Impact Investing post-Brexit

Impact Investing post-Brexit needs

a new leader as UK’s role threatened

The impact investing agenda needs new leadership to take

European society into the 21st century

by Filippo Addarii and Joshua Phillips | February 9th, 2017

 

Responsible Investor 09/02/2017, 16*59

https://www.responsible-investor.com/home/article/impact_investing_post_brexit_needs_a_new_leader

 

Before Brexit, the UK led impact investing in Europe. The

UK’s first-of-their-kind innovations in social investment

institutions and initiatives (e.g. Big Society Capital;

Social Impact Investment Taskforce; Social Impact

Bonds) spread through the EU’s innovation policy and

practice (e.g. Social Impact Accelerator). Now, Brexit

threatens UK’s leading role in European impact investing

and, with it, creates an uncertain future for the impact

sector in Europe. To identify the most pressing issues,

PlusValue with Finance Matters and the Italian Embassy

in London organised a round table discussion with

leading experts and investors in the field. While we don’t

yet have all the answers, we certainly have some

insights for the future.

 

Will Brexit kill impact investing in Europe? Brexit

won’t kill impact investing, but it does put a big question

mark on Britain’s leadership. Aligning with Trumps’

America in undermining international governance and

human rights will surely erode the UK Government’s

moral foundations from which to lead the agenda. On

the other hand, this could free the impact investing

sector from the British regulatory framework, potentially

creating the springboard for impact investing to ask the

tough questions, address state failure, and transform

public services.

 

What is the real added value of impact investing?

Harnessing the power of markets to make public policies

and philanthropy more effective is part of the answer.

But there’s more. The tough question is to assess if

impact investing is more effective than government-led

redistribution, or how the two can be complimentary.

Impact investing lacks the democratic legitimacy but,

when large financial and industrial players are involved, it

gains agility and firepower. Industrialists and private

investors have deep pockets and few constraints on

their choices. More importantly impact investing can

address causes beyond national borders – a feature not

to be underestimated if government is high-jacked by a

nationalist agenda.

 

Is impact investing about more than transforming the

welfare state? It has the potential to transform

capitalism, bringing stakeholders and externalities into

the equation. The real challenge for impact investing is

to embed impact in every business mission, model, and

investment. We can start with high potential impact

business such as infrastructure projects and urban

regeneration. This would inject creativity and innovation

to revitalize the economy, shifting towards greater social

justice and environmental sustainability. This process

has started to gain traction, for example the European

 

What is a ‘fair’ profit? This is a tricky question that

requires a trade-off between investors’ requirements for

capital remuneration at a price that accounts for the risk

taken, balanced with the type of impact investment

opportunities that come with greater complexity, costs,

and longer timeframes. Nonetheless, impact investing

must promise competitive returns or demonstrate the full

value generated in order to appeal to mainstream

investors. Currently this is not the case as government

subsidies and philanthropy keep it moving, and 4%

management fees (as stated by Big society Capital)

leave the business to niche and typically non-profit

operators.

 

What is the role of impact assessment? Measuring

impact has been seen as an extra burden for frontline

organisations, a liability for public officials, and trivial for

investors. Impact consultants seem to be the ones

driving impact assessment, and we can expect more to

come. In our view, impact assessment should focus on a

company’s or investment’s ability to create sustainable

impact for stakeholders within their community or

(eco)system. This in turn drives long-term resilience.

Technology could play a key role, with next generation

Internet initiatives (e.g. Blockchain, big data) providing

new understandings of trust, risk, and pricing (e.g.

EngagedX, UNSIF). As it evolves, impact measurement

could incentivise public goods provision, subsidies,

responsible consumption and production, and much

more. For the impact economy to be increasingly viable,

it must value those who commit the resources to

measure it, while expanding the concept of ‘value’

beyond financial returns to include social and

environmental outcomes.

 

What is the social dimension of impact investing?

Beyond the social dimension as “social needs”, the

Internet and social media could achieve a deeper and

broader goal: collective participation. Progress has been

limited to conversations between government, bankers,

and philanthropists. We must do more for mass

participation, to have the ambition to crowdfund and

peer-lend the next generation of schools, hospitals, and

other common goods that make a positive difference in

peoples’ lives. This could build cross-generational

cooperation between baby-boomers and millennials put

on a collision course by previous economics. Millennials

in particular want to shape their own future – social

impact investing seems like the ideal fit.

 

We don’t yet know the full effects of Brexit. But we

are confident that as the UK leaves the EU, the impact

investing agenda needs new leadership to take.