Impact investing needs clarity on goals4 min read . Updated: 17 Mar 2016, 01:40 AM IST
If Indian HNIs and UHNIs are considering impact investing, first decide what impact means to you and then how you will measure it
The term “impact investing" has been kicking around the philanthropy world since about 2008. Like its cousins “philanthrocapitalism", “venture philanthropy", or “strategic philanthropy", it means different things to different people. Lack of both an agreed definition and standards for measurement are its challenges.
According to Rob John, an authority on Asian philanthropy based at National University of Singapore, “impact investing" creates social value while preserving the capital invested, even offering a return on investment. John contrasts this with “pure philanthropy", which he describes as a one-way flow of capital.
The Global Impact Investment Network (GIIN) defines impact investments by their intent to generate a social and/or environmental return in addition to a financial return.
Among Indian philanthropists whom I have talked to about their views on “impact investing", the relationships between investment, impact and financial return are not clear-cut.
Someone who cares very deeply about “impact" per se is Zarina Screwvala of the Swades Foundation. The impact the foundation wants to make is permanent, irreversible change in the lives of 1 million people in rural India in the next five years. Screwvala constantly asks, “Are we doing the right thing for the right people at the right time in the right method and with the right amount of care?" She adds, “The only thing I can tell you about impact is if you don’t know your goals, you will never be able to measure impact. Your goals need to be very clear cut."
The advice that Screwvala offers is straightforward. “The first thing is you have a goal written down. Suppose your goal is every child in school… pretty simple. All your goals have to be simple; all your goals have to be measurable to some extent. To every extent. In fact you can even measure mindsets, you can measure everything actually."
The Swades Foundation is currently mapping the impact of every single one of the goals it has set in every rural household that its programmes reach.
When I raised the concept of “impact investment" with another prominent philanthropist, Rohini Nilekani, founder of Arghyam and other initiatives, she answered by referring to “patient capital" and non-profit “investments" through which philanthropists plan to make direct social impact. Nilekani points out that many of the new philanthropists in India are successful business investors who are very market-oriented and who apply business concepts such as researching a new challenge, innovating, scaling, and taking their solutions through to next stages.
Bengaluru-based businessperson and arts philanthropist, Abhishek Poddar, is contributing his own capital and acumen to creating an art museum for that city. He defines “impact investment" in terms of applying business investment principles towards creating both monetary and non-monetary impacts. The ratio between the two, he reckons, is for the individual to decide. In his case, he is not anticipating a monetary return. His investment is in the cultural impact a dynamic, lively art museum will have.
Ashish Dhawan, investment banker-turned-philanthropist who founded the Central Square Foundation with the mission to reform Indian schools, says, “One can’t take a for-profit approach to systemic reform. Levers for change", he adds, “school leadership training, teacher training, governance, accountability can’t be monetized."
Akhil Shahani, managing director of the Shahani Education Group (works in the education sector) and board member of the social entrepreneurship incubator UnLtd, suggests that in India, impact investment appeals to high networth individuals (HNIs) and ultra-high networth individuals (UHNIs) in their 30s to 50s “who like to see their social funds being better utilized for social entrepreneurship rather than pure charity".
An example of whom that description holds true is telecom infra company Viom Networks’ Syed Safawi, who with a group of friends as well as creating a traditional philanthropic foundation, focusing on education and health, is also thinking in terms of starting a separate social impact fund. This he describes as a “profit with a cause kind of concept".
One social entrepreneur with whom I spoke, however, described the impact investors he had gone to in support of an innovative water management system as simply “…normal investors who wanted to do some stuff on the side".
That description is probably unfair to many of the HNIs and UHNIs who want to bring their business investment skills as well as their wealth together to solve India’s challenges.
The problem, as a recent article in the Stanford Social Innovation Review suggests, is that no one really knows how to measure social performance. The article sounds a warning, making a comparison with the microfinance industry: “Ten years ago, the microfinance industry was exactly where the impact investment community finds itself now. We prided ourselves on the ‘double bottom line’—delivering meaningful social performance while operating on a financially self-sustaining, even profitable, basis."
What the writer warns the impact investing community to be wary of is the huge backlash that eventually hit microfinance. “Without universal standards, the public understandably concluded that ‘social performance’ was nothing more than a marketing slogan."
So, if Indian HNIs and UHNIs are considering impact investing, the message seems to be, first decide what impact means to you and then how you will measure it.
John Godfrey is a researcher at the Swinburne University of Technology, Melbourne, Australia, and a consultant to the non-profit sector. He is currently researching philanthropy in India.