Impact Investing in 2024: The Rise of Credibility

Why only the honest impact investors will survive and thrive in the future

Introduction

Impact investing has emerged as a promising way to address some of the most pressing challenges of our time, such as climate change, poverty, inequality, and health. According to the Global Impact Investing Network (GIIN), the size of the impact investing market reached one trillion US dollars in 2022, and is expected to grow further in the coming years. However, not all impact investors are created equal, and some are more credible than others.

The Professionalisation of Impact Investing

In the past years, the impact investing space has worked hard to professionalise as an investment asset class. The market has adopted common regulatory frameworks for disclosure with the EU’s Sustainable Finance Disclosure Regulation being the most dominant. Impact investors have adopted industry standards for impact measurement and management such as the Operating Principles for Impact Management (OPIM), and there are a wealth of impact tools being launched to help investors improve their practices.

These initiatives are commendable and necessary, but they are not sufficient to ensure the quality and integrity of impact investing. They can provide guidance and benchmarks, but they cannot guarantee the authenticity and commitment of impact investors. They can help to standardise and harmonise, but they cannot prevent the misuse of impact data.

The Challenge of Credibility

So it is clear to an investment fund manager with impact investing aspirations what to do, how to measure and validate, and what to report. But these things can all be bought. What cannot be bought is credibility. And being a credible impact investor means you are willing to show your doubts, present your dilemmas, and share your mistakes. It means you are not afraid to admit that impact investing is not a silver bullet, that it involves trade-offs and uncertainties, and that it requires constant learning and improvement. It means you are not only focused on showcasing your successes, but also on disclosing your challenges and failures.

Sadly, few impact investors are ready to take this step. They dread being questioned more than they welcome being challenged. They prefer to conceal their flaws than to reveal their struggles.

The Future of Impact Investing

I foresee that the impact investing field will undergo a new change, where the real leaders will stand out from the rest by being honest and open. These leaders will go beyond the existing regulations and standards by engaging in honest and critical dialogue with their stakeholders, peers, and critics. They will not only report on their impact achievements, but also on their impact gaps and risks. They will celebrate their achievements and also share the lessons they have learned and where they aim to improve going forward.

These leaders will be the ones who will survive and thrive in the future, because they will earn the trust of their investors and society. They are the ones who will make a real difference, because they will not give up when they mess up, but get better at what they do. They will motivate and affect others by showing the hard work it takes to achieve impact.