capitalism needs to be reimagined. The influential Business Roundtable in the United States recently issued an appeal for corporate CEOs to think about their impact on all stakeholders, not just their financial shareholders. Equally, we have no hope of achieving the Sustainable Development Goals unless private capital is mobilized to complement public funding. Many believe that so-called impact investing can be part of the answer.

The idea is not a new one. True, most people used to think about their finances as having “two pockets” (as Ross Baird of Blueprint Local puts it). One pocket was for fiduciary investments geared toward making as much money as possible, regardless of social or environmental considerations. The other pocket was for philanthropic efforts aimed at doing as much good as possible, while disregarding financial returns.

But the ends of the “spectrum of capital” started to merge in the 1950s. At that time, some purely fiduciary investors – namely, faith-based communities, civil rights organizations, and labor unions – realized that certain investments were morally repugnant or misaligned with their values. Chief among these were holdings in companies manufacturing tobacco products, producing pornography, or doing business in apartheid South Africa.

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