Who hijacked "impact"?
This week I had the opportunity to attend the Impact Startupfest 2018 in The Hague. A bringing together of innovators, investors and “impactmakers” under the motto ‘doing good & doing business’.
For the entrepreneur in me it was an exciting atmosphere of possibilities and ideas. Networking opportunities, left-field challenges to our concepts and a full immersion in old and new ideas in the space of social impact.
The aid worker in me however cringed. A room full of potential, with an extremely diverse (and often shallow) understanding of “Impact”.
And this is probably the crux of the problem: What is Impact?
Are we hijacking Impact?
Any label hides a spectrum of nuance and I suppose I shouldn’t take it personally. I suspect those nuances reduce the more the word is used in similar fashion.
In terms of “impact”, be it by your local charity, social enterprise or an international agency, is simply a way of concisely expressing a positive change in people’s lives.
But recently it’s usage has been taken over by people who have very little interest in the social change objective. Although I generalise, there are many who use the word to “greenwash” any activity which might have a social collateral consequence.
A gentleman challenged me that investing in a microfinance institution that supported farmers to increase their yields was in fact an impact investment, because, given the low rate of return on investment, this institution would not have normally received investment. Because they had increased farmer yields, the conclusion was farmer's incomes had increased and thus were better off. Hence, the impact.
I found that odd. Your choice of where to invest doesn’t make your investment more “impact” than another. What you aim to achieve determines whether it is an impact investment or not. Otherwise your colleagues might just think you’re pretty poor at investing.
Question yourself - Which do you choose?:
Investment A - you have a 75% chance of reducing maternal mortality, but a 35% chance of getting a return on your investment; versus
Investment B - you have 35% chance of reducing maternal mortality but 75% chance of getting a return on your investment.
(yes it’s a binary question, and no you don’t have a portfolio to balance your investments)
Capital for Social Purpose
The European Venture Philanthropy Association held a lively event and posed a fair challenge: Are we hijacking social impact?
The rise in Impact Investment, Social Impact Bonds, Blockchain smart contracts, are bringing attention of impact to the fore, but they are also monopolising the “spirit” of the word.
Impact investors are ultimately interested in one thing. Their return on investment.
The impact is a secondary consideration, because regardless of the social benefit it could provide, their first question will always be - will this make me money? And that is ok (sort of, but that’s for another time).
But they should just own it without hiding behind the veil of impact to make them feel good about themselves.
If you want to invest in alternative opportunities, do it. Accept that it has low rate of returns and move on.
If you want to affect social change, then focus on how you achieve that and accept that your money is sunk from the outset.
In this quarter's edition of the Alliance Magazine, Andrew Milner uses the phrase “capital for social purpose”. And this is the point. The how matters just as much as the what. In impact investing the focus should be on the facilitation of social outcomes. The primacy of consideration should be on the “impact” and not on the investment. Otherwise it is just simply, an investment.
Who is Impact for?
Let’s be honest with ourselves, “impact” is a WEIRD driven concept (by people who are from western, educated, industrialised, rich and/or democratic countries).
It is still driven by the idea of bang for buck. It is still by and large not independently reported by the actual people who are receiving the service and perceiving the impact.
In simple terms, we, who have the power, i.e. the money, demand to know what happened to it, and judge what happened against our frame of reference and bias. What we don’t ask, or don’t ever hear, is - what do the communities think?
What is Impact?
If you want to differentiate yourselves from the herd, consider some things before you talk about “impact” in your investment.
1. WHOSE perspective of impact has more value?
That of the investor / funder / implementer or that of the receiver? Are you bringing your bias to bear when deciding what is impact? And if that impact has been defined, in whatever way by the very communities that want the change, are you passing judgement on their ability to define what they want?
2. WHO determines WHAT is better impact?
Reflecting back on my experiences in Haiti from 2010-2012 in the South East Department, I wonder, would the international development community have achieved greater social good by putting half of all the money on building better roads. Not the hand pounded ones NGOs “re-built” through cash-for-work programmes; but tarmac ones with proper bridges across rivers. Roads that could reduce the average 100km journey of 6 hours and damage to your vehicles, to maybe 2 hours? Would the subsequent ease of movement have facilitated better commerce, faster access to health services, speedier transfers of products to market? Would the communities served have preferred that to being handed tools to farm or being paid to rehabilitate their dirt tracks?
3. WHEN does “impact” finish?
Its easy to say things are a success right after implementation but what about at 6 months? a year or 5 years? Investing in a microfinance that successfully triples farmer’s yields might be great for your 3 yr investment. What happens in year 4 when the price of that product collapses? Where’s your impact now and did your investment actually have a negative impact?
What can you do?
You’re not going to like the answer, but that is part of accepting the space you want to work in.
Social change is a complex and continuously evolving process. There is no precise recipe which you can pick up in one country and use in another, because the factors for its success are innumerable. You need to accept that you don’t know anything, and that your engagement with social change must be a continuous learning.
If you want to do “impact” investing, consider this approach
Set to one side your arbitrary funding cycles, your deadlines and milestones, your grant charts, and your returns on investment
Understand what is the social change you wish to facilitate
Understand what it is you can do to make that happen - both financially and non-financially, directly and indirectly
Understand what your limitations are and ought to be given your distance (whether geographic, economic or social) from the social change issue
Understand which outcomes you could measure to give yourself a sense of change - without overburdening your partners
Trust your partners, stick by them, and talk with them often with the purpose of understanding
Be happy with the thought that you might have made the world a better place
Bonus: Be very happy if you are also able to make some money, but if not see point 7.
Commit or step aside
Organisations and people who engage in real impact, are often not doing anything “sexy”, “innovative”, “scaleable”, or “pioneering”. They’re persistent, unwavering, hard-working idealists who are focussing on just making their space a little bit better. They have dreams and ambitions of a better future, not necessarily a richer one.
They are in a cross between an Iron Man race and Marathon des Sables - it’s long, it’s hard, it’s unpredictable.
They don’t need you to diminish their efforts with your preconceptions and ambitions.
They need you to step-up, understand, facilitate, be authentic and honest, help them get to where they want to get to, and invest in their purpose.
They need you to commit for the long haul even if no one else ever knows about it.
Otherwise just stick what you do best and leave the “impact” to those who give a shit.
This blog post has been reproduced and was originally posted on LinkedIn by Chris Man on 05/10/18