Crucially, the fund manager needs to be creating some new impact that did not exist before – for instance, their money needs to create new electric vehicles or new homes rather than just purchase existing shares in car manufacturers or REITs. Look carefully at how the fund manager qualifies their impact claims, there is a big difference between “creating” 100 thousand jobs and “sustaining” 100 thousand jobs.
Dive deeper with specifics. Are they talking about jobs for Dusseldorf’s middle class or catalysing job opportunities for the partially sighted in Kathmandu?
Finally, ask the fund managers how they, themselves (not just the businesses they invest in), generate impact. How is it set up? Was it cobbled together according to a recipe that looks something like: dredge up old deals with a smattering of impact traits to form a track record, throw in a fresh social science graduate to bless the deal team with a sprinkle of ‘impact measurement’, add the pre-existing commercial team to the mix, and present it as an oven-ready impact fund? Do the investment team themselves understand how the choices they make from deal origination to exit can both generate positive and negative social or environmental impacts? How were they trained? Can the investment team provide examples of where they made a decision based on achieving a positive impact.
The harmony of profit and purpose is a delicate balance. It’s a dance of trust between asset managers and asset owners, where integrity and transparency set the rhythm. A few wrong moves, and the melody of impact investing risks falling out of tune.
Jim Roth is the founder of Zamo Capital
