By Sabina Curatolo, leader in driving systemic change through investment, public policy and former Impact Investing Australia employee.
The tectonic plates of geopolitics are shifting into uncomfortable configurations. Determined by the few, recent seismic changes are already reverberating globally. In this complex world with a concentration of power and growing inequality, it can be challenging to understand how you can make a difference.
Creating lasting change isn’t usually the work of one. More often, it happens through the coming together and mobilisation of a critical mass of people and resources. If you are reading this, chances are you are an investor or allocator of capital. If so, one way you can contribute to positive change is by aligning your values with your capital through the global movement that is impact investing.
All investments have impact: positive, negative or neutral. Impact investments are those which intentionally target both a financial return and measurable positive social and/or environmental impact. They offer something for almost every type of investor, from private equity and VC to institutional investments.
Impact investments range in scope from supporting enterprises to operate sustainably – to the creation of systemic impact, specifically aimed at solving environmental and social problems and increase people’s wellbeing.
Impact management is part of value creation. It enables reporting to ensure all obligations are met and enables important communications to stakeholders. But arguably, the greater value of managing impact is in the application of decision-useful information to make change.
Investors new to impact may find it tricky to know where to start. It needn’t be. A lot of work has already been done globally and in Australia to facilitate the participation of investors, government and other stakeholders in this growing ecosystem. There is readily available advice with increasing numbers of impact wealth managers, advisers and intermediaries who can support new entrants to the impact market.
Many advisers may utilise the Impact Management Project (IMP)’s ABC of impact as a starting point for investors to articulate their impact intentions. The ABC is a classification methodology useful to group or label the type of impact being targeted through investment.
Impact management is evolving. As the impact management capability of the market grows, there is potential for the tool to be more consistently applied and supported by data for comparison. Until then, it can help in articulating enterprise and/or investor appetite and ambitions.
The updated ABC classifications are summarised as follows:
- Act to avoid harm: Improving outcomes that are in the unsustainable range so that they are getting nearer the sustainable range.
- Benefit stakeholders: Actively benefiting stakeholders by maintaining or causing improved wellbeing for end-stakeholders and/or the environment within the sustainable range.
- Contribute to solutions: Improving the wellbeing of end-stakeholders and/or the environment so that the outcome moves from the unsustainable range to the sustainable range.
Investor impact can be considered as a function of both the types of change that the portfolio assets and enterprises are having on people and planet as well as their investor strategies for contributing to impact. This means investors can make change through the informed decisions they make about how the capital is allocated and the types of enterprise or product they invest into, coupled with their own contribution to impact.
Investors commonly describe four strategies – or actions – by which they can contribute to the impact of the assets in which they invest. These strategies can be used individually or in combination depending on investors’ financial and impact goals, opportunities, and constraints.
These strategies are summarised below:
- Signal that impact matters: this is an expression of values alignment; this strategy informs the world that this investor cares about impact.
- Engage actively: proactively support or advocate for assets to reduce negative and increase positive impacts.
- Grow new or undersupplied capital markets: investors can anchor or participate in new or previously overlooked opportunities. Impact management can help to uncover the undersupply, for example.
- Provide flexibility on risk adjusted financial return: a subset of investors focused on new or undersupplied capital might accept a lower financial return …in order to generate certain kinds of impact.
In 2022, Impact Investing Australia and Capital Human introduced the 3i framework for investors to invest with racial equity, gender equity, diversity and inclusion. The 3i represents Internal organisation, Investment, and Influence. This is a neat way for investors to consider opportunities for change with every decision to allocate resources.
Starting with their own practices, Internal organisation refers to how investors manage themselves aligned with their values, or their own organisational approach to issues of impact. The second i, Investment, refers to the types of investments to which capital is allocated, but importantly, also how these investments are made and the decisions taken in doing so. And the third i is Influence. From signalling to market to proxy voting to broadening the field through advocacy and demonstration – the potential is enormous.
Investors have the opportunity to create or influence change at every point in the capital allocation decision-making process.
In short, if you are an investor, you have a lot of power.
How will you use yours?
This story is part of an ongoing series curated by Impact Investing Australia designed to explore impact investing and related concepts.
IIA is growing the market for investments that deliver measurable social and environmental benefits alongside financial returns. Our vision is that every dollar invested builds a better world.
Impact Investment Summit Asia Pacific 2025
Tickets are now available for the 2025 Impact Investment Summit Asia Pacific (26/27 March at the ICC in Sydney).
For more information on the Summit, Asia Pacific’a premier impact investing event, including the 2025 program see: https://impactinvestmentsummit.com/
Click here to buy your ticket: https://events.humanitix.com/impactinvestmentsummit2025/tickets