Abstract
This article discusses the growth and different guises of impact finance. Impact investing, social impact bonds, blended finance, and venture philanthropy all share the aim of directing private money in search of a financial return towards “impactful” projects or businesses. The association between the concept of social (or environmental) impact and finance was forged in public debate after the 2008 financial crisis, and has enabled the development of a whole ecosystem of actors (evaluators, consultants, asset managers, dedicated associations and forums, training programs, etc.) promising a new kind of finance, capable of producing both financial and social returns. I argue that despite the growth of this ecosystem, its proposals are unable to meet social and environmental needs and are in fact reinforcing neoliberal financialized capitalism. First, they confer legitimacy on financial actors by giving the impression that with appropriate incentives, such actors are capable of responding to social and environmental issues with no need for major institutional changes. Second, they contribute to the capture by financial actors of public money earmarked for those issues. The two cases of social impact bonds and impact investing are discussed to illustrate these phenomena and the futility of these practices.
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CSR stands for corporate social responsibility. ESG stands for environmental, social, and governance.
This is a new job title made popular by Prince Harry, who took up a Chief Impact Officer position in the start-up BetterUp in March 2021.
In 2008, the Rockefeller Foundation’s Board of Trustees approved a $38 million grant to support the Impact Investing Initiative for the period 2008–2011 (Rockefeller Foundation 2012). It was aimed at catalyzing collective action, developing industry “infrastructure,” such as standards and rating systems, supporting intermediaries such as private equity funds and contributing to fundamental research and advocacy. The Foundation funded several reports (e.g., Morgan 2010) that were then aggressively marketed. They also established the GIIN (Global Impact Investing Network, https://thegiin.org/), funded by a larger philanthropic base, but conceived as “the Foundation’s legacy instrument to continue to build the field” (Rockefeller Foundation 2012, xi).
A Social Investment task force was formed in 2000 (at the request of HM Treasury), followed by the non-profit organization Social Finance UK Creation in 2007 and Big Society Capital in 2010.
https://www.impactprinciples.org/signatories-reporting. As of February 14, 2023, 170 signatories have endorsed these Principles for all or some of their assets under management. Signatories are required to publish an annual Disclosure Statement describing how they incorporated the Impact Principles into their investment process.
This point is often made in speeches given by impact investors. See Hellman (2020) about the role of “Aha moments” in impact investors’ narratives.
Another example is Bertrand Badré, founder of the impact fund “Blue like an Orange Capital” after a long finance career at Lazard Frères, then Société Générale, Crédit Agricole and finally the World Bank. In 2018 he published a book entitled Can finance save the world? (Badré 2018) that goes from Part 1 “Despite being led nearly to ruin, how we can still react” to Part 4 “Finance serving the common good and the sustainable development of the world.”
This table is a simplification, as it excludes lending activities. Non-profit or public entities can of course also borrow money, either to finance investments (as in some non-profit social housing programs) or to cover (short-term) cash shortfalls. For funders, loans are the standard way to obtain a financial return in the non-profit sector. Loans are financial instruments that are available to any kind of economic agent, which is not the case for the capital investments or subsidies considered in Table 1.
This is the case in higher education, for example Gunn and Mintrom (2016).
See https://golab.bsg.ox.ac.uk/knowledge-bank/indigo/impact-bond-dataset-v2/, accessed 2023-02-16.
While SIBs are inventoried and publicized by organizations supporting them, there is no financial information on their “success” and ultimate financial returns, even in existing public reports evaluating SIB programs.
Note that French actors were also keen to develop “French-style SIBs,” said to be less “financialized” than their UK counterparts. Potential returns were capped at 3 to 5% for the first 8 French SIBs (Pellizzari 2022).
IFC (2021) provides other figures, as the definition of impact investing is not standardized, but they lead to a similar conclusion: Impact investing is marginal and depends heavily on government involvement. IFC distinguishes between “core” impact investing (with “intentional and measured impact”) that consisted of $636 billion (55% of which managed by 36 DFIs) and impact investing in a broader sense (including “intended impact”) that takes the market size to $2.281bn (74% of which was publicly managed) (IFC 2021, p. 1).
Which launched the Social Enterprise Initiative in 1993.
Schwab set up the Schwab Foundation for Social Entrepreneurship in 1998.
Micro-credit in particular was promoted by the World Bank as a for-profit activity (Mader 2015, p. 59).
Its history in France is one example of this process, as the same actors who imported “social entrepreneurship” also imported “impact investing” (see Chiapello and Godefroy 2017).
See for example the impact fund case study presented by Bourgeron (2020).
See for example UNCTAD (2014).
Impact investing is considered marginal in the world of socially responsible finance, which is itself marginal in the world of asset management: according to Morningstar, SRI represented less than 1.3% of AUM in the USA at the end of September 2022, compared with 19% in Europe.
The regulators have begun to address this issue. For example, in October 2022, the UK Financial Conduct Authority issued a consultation paper (CP22/20) on “Sustainability Disclosure Requirements (SDR) and investment labels.” This is causing concern among impact investing promoters such as the UK Impact Investing Institute, which fears that some important impact investments may be excluded from the category. See also the voluntary Impact Principles project (https://www.impactprinciples.org/), and in France the Investor Impact Charter (https://institutdelafinancedurable.com/en/publications/). The differentiation in the EU’s Sustainable Finance Disclosure Regulation ((EU) 2019/2088) between Article 8 funds, which “promote environmental or social characteristics” and Article 9 funds, which “have sustainable investment as their objective,” does not match the distinction between SRI and Impact investing (Article 9’s definition makes it a bigger category than impact investing was initially supposed to be) but is considered as a first regulatory step.
The EVPA webinar “Talking numbers” organized on 19 April 2023 to discuss harmonization of the definition of impact investing addressed this question. One discussion point was “Agreeing on a well-defined set of criteria that can describe what makes investing in listed companies and publicly traded bonds impact investing is a crucial step to expand the reach of the impact movement, while maintaining the impact integrity of the ecosystem” (https://www.youtube.com/watch?v=kcRNRjofFS8). Interestingly, participants were in favor of an all-inclusive definition.
Candidates for B Corp certification are assessed through questions about their practices and outputs across five categories (governance, workers, community, the environment, and customers). As B-Lab says on its website, this assessment is supposed to “measure a company’s entire social and environmental impact.” Note however that in December 2020 B-Lab started a review process of its criteria (scheduled to end in 2023) in order to introduce “a set of non-negotiable requirements for achieving certification” (https://www.bcorporation.net/en-us/standards/performance-requirements)- accessed 23-02-2023).
Famous B Corps include Ben & Jerry’s, Patagonia, and Danone.
Green tech and climate tech have become an important category of start-ups in recent years, such that the impact investing community states: “Clean tech, alternative energy and climate change are top impact themes” https://impact-investor.com/eleven-new-european-impact-fund-managers-make-the-impactassets-ia-50-2023-list/
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Chiapello, E. Impact finance: how social and environmental questions are addressed in times of financialized capitalism. Rev Evol Polit Econ 4, 199–220 (2023). https://doi.org/10.1007/s43253-023-00104-y
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DOI: https://doi.org/10.1007/s43253-023-00104-y