Impact investing: A multitrillion-dollar market in the making

Impact investing has been gaining traction over the last decade, as investors, consumers, and—to an extent—policymakers come to recognise that new ideas are needed in order to address some of the largest societal and environmental challenges facing humankind.

However, as is often the case with new ideas, impact investing continues to face big challenges and misconceptions. How to actually define this type of investing is one of those challenges, while the biggest obstacle perhaps remains the general belief that doing good with investments will almost always result in lower-than-market-rate returns.

One person who is determined to not only debunk some of the misconceptions, but also prove that impact investing in its own right can develop into a multitrillion-dollar market, is Sir Ronald Cohen.

“The first misconception is that impact can’t be measured, and the second is that any sort of business or decision making that is based on impact rules will ultimately lead to lower returns,” Cohen told in a recent interview. “In fact, I believe that measuring impact is a lot easier than measuring risk, and have seen that impact-related investment can not only match traditional returns, but in many cases it can by far exceed them.”

While this narrative is gaining traction and a considerable amount of column space, it is by no means undisputed. Recent research from Renaissance Capital cited in the media, for instance, suggests that the relationship between environmental, social and governance (ESG) scores and financial performance is poor at best and, at worst, does not exist.

Another argument suggests that the heightened interest just masks the fact that impact investments perform like every other investment, with some achieving their targeted returns, some missing the mark and others exceeding expectations.

Navojit Dastidar