Greenwashing poses the greatest threat to the future of impact investing, according to LPs surveyed by placement agent Rede Partners.
In the Rede Partners Private Markets & Sustainability Report, greenwashing was cited by 60 percent of respondents as a threat, more so than failure to achieve impact goals (38 percent) and financial underperformance (37 percent). The report found that “several high-profile cases of greenwashing-related malpractice across the financial industry have raised concerns about the potential for a major greenwashing scandal to seriously damage the reputation of impact as a whole.” The topic dominated ESG discussions at last week’s Infrastructure Investor Network Global Summit in Berlin.
Macroeconomic turbulence was cited as a key concern by over a third of LPs. With impact investing now positioned as a returns-generating strategy, there is concern that, if impact funds are not able to provide strong financial returns in a difficult market, LPs may deprioritise them. As one Swiss investor put it: “If the GPs who have raised [impact funds] in the last two years don’t deliver returns then it undermines the whole market.”
LPs view data as key to the continued development of the impact investing market. A full 42 percent identified standardised impact reporting as the key development that will drive the future success of impact investing, while 34 percent pointed to greater rigour of impact methodology.
A variety of initiatives are being developed to address these points. These include Impact Weighted Accounts by Harvard Business School and Iris+ by GIIN. Despite this, Rede found that there is “limited requirement by LPs for GPs to use these frameworks”.
One LP complaint is that many of these initiatives are not personalised to the asset in question. “We could get a 50-page KPI report, but look back at the actual portfolio and note that it doesn’t feel impactful,” said one US respondent.