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Who Really Benefits from Impact Investing?

Craig Zelizer

July 27, 2016

Originally featured on the Center for Social Impact Learning Blog by Guest Staff Writer Alexander Wilbanks. 

Should impact investors be allowed to accept returns on investment that exceeds the economic benefit delivered to community stakeholders who are impacted by their transactions? Is this relationship mutually beneficial, or purely extractive? These questions were posed by Morgan Simon during her recent Profiling Ventures for Impact Investing session at a recent FMS certificate training session. Leveraging her deep knowledge of social justice issues to challenge existing paradigms in the impact investing landscape, Simon addressed several key challenges, these included: a lack of consistency and transparency among impact investors on stakeholder engagement, defining the role of the state vs. private sector models, and building strong methodologies around the identification and collection of key impact performance data.

When defining “impact” Simon provided a definition from the Merriam-Webster English Dictionary, “to impinge upon, especially forcefully.” She did not mince her words when discussing the nature of transparency in the deal structuring process; enumerating unintended consequences that have resulted from well-meaning interventions crafted by social entrepreneurs and impact investors (that often occur with little-to-no community stakeholder engagement). Morgan asked of the cohort, “what can help ensure that impact investment and social enterprises empower people in need, rather than impinging upon them?” Her critique sought to more accurately channel the intentionality of investors and entrepreneurs towards livelihood challenges as they are defined by the communities themselves.

The FMS cohort in Monterey was engaged in a critical analysis of failures of the state, philanthropic and international development models (by utilizing an examination of public vs. private school debates in Kenya and the US). Participants were asked to discuss the nature of essential services and rural infrastructure; the conversation highlighted the contentious nature of defining roles and responsibilities for the public sector. Private sector service delivery models were introduced as a potential solution to the state’s failure to hold up its end of the bargain in providing adequate access to education, infrastructure, and healthcare. What ensued was a complex debate around the risks of supplanting public goods with a neo-liberal, profit-centric, model targeting the world’s poorest consumers.

The longstanding business axiom “what gets measured, gets managed” was also subject to revision over the course of the two day session. While engaging in group work, the cohort was encouraged to debate the relative merits of various environmental and livelihood indicators. Morgan noted that measurement did not necessarily lead to impact outcomes in the absence of effectively aligned management and incentive structures. Of particular note was Morgan’s call for enhanced transparency around the auditing of impact metrics and stakeholder engagement methodologies.

Simon’s session, taken in the context of the entire two week FMS training session, highlighted the dynamic nature of the impact investing space; as a nascent industry, the landscape appears to be in a state of near constant flux. Her perspectives on social justice brought the emergence of segmentation in the market among investors (and LPs) into sharp relief, with perspectives that run the gamut from Pi Investments to Goldman Sachs. Increasingly, impact investors are coalescing around specific investment and social/environmental impact theses (i.e., African agriculture, conservation, financial inclusion, empowering women, etc.) In the search to create a common language around impact metrics, measurement, and reporting the daunting challenge will be to negotiate the tremendous diversity of market players, geographies, and deal structures for investments that can vary from $50,000 by an asset manager with $15 million (AUM) to $200+ million by institutional investors with $300 billion (AUM).

Join us in discussing what real impact looks like and who its' beneficiaries are during the next Frontier Market Scouts (FMS) training on January 9-20, 2017 in Monterey, California. The FMS program seeks purpose-driven professionals to join its award-winning social enterprise management and impact investing, in Monterey, California and Washington, DC (Winter 2017). Founded in 2011, FMS has trained more than 300 professionals since its inception. FMS received a 2013 Cordes Innovation Award and 2016 Cordes Hall of Fame Award from AshokaU. FMS has now become the flagship program of the newly launched Center for Social Impact Learning (CSIL) at the Middlebury Institute of International Studies at Monterey (MIIS). Applications are accepted on a rolling basis. Learn more and submit your application here.

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