Talking Louder

Key takeaways from the Talking Numbers blog, leveraging the insights of Europe’s National Advisory Boards

Talking Louder

If you want to make your voice heard, sometimes you need to talk louder. In the past three years, we’ve aspired to amplify the voices of many by partnering with the Global Steering Group for Impact Investment (GSG), several National Advisory Boards (NABs; from Spain, Italy, the UK, the Netherlands, Belgium, Germany and France) and their academic partners.

Together we have worked to harmonise impact data at the European level. This activity not only produced the Accelerating Impact report, it also built a solid consensus on the definition of impact investing and its nuances, including an explicit mention of additionality, both of investors and investees.

That brings us to our first takeaway from the insights NABs contributed to Impact Europe’s Talking Numbers blog.


Add additionality

When investing for impact, additionality means achieving positive outcomes that would not have happened otherwise. It is the third element that is missing in the most acknowledged definition in the ecosystem[1], which builds only on intentionality and measurability.

Without a common definition that also includes additionality, boundaries with adjacent investing activities, such as sustainable finance, remain blurred and impact washing remains a risk. At the same time, the recognition of the crucial role of those additional impact investors remains vague.

Adding additionality in the definition was, therefore, an essential part of knowing the impact washing risk.


Know risks, set boundaries

The SpainNAB Funds Task Force, with more than thirty entities representing the Spanish impact finance ecosystem, identified impact washing as the main risk threatening capital mobilisation toward otherwise underserved social and environmental challenges. The task force underscored the need to draw a clear line to differentiate impact investing from other sustainable investment strategies and create a label to facilitate this distinction.

As to why Spain chooses to set these boundaries, stakeholders pointed to the case for capital mobilisation:

“It will be possible to mobilise capital where it is most needed — that is, to the otherwise underserved challenges — when investment opportunities that address those challenges are clearly identifiable. Subsequently, appropriate incentives, regulations and support ecosystems can be created to funnel capital as intended. Until then, confusion and impact washing will dilute and divert the intended flows of capital.”

As confusion arises and impact risks dilution, distinguishing sustainable and impact investing has become a priority. As part of this collective effort, we developed a methodology, but that’s just a first step. Per Spain’s case, it is crucial to engage with practitioners and build consensus with them, which is what we aim to do at European level.


Strive for clarity

More, clearer and increasingly comparable data help market-building efforts enormously. Policymakers, regulators, field-builders and market intermediaries can be more effective when designing optimal policy and regulatory settings to help guide and enable the impact investing market.

This was the case for Impact Finance Belgium, as they shared in a blog about their country’s first-time market sizing.: A first assessment of the market was key, as it helped describe the full impact ecosystem and represent strategic insights. Impact Finance Belgium also shared very practical learnings as first-timers – everything from how to approach philanthropic actors to the perfect translation of questionnaires.

If the intention is to grow the impact investing ecosystem, the market sizing exercise is a must, as it sheds lights on the scope and objectives of a market builder’s work.


Connect with policymakers  

Market data, if well connected with policymakers, can help mobilise impact capital at scale. That’s happening in France:

“While data is both an input, output and overall guidepost for policy innovation, it is only effective if put into action and is in fact being shaped again by action. In the case of 90/10 funds, FAIR’s data gathering activities have provided the proof of concept for 90/10 funds which FAIR is working to expand to the European level in the hope of eradicating financing failures in the European social economy.”

The blog on the subject goes on to describe the history of 90/10 funds, sharing important lessons for market builders. Italy, a more nascent market than France’s, described in a blog how they take inspiration in the policy sphere from more mature markets:

“All the most mature markets, like the British and French ones, have developed thanks to a key role of public policy, by either regulating or participating in the market. The public sector can positively contribute to the national ecosystem development by encouraging investments in impact ventures through fiscal and non-fiscal incentives, facilitating impact data transparency, and improving regulation to encourage innovative financial instruments, in particular payment by results.”


Include institutions

Alongside market builders and policymakers, other players can benefit from a harmonised picture of the sector, such as institutional investors, as the Dutch NAB highlighted

“To overcome misconceptions and mobilise institutional resources, stakeholders need to present data and evidence that dispel false myths about risks and financial returns and emphasise the benefits of transitioning to an impact investing approach.”

Qualitative questions in market studies can identify the false myths that block institutional resources. This is what happened in the Netherlands: survey respondents indicated high capital requirements as a significant barrier, so the Dutch NAB conducted a study that demystifies this false perception by proving that capital requirements resulting from the current regulation are in line with the risk profiles of the investments.

For large institutional investors with legislated investment mandates, such as pension funds, market data is essential for determining whether investors participate in the market and, if so, how they might formulate an investment strategy consistent with their mandate. That strategy includes investment decisions across national markets, sectors and asset classes.


Let’s talk about listed assets

Our data harmonisation efforts started a fruitful conversation about how impact investing expands to listed assets, social housing and green infrastructure. We were able to leverage the knowledge on the subject gathered by the Impact Investing Institute, the UK NAB:

“At the [Impact Investing] Institute, we believe impact can and must play a role in public markets. That doesn’t mean everything calling itself 'impact' in public markets is, indeed, impact. But just because terminology is misappropriated by some, doesn’t mean that good practitioners driving quality work in public markets, should be excluded from the impact investing world.”

Of course, measuring impact in listed assets implies differences in methodologies that we, as market builders, are collaborating to highlight and resolve. The conversation is ongoing.


Next steps

Beyond our market sizing report, blog and insights collected here, there’s another recent development that puts the data in a new context. Data helped Impact Europe convey clear and coordinated messages in a recent consultation on the Sustainable Finance Disclosure Regulation (SFDR), a regulation seeking to enhance transparency in the financial markets about sustainability-related claims, prevent greenwashing and channel capital flows toward sustainable economic activities. The result: a joint letter to the European Commission, to which several of the NABs contributed and became signatories. Looking ahead, we are glad to announce that a second market study will be launched in the coming weeks. In this effort we’ll test our refined methodology and collect data that will serve to update the trends we observed in Accelerating Impact. After the study is completed, we’ll provide insights on the sector to practitioners, policymakers and impact actors of all shapes and sizes – coming in late 2024!


[1] Additionality means that an intervention will lead, or has led, to effects which would not have occurred without it (Source: Winckler Andersen et al., 2021). In the impact context, it refers to achieving positive outcomes that are better than what would have happened without the investment. Additionality may result from: growth of new or undersupplied capital markets, provision of flexible capital, accepting disproportionate risk-adjusted returns and active engagement providing a wide range of non-financial services