Controversy #1: The crowding out of Official Development Assistance (ODA)
Impact investing looks like the new salvation. The hope is that tapping into finance from corporations, venture capital, wealth funds and other non-state investors will increase the amount of resources available to meet the Sustainable Development Goals from ‘billions to trillions’ of dollars.
This vision is appealing, and there is much promising activity in this field. But there is also a danger of limiting ourselves to this vision, since it suggests (falsely) that private finance can fill the gaps that public finance has left unaddressed, as several speakers at PF4SD Week in January warned.
Samantha Attridge from the Overseas Development Institute, for example, presented research showing that success in mobilising private finance was much lower in countries with low credit ratings – precisely where the money is most needed. In a similar vein, OECD policy analyst Irene Basile outlined that private finance tends not to get invested in fragile states.
Success in mobilising private finance is much lower in countries with low credit ratings – precisely where the money is most needed
Others warned against what they saw as the increasing ‘commercialisation’ of the international development space. Pierre Habbard from the OECD’s Trade Union Advisory Committee said: “Development projects should not be seen as an asset class, but as public goods.” Many of the SDGs require action that is risky while offering low or no financial returns, Debapriya Battacharya, chair of Southern Voice, pointed out, making such actions highly unattractive for investors. Impact investing and blended finance should be an add-on, not a replacement for ODA, he argued.
Controversy #2: We only talk about the supply side and forget the demand side
Participants from around the world – from Australia to South Korea to South Africa – gave updates at PF4SD Week on national strategies for impact investing. Most notable was Le French Impact initiative, launched more than a year ago: within five years it plans to channel €1bn into social entrepreneurship, the social economy, social innovation, and impact investing.
Hearing about such new initiatives was fascinating. But it became clear that those at the table mainly spoke for and about investors – the supply side. The demand side, namely the potential investees or the people they are serving, were not represented. Cliff Prior, CEO of Big Society Capital, made a bold statement about the need to involve these target groups, and to steer investment decisions based on evidence of social impact and social values, and not merely on financial figures. His words earned him a round of spontaneous applause.
Priscilla Boiardi from the European Venture Philanthropy Association (EVPA) and Karim Harji from Oxford University’s Said Business School underscored the need for dialogue between the two sides – otherwise we risk excluding (the most) important voices.
Controversy #3: We still know too little about the impact of impact investing
Gabriella Ilian Ramos, OECD’s head of staff, said impact assessment should be extended into thus-far neglected areas, saying we need to “measure what we treasure, and not treasure what we measure.” Could we, she wondered, one day have stock exchanges that react to the social impact created by companies, not just their financial value? This echoed Sir Ronald Cohen’s vision of an “invisible heart” to guide “the invisible hand” of the market towards serving people and planet.
Could we one day have stock exchanges that react to the social impact created by companies, not just their financial value?