Impact Investor Global Summit – The takeaways

Without an impact label, the next generation of investors will look elsewhere, and fundraising may become increasingly difficult for non-labelled funds. In the same vein, there has been a shift in views of limited partners, many of whom have developed a passion for making a difference as well as generating a profit. The panellist further noted there has been a rise in funds aiming at mitigating climate change launched and that the current struggle in fundraising of impact funds is not specific to impact funds. In fact, the whole private capital market saw a downturn. However, within the past six months 82 climate funds have launched with an aggregate value of over $80 billion, as compared to 270 climate funds launched in the last three years, demonstrating the influence of the impact label on fundraising.

The team arguing against the benefits of an impact label outlined the multiple interpretations of 'impact' and how these conflicting definitions can oversimplify the complexity of impact investing. As a non-defined term, 'impact' is subjective, both for investors and fund managers. Some market participants believe that the impact label is not a sign of quality or moral righteousness, so emphasis on such a label can be counterproductive. The label may imply that the offering is unique rather than the norm, and so may lead to perceptions of inability to generate the same level of market returns – this would then be counter-productive for fundraising purposes and lead to issues with fiduciary duties. Additionally, creating a black and white approach may lead to regulatory vulnerability as what is considered impact today, may not be tomorrow. An example of this, is the use of biofuel for cars. Previously, biofuel was thought to be a more environmentally friendly alternative compared to petrochemicals to fuel vehicles, but now it has been shown that growing food crops for such a purpose is not the best use of arable land. Using a label creates inflexibility which detracts from the core of impact investments which is to make a continued effort to address global challenges, and thus, such inflexibility may steer an investor away from impact investing.

The counterarguments and closing remarks from the team arguing "for" included the fact that while investing is inherently risky (not just impact investing), the label would help to unlock additional private capital. Whereas impact and greenwashing may have been a concern previously, there are now more sophisticated verification mechanisms and reporting requirements to alleviate the risks.

While the team arguing against closed with the explanations that there are now so many definitions, the use of 'impact' as a label is causing confusion and may be more of a hindrance. The team also flagged that while the debate was about the use of the 'impact' label, few funds are actually using the term in their name – why is that?