Stanford Social Innovation Review: “Impact Investing Should Be Hard”

Impact investing is often perceived as more burdensome than traditional investing due to the added complexity of addressing social and environmental issues alongside financial returns. This perception is supported by a 2009 Monitor Institute white paper and recent observations by London School of Economics academics, who highlight the challenges and perceived risks associated with impact investing. However, a survey conducted by Katherine Klein and the Impact Finance Research Consortium, involving over 200 impact fund managers, reveals that market-rate-seeking impact investors generally do not find their work more difficult than traditional investing, contrary to those targeting below-market returns who report higher levels of difficulty.

The survey’s counterintuitive results suggest that market-rate-seeking impact investors might simplify their work by integrating impact with financial performance, viewing them as intertwined. This belief allows them to gauge impact through financial metrics, reducing the perceived difficulty. In contrast, below-market-rate impact investors often emphasize rigorous impact assessment due to their mission-driven focus. The findings raise questions about whether impact investing is living up to its promise of additionality and distinctiveness compared to traditional investing, especially in addressing neglected social and environmental challenges.

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