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Date: 2024-04-19 Page is: DBtxt001.php txt00004262 |
Metrics |
Burgess COMMENTARY |
Defining Impact Investing: A Call to Action It is time to clarify precisely what we mean by investing with the intent to create social and environmental impacts, and measuring our progress. A standardized impact plan that documents intent, and impact statement that tracks performance, will provide the transparency we need to unleash impact investing. Clear definitions are essential to well-functioning markets. In the case of impact investing, agreement on what it means for funds and enterprises to seek intentional, measurable social and environmental benefits is essential to further innovation, standardization, and growth. We propose a market-driven solution, grounded in the fundamental need for transparency. Any fund or enterprise that seeks recognition as an impact investment, not least for soliciting third-party capital, should meet two requirements in addition to providing the usual documentation regarding expectations for financial return: 1. Providing an 'Impact Plan' to Investors The impact plan will be a standardized form used to document a fund or enterprise's intentionality in generating social or environmental benefits. Key elements include:
2. Providing an Annual 'Impact Statement' to Investors That Discloses the Fund or Enterprise's Nonfinancial Performance The impact statement is an annual report documenting performance against the fund or enterprise's stated goals in the impact plan.
Investors will likely support those funds and enterprises with impact plans most closely aligned with their own impact objectives. Performance benchmarks will quickly emerge as funds and enterprises are recognized for seeking more -- or more challenging -- impacts, and because of a commitment to especially rigorous nonfinancial performance tracking and reporting. Some funds and enterprises will undoubtedly try to game the system, claiming the mantle of impact investing while delivering little or no social value. However, we must accept this eventuality and trust that investors see through the most egregious cases. We recognize clear limitations to our approach, not least because its broad adoption is contingent on a critical mass of funds and enterprises unambiguously self-identifying as impact investments. This is a step some may be reluctant to take if a more nuanced strategy for raising capital has served them well when navigating an eclectic universe of investors. Moreover, the intent to invest and do business with impact resides with dedicated funds and enterprises, but also the large group of institutional asset owners and individuals already investing with the explicit goal of generating social or environmental impacts in more-conventional financial products and markets. These asset owners will likely begin demanding that intermediaries provide impact plans and impact statements as a condition of investment over time. Until then, their activities will likely remain obscured. However, a market-based orientation remains the best solution for two undeniable reasons: First, impact means vastly different things to different investors, and second, impact investments are made in a range of different asset classes, financial instruments, market sectors, and recipient types. For now there can be no single arbiter of what constitutes a sufficient level of real impact. Our top priority must be unleashing market forces to reveal the full scope of activity in impact investing and the different shades of demand. As with other, more-mature markets, a minimum, enforceable standard of performance may emerge in due course. It is time to take the critical next step of bolstering transparency in impact investing through the requirement that funds and enterprises provide an impact plan to investors and report annually through an impact statement. Doing so will clear the path for a generation of investors to transform capital markets for good.
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Beth Sirull, President, Pacific Community Ventures ... This post was co-written with Ben Thornley of Pacific Community Ventures.
Posted: 03/05/2013 5:52 pm |
The text being discussed is available at http://www.huffingtonpost.com/beth-sirull/impact-investing_b_2814086.html |
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