For long-timers in the in the impact investing space, the arrival of mainstream asset mangers can seem like a double-edged sword. On one hand it should be celebrated: the volume of capital being channeled towards solutions is increasing. On the other hand is the fear that the integrity of the impact investing thesis could be compromised if adopted by profit-driven firms only as a means to gather assets. The spectre of “impact-washing” looms.
Jane Bieneman, a veteran of private markets who is now a senior adviser at consulting firm Tideline, likens this initial scepticism of “mainstream” impact to the birth of the private equity mega fund. Bieneman spent decades advising private markets GPs on fundraising, first within Citi’s private funds group and later at UBS. When GPs started to raise many billions for PE funds at a time, there was fear that alignment of interest would be skewed and that such volumes of capital could not be effectively deployed.
Just as mega funds are now an accepted and important part of the private markets ecosystem, the scepticism around mega managers entering impact has subsided based on how these firms have conducted their business. “Overall execution has been good,” Bieneman said. “Reputations are at risk and they are putting the right resources behind these strategies. Overall, while there are still some investor concerns, the mainstream firms are getting more accepted in the market.”
As part of Tideline, Bieneman has a privileged view of the internal workings of both established impact players and new arrivals to the strategy. The firm, which advises clients on implementing impact investing strategies and processes, has undertaken mandates for the likes of KKR, Leapfrog Investments, Partners Group, TPG Growth, Macquarie Infrastructure and Real Assets, LGT and others.
When I spoke to Bieneman over Zoom in September, I asked whether it is still useful to be asking the question: “Can all these firms really call themselves impact investors?”
“It’s a good question,” Bieneman said. “No doubt there is a lot of confusion in the market about what impact is, and a desire for clarity.”
Tideline has done a lot of work on the topic. Its latest report, Truth in Impact: A Tideline Guide to Using the Impact Investment Label, breaks the concept of impact investing into different “pillars” and allows investors to better define themselves as either “impact”, “thematic” or “ESG-integrated” investors. Bieneman describes it as “a practical way to understand the nuances of strategies”.
Does Bieneman believe investors care about this level of detail? Or are they still focused on risk-adjusted returns, with positive externalities a nice bonus?
“It’s really important to let investors know where you are on that impact spectrum,” she said. “Although not all LPs are currently able to assess that, I think some are. Increasingly that is the way the market will move…with LPs more and more sophisticated about what it means to invest with an impact focus. They will have the tools to discern between a thematic investor versus an ‘impact’ investor.”
On the flip side, do the clients Bieneman works with view the “impact” label as an unambiguous positive selling point? Or is it a ‘turn off’ for some investors?
“That’s a question I have gotten a lot over the last few years: ‘Will it imply I am concessionary?’,” she answers. “I haven’t heard it so much recently. I think that might be a myth that is going away, in part because of the mainstream players. Every time one of the big firms goes on the road and talks about their strategy, it communicates more and more how almost all of the impact investing market – over 95 percent, based on GIIN survey data – is targeting market rate or better returns. But there is still education needed on that.”
Regulation is coming to sustainable investment. In the EU, the SFDR is currently mid-implementation, while the US is a little behind but considering the issue. Rules that govern how funds describe themselves represent an “overall helpful trend”, Bieneman said. It “will help drive truth in labelling and cause firms to think carefully about what they are doing and how they communicate that. It will create more focus”.
The future of impact investing as a concept now depends on the performance of the new arrivals, Bieneman adds: “Right now we are in a market that is emerging and growing. The continued success as proof of concept is really important: success of the mainstream firms that are now onto raising their second funds…their success financially and in terms of impact is important.”
And what of the established smaller impact players? “Just as in the traditional private equity market, some LPs will always prefer the smaller more specialised firms,” Bieneman says. “There is demand for both and increasing acceptance of the larger firms.”