Good Generation

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Impact Investing: Transforming How We Make Money While Making A Difference (Antony Bugg-Levine and Jed Emerson)

My grade (1 to 5): 3 – attempt to bring into one book the history, definition, implications, examples, controversies around and potential of impact investing to create a world where investors are more aligned to achieve “blended value” of both financial and social returns to their money; technical content insightful but evangelizing language and metaphors a bit overdrawn and slightly exaggerated

Key Ideas:

• The first part of the book is dedicated to definitions of impact investing and spends some time with color around the many different areas that it encompasses, such as international development, microfinance and social enterprises. The second part of the book talks about the implications of impact investing in terms of how our systems, leadership style, measurement systems and attitudes must change to embrace the opportunities presented by blended value approaches, and why those approaches should become mainstream in the future.

• The authors spend considerable time with case studies to illustrate the various instances of impact investing at work by various stakeholders, such as asset managers, investment bankers, private equity practitioners, development professionals and of course, social entrepreneurs. Throughout the book, the authors try to provide suggestions of how to overcome what they call a currently “bifurcated world” with investing for purely financial return on the one end, and giving money away through charity motives on the other.

Why this matters:

• I liked the case studies particularly in this book as they show how difficult it is to view impact investing under a single lens, and that depending on what “subsector” you look at, the more or less controversy there may exist. For instance, microfinance has a whole chapter dedicated to both its promises and auspicious beginnings, as well as its rocky times including the Compartamos IPO and SKS scandal. The authors discuss how to best think about divergent views between government, the public, and impact investment defenders on how to balance everyone’s interests without threatening to choke off the flow of money going forward.

• On the other hand, I believe the authors’ ambition to characterize impact investing as a huge force sweeping the world felt at times a bit forced (if not slightly premature), and the lack of distinction between this term and the idea of “blended value” gets particularly blurry and almost confusing as these terms end up getting used interchangeably. This is understandable when you realize that Jed Emerson, one of the authors, pioneered the very term of “blended value” many years ago and has evangelized it all over the place ever since. Yet his insistence on incorporating blended value into the impact investing discussion may leave people who would have expected to see more usage of “impact investing” (with slightly different connotation) indeed a bit lost about which is which at the end of the day. It is possible that there must have been challenges with two authors writing different chapters in different styles (one more technical, the other more lyrical), with the result of this leaving the reader with sections that are very specific with details and others that stylistically are brimming with so many broad literary metaphors about trees, jungles, forests, “strange creatures” and even wet socks, that even I, with a modicum of knowledge about this sector, felt occasionally both lost about the main points and a bit weary.

• Still, essentially for anyone not too familiar with impact investing, this book does a good job of explaining what has been done in the past, what is being done right now (and by whom), and where this “field” may be headed – with fair disclaimer that the authors do not purport to foresee the future. It is this latter attempt to predict, to draw scenarios of the future, where the authors may fall a bit short in losing themselves in somewhat idealistic (even at times a bit utopian) musings of the world they wish to see (e.g., all kids can go to school, all homeless get fed, etc.) – and to link the accomplishment of all this to an apparently inherent promise that impact investing (or was it blended value?) holds. Implicitly, the idea is that if we could loosen a fraction of the trillions of dollars held in institutional assets worldwide and channel this into what qualifies as “impact investments”, we could go a great way to aiding philanthropy and governments with the needed funds to make a big difference.

• Ironically, and to no particular fault of the authors, the issue with impact investing – in the context of this book at least – is that it is being applied so broadly between microfinance, development financing, private equity and venture philanthropy deal-making with social enterprises, that it risks meaning too many things to too many different people. This is what happened to the term “social entrepreneurship” and still plagues it to this day. On the upside, despite the confusion, the latter term has engendered a significant amount of excitement and activity around the world even if no two people can define the term in the same way.

• Ultimately, I believe this is what the authors may intend to do with “impact investing” as well – to apply it very broadly, to associate the term with all kinds of domains that previously were separated by camps of  “development finance” and “charity donations”, and to create excitement for the basic idea of making money and “doing good” at the same time. If confusion and a certain amount of messiness ensues in the coming years on what we mean by the term, the authors’ response may be “so be it” – so long as the term enters the popular mindset at a visceral level in the way “social entrepreneurship” has.

• And “so be it”, that is, as long as we keep making progress on improving necessary “infrastructure” such as standardization of impact measurement, changes in government regulation such as new corporate forms, continued education of wealth advisors and asset managers about viability of impact investments to their big clients, and continued collaboration between investors and philanthropists on what tools (grants, equity, debt, hybrid, etc.) should be used when (for what type of investment target) for the best results (desired returns).

• In summary, this book works well as a single source that helps the reader understand the initial scope and promise of impact investing by means of many illustrations and in-depth descriptions of recent technical developments and possibilities in the field. What this book will not likely do is to answer hard questions around what the place of private investing should be next to philanthropy and development finance. As it is written clearly as an evangelizing piece for an idea that will have to prove itself in the upcoming years, do not expect particularly critical assessments or admissions of all the ways in which this evangelizing may fall short of materializing. To be fair, similar to many other authors who try to hit home hard with a particular theme, idea or buzzword, Bugg-Levine and Emerson somewhat cleverly write in a way designed to absolve them of as much blame as possible should impact investing hit its first major roadblocks (as microfinance has). That disclaimer can be described in the way of: “we think impact investing is the greatest thing ever but there is always something that can go wrong since nobody knows the future, so don’t blame us if despite all this excitement things may take longer, take windy turns, until everything is figured out eventually”. Let’s see what happens. Meanwhile, books like these, while not exactly perfectly written, certainly do serve to cement Jed Emerson’s and Antony Bugg-Levine’s reputations as “the go-to guys for impact investing” and you would be hard pressed to find more knowledgeable folks out there if you are looking for some education about “what’s out there / what’s been tried / what should be done”.