This post was written as a response to the new report “Impact Investing 2.0,” and was first published on the report’s micro-site.
Make no mistake: the new research reported in “Impact Investing 2.0” is a significant contribution. We applaud it, even though the authors take direct aim at some of the concepts of “Impact Investing 1.0” we helped create.
In our widely distributed and discussed January 2009 report, “Investing for Social & Environmental Impact: A Design for Catalyzing an Emerging Industry,” we argued that impact investing was in the midst of a messy transition from the uncoordinated innovations underway for decades in disconnected fields such as community development and microfinance. We laid out a path for rapidly creating a much larger, coherent and integrated marketplace characterized by disciplined investment and high standards for impact. “The pressing question,” we wrote, “is whether impact investing will remain a small disorganized, underleveraged niche for years or even decades to come—or whether leaders will come together to fulfill the industry’s clear promise…”
The subsequent years have taught us all a great deal.
Among the lessons: learning what can be sped up, and what cannot. The idea of impact investing caught fire more quickly, and spread more widely, than we had imagined possible. But the practice has proved even more difficult and complex than we had foreseen. (The global financial crisis didn’t help.) Investing well is hard, whether or not with the intention of impact. Getting results from impact investments takes time. That’s why this new research, focused on the actual practice and performance of 12 funds, is so important. As our friend Paul Saffo puts it, “Never mistake a clear view for a short distance.”
Our work established the language of “impact first” and “financial first” as a way to understand different types of impact investors during the messy transition then underway. We believe that pulling apart investing in this way served a purpose in 2008-2009, since it pointed to the different paths practitioners would follow and the different mindsets, tools and training that then governed practice. We aimed to find a way to invite practitioners to start from where they were—but to move toward each other, and learn.
In retrospect, we can see that these ideas may have been like the necessary “scaffolding” that must go up as something new is built. Then, as progress is made, that scaffolding can fall away, having served its purpose. We are certainly ready to believe that “impact first” and “financial first” was scaffolding that served a purpose and should now fall away, to be replaced by “the mission first and last” principle asserted in “Impact Investing 2.0.”
That said, we believe this transition will continue to proceed slowly. The necessary “multilingual” leadership” cited in “Impact Investing 2.0” is currently a huge capability gap that will not be easily filled. The traditional “bifurcation” is bred deeply within the leaders who control institutions today (whether financial or philanthropic), and the younger generation who reject this bifurcation will have to earn their spurs through long practice. While the market is moving to a blended definition of success, the skills needed to succeed are often lacking, and rarely all live in one organization, let alone within one individual. Building multilingual cultures, institution by institution, will take will and skill. Too often, both are lacking in those who have real power today. That is why we believe that partnership and collaboration will grow in importance—as leaders pursue the “catalytic capital” strategies outlined in “Impact Investing 2.0.” In fact, skill in what we call “aligned action” is likely to be an essential pillar of the leadership needed.
Impact investing has taken off as a concept precisely because terrific leaders have stepped forward–not least the authors of this report. The leadership task ahead – building the successes, the practices, the policies, the needed infrastructure – is daunting but exciting. That is why impact investing is becoming the life’s work of so many experienced and emerging leaders.