Impact investment versus positive investment

Every discussion about impact investment tends to includes somebody asking ‘what do you really mean by impact?’ or it focuses on the potential returns from impact investment compared to ‘conventional’ investment — the assumption being that there is a trade-off when you make social investments.

The first is a live issue for us at the moment because we’re designing something new at BGV and deciding who we should pitch it to and how. So I’ll be having lots of discussions about this in the coming months. I’ll come back to the other one in another post.

At one extreme, impact investment is providing capital to (usually) charities that have a proven track record of delivering social impact and when you put money in, you get social benefit out. The difference to a grant or donation is that you look for a model that means you also get money back, usually because there is some third party who is willing to pay for that social impact.

At the other extreme of the scale you tip into what you might call positive investment where you really just screen out ‘evil’ investments. Something like an SRI fund for example.

The distinction between impact and positive investment is whether you decide upfront what kind of social or environmental impact you are trying to achieve and then set out to measure it. Do you have a specific goal (or small number of goals) in mind? If you do, then that’s impact investment. If you don’t then it’s positive investment.

This matters because it determines who might provide the capital for your fund. There is a spectrum between the two but different investors will have different cut offs as to where they will invest.

For me this is the real debate about the future of impact investment. It’s got nothing to do with the legal form of the organisations you invest in (that’s a red herring) but is about the intention of the investors and the founders of the ventures and then how you measure and improve the realisation of that intention.

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