Why focus on impact?

Letter from GIIN President Sapna Shah

Many of us who have spent time in the impact investing space are familiar with dated diagrams that show a spectrum of returns with impact on one end and financial returns on the other. That thinking once served a purpose, helping to differentiate impact investing from philanthropy, and establishing it as a legitimate investing strategy. But now we can recognize it as a fundamentally unhelpful paradigm, one that suggests impact and financial returns are mutually exclusive, when the experience of impact investors shows that’s not the case.?

In reality, seeking impact returns within a portfolio is its own strategy that adds unique dimensions of value to investments.?

Impact investors come to the strategy with a range of financial goals. Seventy-four percent seek risk-adjusted market rate returns, according to GIIN research. Some have financial goals more aligned with capital preservation. Others use strategies to catalyze follow-on investment, build markets or provide financing that mainstream markets will not yet, regardless of return potential. There isn’t a fundamental link between impact returns and financial returns, or at least we have yet to see the data to support that. Instead, impact can be an explicit focus in addition to financial return; it’s a different way to look at a portfolio and of using a portfolio to look at the world.?

What distinguishes impact investing is the work of building out a theory of change and considering investments from the lens of impact goals, alongside the goals of any other strategies at play. This means pursuing impact for impact’s sake; pursuing positive change with investments because it adds separate dimensions of value to a portfolio. At the GIIN, we seek to highlight how this, in many cases, is compatible with the financial goals of a range of organizations, and can add a separate dimension of value to their portfolios.?

As the impact investing industry continues to evolve, we’re emphasizing the strength of using impact as a lens across a portfolio. This strategy aligns all investments with an impact strategy and keeps them responsive to rapidly changing markets.?

We know that organizations moving toward an impact lens aren’t in the business of compromising financial goals, as that dated returns spectrum diagram might imply. Instead, they’re adding valuable information to their decision making process and working toward a better world. That’s the kind of impact investing we champion at the GIIN.?

- Sapna Shah

News we’re watching:

• Denmark is likely to become the first country to tax CO2 emissions from farms starting in 2030, as part of their efforts to reach legally-binding climate targets.?
• New research published in UCLA’s Anderson Review investigates the relationship between judicial discretion and ESG options for retirement plans. It finds that litigation risk has a chilling effect on ESG 401(k) options, despite interest from employees.?
• GIIN member Nuveen, a TIAA company has secured $100 million in funding from CalPERS, the largest defined-benefit public pension in the U.S., for its affordable housing fund. This fund aims to provide access to safe, quality affordable housing.?
• Impact investing needs to move beyond data collection as an end, and toward greater analysis and management as a means to expand the impact goals of investments, argues Julia Mensink , head of impact at GIIN member Acumen , in an op-ed for Next Billion.?
• How are financial institutions navigating the long-term costs of climate change against the short-term benefits of climate-harming investments?
• The European Central Bank plans to create portfolio emissions reduction targets and enforce them through engagement and potential sales of assets.

Updates from the GIIN:?

• We recently unveiled a new website that makes it easier than ever to access tools, research and resources for impact investing. Explore the redesign and our essential intelligence, latest research, and impact investing solutions and programs.
• This month David Richmond, director of product strategy for IRIS and IMM for the GIIN, joined Pensions for Purpose to discuss how asset owners and asset managers can integrate impact into investment decisions.?
• Next month Sean Gilbert , chief investor network officer, will join Pensions for Purpose on July 16 to discuss practical approaches long-term investors can use to improve their systems and reduce risks.??
• The GIIN Impact Forum was recently named a top 20 finance conference for 2024 by Entrepreneur Magazine . October 23 - 24, investors and impact experts will gather in Amsterdam to discuss the latest trends in impact investing and build the future of the market. Register today to join us there.?
• If you’re an investor interested in starting or expanding your impact practice, consider joining our impact investing seminar, Transforming Your Portfolio, on October 22 in Amsterdam, the day before the forum. You’ll leave the seminar understanding key impact investing concepts like creating a theory of change and using the best available impact frameworks and tools.?
• The newest IRIS+ theme is climate adaptation and resilience, and we’re seeking feedback from experts in investing, climate finance and impact measurement and management. The public comment period is now open, and we invite your thoughts on the proposed core metrics set by August 20, 2024.
• The GIIN’s agriculture impact performance benchmark now includes a feature to compare investment performance to the UN Sustainable Development Goals (SDGs). Check out the tab to learn more about the performance needed across regions and countries to achieve SDG goals by 2030.?
• Thank you to everyone who joined us in San Francisco for our inaugural West Coast Impact Forum! We brought together an incredible group of 200 leaders committed to changing the way the world invests. If you missed us in California, check out the upcoming GIIN Impact Forum in Amsterdam.??