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Investing for impact? Learn these lessons from ESG investing (The Edge, 4 April 2024)

Published on 03/04/2024

From reliability of data to greenwashing accusations, here's how players in the impact- investing sector are steering clear of the pains of yesteryear

Measuring emissions has proven challenging for many corporations, a situation made worse around 2022 when the financial industry was rocked by claims of greenwashing. Since then, investors have forced banks, asset managers and companies to take a more critical look at their environmental claims.

In the wake of those accusations, some experts have warned of a rise in "greenhushing". Some corporates fear being accused of greenwashing and have chosen to keep their sustainability data private, shielding themselves from any potential scrutiny. Bold target-setting, challenges with data-gathering and a subsequent chilling effect - if left unchecked, the same pattern could unfold within the realm of impact investing.

Here, investors fund projects in various sectors, including healthcare, education and alternative proteins. Unlike traditional, commercial capital, however, these investors share a common vision in prioritising impact alongside profits. In some instances, investors expect no financial returns at all, opting to focus on project outcomes instead. Between the two extremes of commercial and philanthropic capital, the impact-investing spectrum includes categories such as "responsible", "sustainable", "impact", "impact-first" and "venture philanthropy", each with varying expectations of risk, returns and impact.

Defining impact

Capital can be deployed in many ways to help address social and environmental challenges; philanthropy and impact investing are just two such approaches, says Dawn Chan, CEO of the Centre for Impact Investing and Practices (CIIP).

"Both seek to create positive impact but differ in their financial objectives and expected returns."

In philanthropy, funds are typically disbursed as grants, with little to no expectation of financial return, says Chan, who is also managing director of investments at Temasek Trust Capital. "That said, newer ways of philanthropy are emerging, where philanthropic capital is used as risk capital to drive impactful outcomes. This is largely led by next-generation philanthropists who prioritise structured giving and measurable impact."

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