A step change is needed in the scalability, replicability and measurability of impact to move beyond today’s incremental progress, according to Dr. Henning Stein.
The new President of the World Bank, Ajay Banga, recently spoke about investment’s role in delivering positive change. Interviewed during a visit to Peru, he revealed his determination to focus more on projects that are scalable, replicable and demonstrably beneficial.
In essence, of course, Banga was talking about the thorny issue of impact. Perhaps most notably, he was talking about how impact can be evidenced. He even stated at one point that he would like to see impact clearly quantified “in my lifetime”.
There are a number of challenges – including ongoing confusion about what ‘impact’ actually means – as the investment community climbs the impact learning curve.
Banga’s comments underline that the curve’s trajectory has not improved substantially of late. His “in my lifetime” remark could even be interpreted as a warning that it might not improve for many years to come.
Even so, the ideal he outlined may represent a blueprint for the way ahead. Like the World Bank, impact investors – along with responsible investors more generally – must think big; they must understand the constituents of success; and they must utilise those constituents as widely as possible.
With these objectives in mind, we should reflect on why scalability, replicability and measurability are so important in this context. In tandem, we should recognise why all three have been so elusive to date – and what we can do to at last establish them as the constants they ought to be.
Radical transformation as second nature
The argument for scalability is simple. Sustainable investing of every kind is to some degree geared towards addressing the biggest threats facing our planet and its inhabitants, which means our collective response must itself be monumental.
Granted, as individuals, we can all play a part. We can all contribute to a brighter future. It may even be conceivable that the resulting marginal gains will somehow add up to something genuinely useful.
In the final reckoning, though, tinkering at the edges is insufficient. The state of climate finance provides a telling illustration, as Figure 1 shows. Incrementalism and little victories will take us only so far. Nothing is going to top channelling trillions of dollars into radical transformation at scale.
By extension, such transformation should be undertaken again and again if it is shown to function as hoped. As Banga observed in advocating replicability, it is self-defeating to ignore the lessons learnt from effective projects – as has often been the case in the past.
At the risk of betraying my age, I can say I have been involved in responsible investing long enough to remember when ESG was a ‘nice-to-have’. It duly became a ‘must-have’. Today, in many ways, it is second nature.
Impact must complete a similar transition. In effect, we need to turn it into a habit – one that we develop and maintain through an ongoing process of appreciating what is done well, what could be done better and what might be done not just better but differently.
Figure 1: Climate finance – a snapshot of incrementalism
The scale of investment in climate mitigation and adaptation is far short of what is needed to meet the Paris Agreement’s preferred target of limiting global warming this century to 1.5ºC above pre-industrial levels. The CAGR since 2011 has been 7%, but the Climate Policy Initiative has calculated it must be at least 21% by 2030 if the worst impacts of climate change are to be avoided.
* – This represents the lower end of a projected figure of up to $940 billion for 2021.
Source: Climate Policy Initiative: Global Landscape of Climate Finance: A Decade of Data, 2022; (figures in hundreds of billions of dollars)
Hard proof versus hardwiring
One reason why measurability is vital is that investors must be confident that their desire to serve the greater good is being fulfilled. A collective keenness to ‘do the right thing’ could dwindle over time if impact cannot be proven.
Yet precisely how impact should be measured is only part of the problem. In many instances, at least at present, there may be grounds for arguing there is no impact to measure in the first place.
This is an uncomfortable notion, but the facts speak for themselves. On balance, several decades of responsible investing have yet to dramatically reshape the world. Emissions rose last year. Food insecurity is worsening. Inequality keeps widening.
How can this be? Maybe too many responsible investments are directed to companies that are quietly content with the status quo – despite their bold assertions to the contrary. Particularly in public markets, business as usual is frequently preferred to the gale of creative destruction.
Equally, people are innately hardwired to resist change. Our brains’ neuronal connections are at their strongest for the behaviours with which we are already familiar. This is why it is so difficult to adopt novel practices, even if they are manifestly to our advantage.
Small wonder, then, that Banga made his “in my lifetime” aside. He is very likely only too aware that right now, unfortunately, most claims of impact are inaccurate, utterly overblown or impossible to substantiate.
A model for positive, demonstrable change
Banga has spoken of “a new playbook” for impact. He wants the World Bank to “think creatively, take informed risks and forge new partnerships with civil society and multilateral institutions”.
Such a vision is undoubtedly ambitious, but it is also absolutely necessary. Despite the commendable and continued efforts of the Impact Taskforce, the Global Impact Investing Network, the Impact Management Project and other trailblazers, impact investing desperately needs an indisputable reference point – a model, an exemplar, an incontrovertible template for success.
In the absence of such a paradigm, ‘impact-washing’ is fast becoming the most duplicitous form of greenwashing. Many funds promise impact but cannot prove it, most likely because they are incapable of generating it in any event.
Meanwhile, the search for definitive metrics goes on. The superabundance of ostensibly relevant frameworks, scorecards and ratings may be less bewildering than it was a few years ago, but we are still arguably nearer to a free-for-all than we are to standardisation.
These are not conditions that are conducive to ensuring a sustainable future. At best, they are conditions that are conducive to incremental change. At worst, they are conditions that are conducive to the steady erosion of impact as a meaningful concept.
Ultimately, someone has to step up to the plate. Someone has to put down a marker. If a supranational organisation such as the World Bank is truly able to show how impact can work – if it is able to master the fundamentals of scalability, replicability and measurability and thereby make a genuine difference – we should all pay very close attention.
A step change is needed in the scalability, replicability and measurability of impact to move beyond today’s incremental progress, according to Dr. Henning Stein.
The new President of the World Bank, Ajay Banga, recently spoke about investment’s role in delivering positive change. Interviewed during a visit to Peru, he revealed his determination to focus more on projects that are scalable, replicable and demonstrably beneficial.
In essence, of course, Banga was talking about the thorny issue of impact. Perhaps most notably, he was talking about how impact can be evidenced. He even stated at one point that he would like to see impact clearly quantified “in my lifetime”.
There are a number of challenges – including ongoing confusion about what ‘impact’ actually means – as the investment community climbs the impact learning curve.
Banga’s comments underline that the curve’s trajectory has not improved substantially of late. His “in my lifetime” remark could even be interpreted as a warning that it might not improve for many years to come.
Even so, the ideal he outlined may represent a blueprint for the way ahead. Like the World Bank, impact investors – along with responsible investors more generally – must think big; they must understand the constituents of success; and they must utilise those constituents as widely as possible.
With these objectives in mind, we should reflect on why scalability, replicability and measurability are so important in this context. In tandem, we should recognise why all three have been so elusive to date – and what we can do to at last establish them as the constants they ought to be.
Radical transformation as second nature
The argument for scalability is simple. Sustainable investing of every kind is to some degree geared towards addressing the biggest threats facing our planet and its inhabitants, which means our collective response must itself be monumental.
Granted, as individuals, we can all play a part. We can all contribute to a brighter future. It may even be conceivable that the resulting marginal gains will somehow add up to something genuinely useful.
In the final reckoning, though, tinkering at the edges is insufficient. The state of climate finance provides a telling illustration, as Figure 1 shows. Incrementalism and little victories will take us only so far. Nothing is going to top channelling trillions of dollars into radical transformation at scale.
By extension, such transformation should be undertaken again and again if it is shown to function as hoped. As Banga observed in advocating replicability, it is self-defeating to ignore the lessons learnt from effective projects – as has often been the case in the past.
At the risk of betraying my age, I can say I have been involved in responsible investing long enough to remember when ESG was a ‘nice-to-have’. It duly became a ‘must-have’. Today, in many ways, it is second nature.
Impact must complete a similar transition. In effect, we need to turn it into a habit – one that we develop and maintain through an ongoing process of appreciating what is done well, what could be done better and what might be done not just better but differently.
Figure 1: Climate finance – a snapshot of incrementalism
The scale of investment in climate mitigation and adaptation is far short of what is needed to meet the Paris Agreement’s preferred target of limiting global warming this century to 1.5ºC above pre-industrial levels. The CAGR since 2011 has been 7%, but the Climate Policy Initiative has calculated it must be at least 21% by 2030 if the worst impacts of climate change are to be avoided.
* – This represents the lower end of a projected figure of up to $940 billion for 2021.
Source: Climate Policy Initiative: Global Landscape of Climate Finance: A Decade of Data, 2022; (figures in hundreds of billions of dollars)
Hard proof versus hardwiring
One reason why measurability is vital is that investors must be confident that their desire to serve the greater good is being fulfilled. A collective keenness to ‘do the right thing’ could dwindle over time if impact cannot be proven.
Yet precisely how impact should be measured is only part of the problem. In many instances, at least at present, there may be grounds for arguing there is no impact to measure in the first place.
This is an uncomfortable notion, but the facts speak for themselves. On balance, several decades of responsible investing have yet to dramatically reshape the world. Emissions rose last year. Food insecurity is worsening. Inequality keeps widening.
How can this be? Maybe too many responsible investments are directed to companies that are quietly content with the status quo – despite their bold assertions to the contrary. Particularly in public markets, business as usual is frequently preferred to the gale of creative destruction.
Equally, people are innately hardwired to resist change. Our brains’ neuronal connections are at their strongest for the behaviours with which we are already familiar. This is why it is so difficult to adopt novel practices, even if they are manifestly to our advantage.
Small wonder, then, that Banga made his “in my lifetime” aside. He is very likely only too aware that right now, unfortunately, most claims of impact are inaccurate, utterly overblown or impossible to substantiate.
A model for positive, demonstrable change
Banga has spoken of “a new playbook” for impact. He wants the World Bank to “think creatively, take informed risks and forge new partnerships with civil society and multilateral institutions”.
Such a vision is undoubtedly ambitious, but it is also absolutely necessary. Despite the commendable and continued efforts of the Impact Taskforce, the Global Impact Investing Network, the Impact Management Project and other trailblazers, impact investing desperately needs an indisputable reference point – a model, an exemplar, an incontrovertible template for success.
In the absence of such a paradigm, ‘impact-washing’ is fast becoming the most duplicitous form of greenwashing. Many funds promise impact but cannot prove it, most likely because they are incapable of generating it in any event.
Meanwhile, the search for definitive metrics goes on. The superabundance of ostensibly relevant frameworks, scorecards and ratings may be less bewildering than it was a few years ago, but we are still arguably nearer to a free-for-all than we are to standardisation.
These are not conditions that are conducive to ensuring a sustainable future. At best, they are conditions that are conducive to incremental change. At worst, they are conditions that are conducive to the steady erosion of impact as a meaningful concept.
Ultimately, someone has to step up to the plate. Someone has to put down a marker. If a supranational organisation such as the World Bank is truly able to show how impact can work – if it is able to master the fundamentals of scalability, replicability and measurability and thereby make a genuine difference – we should all pay very close attention.
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