Is participatory impact investing the antidote to “impact washing”?

Published on 19 September 2019

Image of Peter O’Flynn
Peter O’Flynn

Research Officer

Image of Grace Lyn Higdon
Grace Lyn Higdon

Monitoring, Evaluation and Learning Specialist

As impact investing becomes more prominent and the market matures, so do concerns about so-called ”impact washing”. In this blog, Peter O’Flynn and Grace Lyn-Higdon explore how taking a participatory monitoring and learning approach could contain attempts at impact washing as well as ensure the investment results in meaningful impact for the people it’s supposed to benefit. This piece is part of a series on participatory impact investing.

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Doing the dishes Flickr: www.CarolineBach.com CC BY-ND 2.0

Impact investing has become big business. The Global Impact Investing Network (GIIN) estimates the impact investing market to be worth 502 billion US dollars. As impact investing becomes more prominent and the market matures, so do concerns about so called ”impact washing.” Impact washing is when a company or fund makes impact-focused claims in bad faith without truly having any demonstrable positive social or environmental impact. The term stems from ”green-washing”, a label used to describe products or companies that claim to be more environmentally friendly than they are in actuality.

Impact washing has led to notable exposés, such as the Impact US Equity Fund & the Positive Impact Equity Fund discussed by Morningstar’s Hortence Bioy in this video, which damages the reputation of the firms involved and the confidence of investors attempting to apply their capital for social good. Impact washing runs the risk of bringing the entire industry into disrepute. These discussions are often hotly contested, as the definition to what can be considered an impact investment is still quite broad; which ultimately affects which investors are allowed into the club.

Can the risk of impact washing be mitigated?

These concerns are heavily featured in a recent GIIN 2018 survey (PDF) in which 80% of respondents believed that the risk of impact washing could be mitigated through more transparent impact investing strategies and results. As illustrated by the graph below, other solutions discussed in the survey include third-party certification of impact, voluntary global impact principles, or a commitment to a code of conduct that could help align investors, ensure quality, and produce the results required to prevent impact washing.

Source: GIIN Annual Impact Investor Survey. Reproduced here with kind permission from GIIN.

However, there are a few issues that exist within each of these options for dealing with impact washing.

  • Signing up to a principle or a code of conduct does not necessarily mean that it will be similarly interpreted or followed by an investor in practice.
  • Third-party certification of impact sounds very promising, but who that arbiter is, and what data they have access to, can produce difficulties. For instance, internal systems for monitoring impact created by investors can be proprietary: investors don’t want to let others look ”under the hood” to examine exactly how they measure impact. This helps obscure those who are engaging in impact washing.
  • While some actors argue that impact outperformance, will lead to a reallocation of capital to those that can sufficiently demonstrate impact, we believe that the impact investing marketplace cannot wait that long. Additionally, the mainstreaming of impact investing means that new entrants less familiar with how to spot impact-washing will be more vulnerable.

Community participation is one way to verify or challenge company assertions about their impact

One overlooked solution to combat impact washing is community or ‘beneficiary’ participation.

Involving communities in the investment process itself could greatly curtail impact washing attempts. Meaningful participation can ground impact claims in the lived experience of those who are going to be most affected by an investment, such that they can directly verify or reject and challenge assertions a company or fund makes about their impact.

What might this mean in practice?

This means bringing participation into the investment process, with different opportunities existing during design, due diligence through to monitoring and all the way to exit.  An excellent body of work to inspire impact investors can be found in the Participatory Monitoring and Evaluation (PM&E) approaches that have been used in international development for the past forty years. In these approaches, how people are engaged to participate is as important as monitoring outcomes. While this blog argues specifically that participation can help prevent impact washing, the ultimate goal when using participatory methods is for power to be shifted from investment actors, such as investors, their advisors, and investee firms to the intended beneficiaries of an impact investment. This is done by allowing local communities to select what the investment’s priorities should be and decide for themselves whether an investment has made progress and delivered social or environmental impact.

Participatory approach in Jhalokhati, Bangladesh’ by Mélody Braun. Flickr: WorldFish CC BY-NC-ND 2.0

PM&E approaches are wide, varied, and constantly iterating. PM&E is built from qualitative research approaches such as Participatory Learning and Action (PLA) (PDF) which uses visual methods such as participatory mapping or participatory ranking. Contemporary PM&E consists of fully-fledged internal processes such as the use of Participatory Action Research (PAR) which require the investor to consider their own ways of working in addition to how an investment is progressing. These are considered to be more transformative approaches which require deep internal reflection about power.

For more instrumental purposes, PM&E also offers specific tools including quantitative focused approaches such as participatory statistics or utilizing photos and video through PhotoVoice. Methodologies can be combined such as using Sensemaker or participatory systemic inquiry which combines narrative storytelling with participatory visual analysis conducted by communities themselves.

Applying Participatory Monitoring and Evaluation approaches to impact investment  

Within the new arena of impact investment, in its most basic form, take the example of an annual report written by an investee. Investors could require that claims to impact made by the investee be validated by the community who is most affected by an investment. This validation process could be conducted using participatory methods through a town hall forum and a skilled participatory facilitator who solicits multiple perspectives from different members of the community. Such a practice could provide swift redress for false claims as well as provide a space to acknowledge deeper complexity on the ground. Importantly, the new information which comes to light from the participatory activities must then inform new investment decisions.

Juxtapose this participatory processes with customer feedback services provided by organisations such as 60 Decibels (formerly Acumen’s Lean Data). We would argue that while this is a step in the right direction, collecting feedback isn’t participatory. A process becomes participatory when the intended beneficiary is able to participate in the collection of data and the analysis of specific findings and proceed to shape the decisions made in light of the feedback they have given.

PM&E doesn’t come without its challenges, however, which include elite capture by those who hold power within the community or the myth of community which can result in the exclusion of vulnerable and marginalised groups such as women or the disabled. Paying vigilant attention to who is participating (and who isn’t!) is critical.

Participatory practice within impact investment requires a break-away from the status quo with a shift from one-off consultations to deeper engagement. Though requiring more effort, these mechanisms lend themselves to verifiable impact that is genuinely tailored to the needs of communities. In addition, participation provides both protection from reputational risk, including those associated from impact washing, as well as a new source for ethical business ideas and investable opportunities rooted in the expressed needs of the communities impact investors seek to serve.



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