Impact investors’ growing focus on monitoring and reporting is important but may make it more difficult for those needing finance to access it, says a University of Oxford report
An increased focus on monitoring and reporting within impact investing may make inequality worse, say researchers at the University of Oxford’s Smith School of Enterprise and the Environment in a report published on Tuesday.
Impact investing is one of the fastest-growing investment strategies. The global market was worth an estimated $1.1tn at the end of 2022, and is forecast to grow by 18.6 per cent a year between now and 2030.
But a lack of clear definitions has led to concerns over “impact washing”, with a series of recent studies concluding that impact investors often overstate the social outcomes of their investments.
As is the case in conventional environmental, social and governance investing — where, in the absence of accurate data, greenwashing accusations have been rife — impact investors are exploring measurement and reporting tools.
These tools see investors setting clear metrics and publicly reporting against them, yet collecting and compiling this data can be expensive and time consuming.
As the report says, wider use of these tools could limit funding to only those investees who can afford the costs, leaving those most in need of the investment unable to access it.
“Data which proves that impact investments are making a positive, real-world difference is the key to avoiding impact washing. But the burden of collecting this data often falls on the most vulnerable,” says Smith School research associate George Carew-Jones.
“If they can’t collect the data that’s currently asked for by investors, they will lose out on investment,” he adds.
The report’s authors say governments should set clear boundaries and principles for impact standard development, leverage private capital by investing in better education around impact strategies, and learn from the lessons of ESG investing. During interviews, the authors heard that the complicated web of sustainability-related regulations around the world was restricting African businesses’ access to capital.
Regulators are also beginning to introduce standards for impact investing. From the end of 2024, UK asset managers will not be able to sell a fund with “impact” in the name without demonstrating that the fund actively pursues environmental or social objectives — and providing evidence of measurable positive impact.
“If we are to move towards an impact measurement standard, this must involve safeguards to ensure small entrepreneurs are better supported in measuring project impacts,” says Alex Money, co-author of the report and director of the Smith School’s innovative infrastructure investment programme.
“This could be through standard setting, innovative data collection approaches, or technical assistance,” he adds.
The report is available to read here.
