Mark Zapletal coined the term impact investing in 2005. It has since become mainstream. According to the GIIN, impact investments are “investments made with the intention to generate positive, measurable social and/or environmental impact alongside a financial return.” The intentionality to achieve more than just financial returns is essential. However, impact investors differ in their return targets: some aim to preserve their capital, while others demand market returns. Impact investing encompasses every asset class.

What is the purpose of the Global Impact Investing Network?

The GIIN was created to support impact investing, develop the practice, help it grow, and increase awareness about it. Any type of investment has an impact. Investors are responsible for becoming aware of and managing their investments’ impacts, but the real question behind impact investing is to understand the specific environmental or social outcome that the investor is trying to help achieve. The intentionality counts. At its core, impact investing delivers social and environmental returns alongside financial returns as a cohesive package.

Has that message caught on?

It started as an idea, but it has come a long way. We now have many different actors, from small impact startup investors to the largest asset managers, as members of the GIIN. Over the last 15 years, the idea of impact investing has spread from a small subset of banks and foundations to the financial mainstream. Some very large institutional investors such as Japan Post, Zurich Insurance, and Temasek are already allocating money to impact, proving that any portfolio can have a portion dedicated to impact. Of course, impact will be a part of a portfolio and probably not all of it.

These days, we are seeing an increased awareness in the world of finance that advisors need to discuss outcomes and consider clients’ values in investment decisions. Clients are starting to ask questions to understand what impact their investments will have. How does this investment translate into improved conditions for people and the planet? In parallel, there has been an increase in professionalization and sophistication in the impact investing space. The standards have become higher even as expectations have risen. In the end, it is easy to wonder about what can be achieved in putting your wealth to work, but it is also crucial to translate such reflection into robust practice.

Impact investing also receives a fair share of criticism. Some practitioners even started talking about “deep impact” since “impact” alone was sometimes used as a fig leaf for just pursuing market returns without any intention to change something.

Many impact managers do their job well, but yes, like any market, you will find some with a shallow approach. This makes it essential for the client to understand how a fund or a manager goes about their job. The good news is that there are many tools and references readily available. So, one can ask what kind of impact measurement framework the asset manager uses. With the IRIS+ System, for instance, the GIIN has created a widely accepted standard for investors to measure, manage and optimize their impact. You can also ask about their investment process and use the Impact Principles as a reference point.

One of the GIIN’s recent initiatives is adapting IRIS+ to climate solutions investing. You are collaborating with the Institutional Investors Group on Climate Change on this topic. Why this focus?

Reaching net zero emissions by 2050 as called for by the science is a major challenge for all of us. The first question is how we can mobilize enough capital to move our economies away from fossil fuels. And the second question is, if we manage to raise this capital, how we can identify the best possible solutions that help reduce emissions drastically, quickly, and in a sustainable manner. What we do with this initiative is help investors understand the science and technology behind climate solutions and we are working on building a Framework for Climate Solutions Investing to help them assess the quality of investment strategies. We have a draft ready.

What motivates asset owners and asset managers to pursue an impact investing strategy?

There are many different motivations. For some institutional investors, impact investing is tied to their underlying purpose of serving the interests of their beneficiaries. They see their purpose not only as a financial obligation but also as a duty to invest money in a way that helps beneficiaries address their future needs. For example, some place-based pension funds look for ways to invest into the community in which their beneficiaries live in the course of generating the financial returns needed to meet their payout obligations. For asset owners, impact investing can be a way to build on the priorities of their members. Members may consider certain needs, for example, health, as important and, therefore, want their money to improve healthcare systems. It is getting increasingly difficult to say: “My only job is to make money, don’t ask me any questions about how”. Investments are creating the world we live in. It is also deeply inefficient to look only at financial returns only when you could potentially achieve the same financial returns while also delivering other kinds of meaningful social and environmental returns at the same time.

If we take, for example, carbon dioxide removal, a field Verve Ventures is active in, there are many opportunities in the private markets but none in the listed equity space yet. Can an impact investor only invest in listed companies?

What you can achieve varies from one asset class to another. But if you look at companies’ development cycles, as they grow and need to continue raising capital, they will go public, and then there is the issue of matching them with the right investors once they do so. So, impact investing is a lens through which investors look at different assets. There is an ongoing debate about how much of a difference you can make as an investor in a listed company. There are certainly some ways in which you can intentionally pursue an environmental or social outcome. For example, activist impact investors who can take a significant stake in a company and draw other investors’ attention to corporate behavior can make a difference. However, I think that the more important point is that you can bring an impact investing mindset and investing process to any asset class, but you have to recognize that the ways in which an investor can contribute and the kind of difference that they can make is qualitatively different across asset classes.