In the same way that greenwashing threatens corporate reputation, the risk of impactwashing stalks private equity firms that are devoting resources to “impact investing.” This concept needs to be conclusively defined to avoid putting at risk its credibility and role as a sustainability accelerator.
A commonly accepted definition of impact investing refers to one that “intentionally seeks a measurable social or environmental impact, in addition to a financial return”. It mentions the three dimensions, although it includes both incremental improvement, associated with ESG practices, and Impact with a capital letter, which changes the system.
Impact investments in the strict sense has its own and demanding requirements. For example:
- Fosters transformative solutions, such as new business models.
- Impact is only achieved if the investor is actively involved, for example by enabling blended financing schemes or providing expert knowledge.
Genuinely and successfully undertaking Impact investing requires much more than a specific narrative. For example:
- Set a return framework for this type of investment.
- Focus on sectors under transformation to which to contribute differentially.
- Collaborate with complementary partners which are also focused on positive impact.
Impact investing is an opportunity for committed, capable and bold investors; a risk for the rest.