Challenges of accessing mainstream capital for impact investment

Lead Research Organisation: Imperial College London
Department Name: The Centre for Environmental Policy

Abstract

For my PhD, I am exploring the structural and semiotic aspects of investment in the impact investment market, with a particular focus on the challenges and barriers to making such practices mainstream, both culturally and structurally. Impact investing can be broadly defined as investing not just for financial return, but also to achieve a positive social and/or environmental impact. Although impact investing is considered a young industry, some studies have estimated that the amount of capital flowing into the sector could grow to USD$500 billion within the next five to ten years, representing 1 per cent of global assets under management (The Monitor Institute, 2009). The industry faces a number of hurdles on its path to growth and scale, each one a potential barrier to access mainstream capital.

Barriers include: how to define 'impact', how this is measured, the legal framework for the market, how investments are structured, how investments are packaged, communicated and perceived. These barriers in turn relate to a much broader societal and cultural understanding of the perception of financial markets, and the potential and limitations capital has to effect positive change in society. For example, one key barrier to institutional impact investment is that financial-first investors such as sovereign wealth funds, pension funds and conventional mutual funds have a fiduciary duty to represent the best interest of their clients and beneficiaries, which normally means maximising financial return (Hawley & Williams, 2007). How can asset owners manage appropriate risk exposure in fulfillment of their fiduciary responsibilities whilst also achieving impact?

I believe that as we live in a time rife with social and environmental challenges, there is both an opportunity and an urgent need to change how the financial industry, and the public in general, look at investing and capital. I believe there needs to be a shift in thinking, towards creating real value for all over a long-term horizon, and a change in what is considered a successful return. Mobilising mainstream capital for innovative financing, such as impact investing, is an essential action. The potential for impact investing to have positive social and environmental effect is considerable, and I hope that my research could contribute towards a greater understanding of how the impact investing model and approach could become more widely dispersed. In addition, I believe the development and use of my research framework will further demonstrate the utility of 'new economics' and contribute to the evolutionary economics discourse - which draws on a broad range of theories, frameworks and methods, and is highly interdisciplinary - involving economist, anthropologists, sociologists, psychologists and biologists.

I intend to take an evolutionary economics approach in order to develop the research framework for my PhD. The concept of "Generalized Darwinism" refers to the sociocultural application of the three Darwinian principles of variation, selection and retention. These principles as outlined in The Origin of Species (Darwin, 1859) became the building blocks of modern evolutionary biology, creating a theoretical framework to explain the causal processes of the evolution of complex phenomena (Hodgson and Knudsen, 2010). Generalized Darwinism argues that if this metatheory can be used for complex, evolving biology, it can also be applied to other complex, evolving systems.

Publications

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Studentship Projects

Project Reference Relationship Related To Start End Student Name
ES/P000703/1 01/10/2017 30/09/2027
1917480 Studentship ES/P000703/1 01/10/2016 25/12/2020 Grace Thomas