Is impact investing just ‘cuddly capitalism’?

Last month the Financial Times ran a story by Jonathan Ford entitled: Cuddly capitalism needs a clear way to assess if it’s doing good. The piece argued that the majority of impact investors find it hard to accept any trade-off between impact and market returns, leading the impact investing sector to pay more attention to good intentions than good results.

We agree that ‘cuddly capitalism’ needs a clear way of assessing if it’s doing good. At NPC we have long argued that to attract more capital towards solving the world’s most pressing social and environmental issues, investors need more transparency around returns; both financial and impact.

We applaud investors who are willing to open up their portfolios to share the impact they are making, so the rest of the field can learn. Charly & Lisa Kleissner are role models in this respect but sadly commitment to this sort of transparency is rarer than you’d thing. When NPC has examined the relationship between financial and social returns, we’ve found some evidence of trade-offs between good impact practice and the financial return of various asset classes, but good impact practice can help ensure that deep impact (a measurable significant difference to people’s lives or the planet) can be seen. In some instances, this can be further promoted through patient investing, higher risk tolerances and through giving grants alongside investing capital.

We also welcome the Operating Principles for Impact Management led by IFC, and their signatories for committing to get independent verification of their impact practice. Clear disclosures on impact practice build confidence among investors and offer asset managers some level of protection from “impact-washing” through fund manager strategy, asset selection, monitoring of investments and exit.

We’ve designed a light-touch framework investors can use to assess the impact potential of their investments. Investors can use our framework to compare impact practice between investees, encourage improvement and promote greater transparency. We hope our tool continues to prove useful in harnessing the potential of for-profit investment to achieve genuine social good.

For more on our impact audit services, get in touch with Plum Lomax, our Impact Investing Principal, at plum.lomax@thinkNPC.org