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Why We Invested: The Impact Management Project
In Impact Investing July 19, 2017
With its latest market estimate at $114 billion, impact investing has made tremendous strides in recent years. While this figure still represents a small drop in the global pool of professionally managed assets, it reflects substantial industry progress — not the least of which includes a host of impressive new investors and a growing ecosystem of intermediaries rising to the occasion to meet their needs.
Given the scale of the global problems impact investing is trying to solve, we continue to embrace the increasingly “big tent” of players. However, it has its challenges; we have found that many investors struggle to comprehend and navigate the market given its complexity and lack of a proper taxonomy. These frictions include confusion about how to allocate capital in an opaque market, potential misalignment between financial and impact expectations, ongoing ideological debate regarding return trade-offs, and high transaction costs — all of which lead to money being left on the sidelines and potential blowback in the market.
Fortunately, the notion of “impact accountability” has long been a key priority for the industry. There has been a push to measure impact performance over the last decade, as demonstrated by the development of methodologies, rating systems, metric sets, and accounting standards (e.g., SROI, GIIRS, IRIS, SASB). However, this focus on measurement has overshadowed the fact that the industry lacks a shared language and framework for describing impact goals in the first place. The need for this wider conversation has precedent in traditional finance, wherein capital markets function because of a shared convention underpinned by fundamentals (financial risk, return, volatility, liquidity) and a framework (asset classes and portfolio construction norms) to both group investments with similar characteristics, and to articulate and align investor goals.
This is why we invested in the Impact Management Project, led by Bridges Impact+. This ambitious effort has facilitated a global conversation, coalescing over 700 practitioners across geographies and disciplines — from asset owners to fund managers, enterprises to standards agencies — to build consensus about what is relevant when we talk about and manage impact.
The body of work emerging from the Impact Management Project is not a new framework, but rather a convention — a general agreement of shared norms and fundamentals — about how to communicate, analyze, and assess impact across five key dimensions. Embedded in this convention is the assumption that a more nuanced characterization of impact (alongside financial risk and return) can and should play a much greater role in helping investors better assess investment opportunities tailored to their unique motivations, expectations, constraints, and capabilities. Adoption of these norms will enable us to share our preferences with each other more clearly and across investment value chains, resulting in a more efficient marketplace — and ultimately, more capital deployed into impact solutions across asset classes.
At Omidyar Network, we believe the Impact Management Project reflects a critical next step in impact investing’s evolution and maturation. We encourage the industry to continue applying rigor and innovative thinking towards devising solutions that can help drive responsible market segmentation. |