Improving Impact Funding

Impact funding is a hot topic in the world of investment, in keeping with an increasing global focus on sustainability, impact investing aims to create social and environmental impact through investing in enterprises that help toward this target, while leveraging the opportunity that is created, and making healthy returns too. Sustainability and impact is big business, and it seems that everywhere you look, someone is trying to pivot in that direction. 

On paper, this is fantastic, and looks great. In reality though, impact investing is still finding its footing. This isn’t always due to a lack of good intention, but more-so an inability to adequately vet for real impact, measure at milestones, reward collaboration and strategically align funding with impact. The result, is a number of great initiatives that definitely make a difference, but sadly, do very little to move the needle in a way that is scalable and makes waves changing the world. What is happening to a great degree, is a mismatching between resources and verified impact initiatives. 

OXFAM highlights that one of the main problems that impact investing has, is  that it’s a relatively new field, and suffers from a lack of consensus and clarity on impact measurement metrics, and choices regarding whom to invest. This makes it difficult for funding to best be used and assessed, creating a mismatch between the financial resources allocated and measurable impact on the environment or communities for which there were intended outcomes. 

These problems can be addressed however, but it requires a little more commitment from impact investors around REAL impact, not just ESG reports, and incorporating processes for verifying impact of initiatives that are already under way, as well as working on impact milestone and measurement being included as part of the funding protocols for new initiatives.  Three ways of doing this include: 

• Defining  impact investing goals: this helps to build trust, transparency and accountability. 
• The investor-entrepreneur relationship has to be inclusive, transparent, and a cooperative partnership.
• Invest as part of a collaborative, exploring partnerships with third party stakeholders and local investors, linking funding directly to milestones.

Times are changing such that impact investing is a ‘nice to have’, but it is becoming a ‘must have’ as part of any investment portfolio. Coupled with this, is a demand for increasing transparency around the resulting impact of these investments. Green-washing is becoming a thing of the past, and more considered decisions are necessary  for real impact that can be verified, that takes into account outcomes for stakeholders, and at the same time, has a return. The usual reporting instruments that most have become accustomed to, or simply having a sustainability strategy is no longer enough. It's time to commit to and build in the mechanisms to base decisions on verification, and reporting on evidence real impact.