Donor Report
Is Impact Investing the End of Philanthropy?
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By Elyse Crowston
ive years’ ago the United Nations publicized the 17 Sustainable Development Goals to synchronize and focus global efforts to solve critical problems like climate change, gender inequality, and poverty. Ten years from now, 2030, is the target to achieve them. And, frustratingly, the estimated $5-7 trillion per year needed to achieve the goals is far from secured. Philanthropy alone cannot mobilize the necessary capital quickly enough to fund the goals by 2030. Further, the SDGs do not represent a number of disasters that require relief — they represent symptoms of systemic problems that humanity must address in order to mitigate disaster. Enter: impact investing — investing capital for social or environmental benefit alongside financial return. In essence, impact investing is a shift of incentives. Whereas the overarching goal of conventional finance is to generate profit, impact investing places (generally) equal importance on the human or ecological return of a venture, while also delivering profit to investors. Impact investment is the center of the venn diagram between economic growth through private enterprise and altruistic good of philanthropic funding. It is therefore fair to ask, ‘if solutions to the wicked problems facing humanity, distilled as the 17 SDGs, are not being wholly addressed by the third sector, should funds that are earmarked for philanthropy be diverted to the private sector?’ The business of doing good Global Impact Investing Network (GIIN), a non-profit organization to measure the scale and increase the effectiveness of the impact investing sector, reported in 2019 that the global impact assets under management reached US$502 billion, up from $114 billion reported in 2017. The five-fold increase is significant, and signals that a shift is underway in financing for-profit ventures where the business model is predicated on solving a social and/or environmental problem. Impact investing, like Socially Responsible Investing (SRI), mission/social venture capital, clean money are all terms that vary subjectively, but ultimately describe the intention of using capital to generate financial returns while also generating a collective good. The B Corp movement, for example, is a growing global community of businesses that have elected to be meticulously audited for their environmental, governance, community, operations, and worker impact performance. To be certified as a B Corp is to be verified as a business as a force for good. 32
FOUNDATION Magazine
January/February 2020
In 2019, the B Corp community grew to 3,100 companies in 70 countries across 150 industries. Collectively, they offset 6.4 million tons of carbon, diverted 108,000 metric tons of waste, protected 8,800 hectares of land, and performed 60,000 hours of volunteer work. The GIIN report affirms the perception by impact investors is positive, with 98 percent of investors stating their investments met or exceeded their impact expectations and 91 percent stating their financial return expectations were also met or exceeded. Despite the impressive growth and performance of the impact sector, there is still a significant hill to climb to amass the trillions necessary to mitigate disaster, and time is running out.
The partnership we need It is a false dilemma whether funds should flow to philanthropy or impact investment. The reality is the world needs both, working together, diverting funds from conventional business that doesn’t take into account the effects on people and planet — placing sole importance on profit. What’s needed is a paradigm shift to correct the disconnect between how capital is accumulated and how it is directed to do good. Using my own life as an example, I began my career working for an environmental law charity working on campaigns for a clean energy transition. Meanwhile, I discovered, my personal assets were invested heavily in the fossil fuel industry through my mortgage, long term savings, and (meager) investments at a big five bank. Whereas I shifted my personal banking to a credit foundationmag.ca
