As an emerging field of financing, impact investing is under-institutionalised and is in a legitimacy building phase. In an attempt to unpack how impact investing is deployed in global markets, the key elements of its definition (intentionality, returns and measurement) are examined through a review of academic and practitioner literature. A refined definition is developed which emphasises the key elements of intentionality and measurement as separating impact investment from the established field of socially responsible investment (SRI).
Funds and products from a publicly available database are systematically analysed against the refined definition to determine the rigour with which intentionality and measurement are applied by self-identified market participants. These elements are used as a proxy to determine “purpose-washing” – a process where funds are presented as impact investments but do not satisfy a tightly applied definition. Purpose-washing enables the possibility of “retrofitting”, where funds originally defined as other products (e.g. SRI) retrospectively claim to be impact investments.
Having found evidence of purpose-washing but not retrofitting, actions are identified to enhance impact investment’s integrity, focussing on intentionality, measurement and transparency. Clarity of definition and purpose are important for a field in the market-building phase, as a lack of clarity could have negative implications for integrity and growth. The authors postulate that purpose-washing may be attributed to twin but distinctive motivations by market participants: interest in fee-generation among fund managers and attempts to bolster field legitimacy by demonstrating sector growth among impact investing proponents.
This paper represents a unique analysis of impact investments against a robust and refined definition. By doing so, it offers a systematic appraisal of impact investments and an overall assessment of market integrity in its field-building phase.
