Aymeric Jung, Impact Investor and Foundation Advisor, dec. 2024.
Proceedings Impact Finance - Philanthropy, Investment and Blended Finance Geneva Forum 2024
This approach, implemented as early as 2018 within the framework of the Regenerative Economy, through an Impact Investing Fund (Regenero Impact Fund) and a Foundation (FDNC Carasso), enabled the creation of an effective Impact methodology for businesses that is:
- Homogeneous : The same objectives were defined for all projects and companies, regardless of their sectors.
- Structured and Dynamic: Management involves roadmaps with transformation objectives and action plans rather than settling for passive KPI measurements or reporting.
- Transversal: Addressing all functions of the company and its value chain.
- Strategic: Ensuring alignment between the company’s leadership and investors, avoiding the perception of resource mobilization as costly and unnecessary when reporting remains passive.
Context:
Financing sustainability has long been perceived as marginal within the investment world. Even with the development of sustainable finance, it largely operates within the ultraliberal economic paradigm, which emphasizes annual growth in GDP, revenue, and shareholder profit maximization. This paradigm often settles for merely reducing negative impacts, such as decarbonization, instead of striving for the simultaneous creation of positive impacts that benefit the economy, environment, and society.
Observation:
Since 2007, Impact Investing has emerged as a bridge between philanthropy and investment. It has grown within the financial sector (and microfinance), enabling it to showcase the pursuit of returns alongside measurable impact. However, it rarely specifies whether this impact involves reducing negative effects or increasing positive ones.
Measurement facilitates collaboration and comparison, but as Oscar Wilde famously said, “A cynic knows the price of everything and the value of nothing.”
Objectives:
As highlighted by the Geneva Forum, to “promote a sustainable economy combining environmental respect and social inclusion,” one must question whether measurement alone triggers the expected transition or whether a profound transformation is necessary to achieve this goal. While the growth of the past 50 years has improved some human conditions, such as malnutrition and poverty (debatable), it appears to have come at potentially irreversible environmental costs. Reflecting on planetary boundaries provides an initial framework for analysis.
Beyond measurement, transitioning to a new economic paradigm is now essential and urgent, such as the Regenerative Economy or Doughnut Economics, to avoid recurring climate disasters or even the probable collapse of our current consumerist economic systems.
Implementation:
Inspired by Regenerative Agriculture, which “gives back more than it takes,” the Regenerative Economy—promoted, among others, by the Lunt Foundation in 2015—relies on ecosystem principles: Local, Circular, Collaborative, Functional, and Bio-Inspired. Managing impact measurement and defining KPIs based on these objectives offers a simplified, multi-criteria analysis with clear, dynamic goals that foster productive collaboration between funders and businesses.
Finance must then define the expected type of return, maturity, and liquidity. For instance, setting a goal of making a business more local and circular within its current value chain allows for a consensual time horizon among stakeholders, rather than an exclusive focus on quick resale, which might alienate founders.
Indicators and Results:
- KPIs: For each of the five objectives of the Regenerative Economy, pre-defined KPIs ensure 10 to 15 key indicators that are consistent across companies (homogeneity). While the same KPIs apply to all, the data feeding each KPI is selected with the company’s management based on their chosen strategy. These objectives and KPIs can also be implemented in different stages or areas of the company (transversality). The focus is on how they transform the company (structuring) toward a regenerative model, going beyond just its carbon footprint.
This transformation is driven by a mission or Theory of Change (TOC)—reorienting the company’s value chain toward the Regenerative Economy, enhancing resilience and autonomy. It also ties into the “Robustness” principle, as proposed by Olivier Hamant, emphasizing the necessary transformation of businesses.
Sources Quadia 2022 Impact Report, public information www.quadia.ch
These objectives are translated into KPIs that trigger strategic actions to improve performance. Example:
- Circular objective, analyze what proportion of packaging (outputs) is derived from reuse or recycling.
- Local objective, assess what proportion of raw materials (inputs) are sourced within a radius of 300 kilometers.
- Results: Generally, these 10 to 15 key indicators can be aggregated into measurable units or percentages of progress, providing funders with an overall measure. This Regenerative Economy management framework, combined with the Planetary Boundaries and Doughnut Economics approaches, facilitates the initial selection and evaluation of projects—targeting those that are innovative and capable of transforming their sector toward this new paradigm. It also supports follow- up and scaling, as consistent management promotes sharing best practices, solutions, and results across projects.
Sources Quadia 2022 Impact Report, public information www.quadia.ch
Initial Conclusions: Measuring or Managing to Change the Paradigm
- Impact Investing has seen significant growth, initially driven by pioneers and philanthropy, and later through marketing efforts (economic and political awareness of climate change) and regulatory frameworks (SFDR, CSRD…). Should we celebrate this? Does regulation encourage a “sustainable economy combining environmental respect and social inclusion,” or does it merely collect more information for greater transparency?
- Does Impact Investing, integrated into the ESG finance sector, transform companies? In public markets, these are secondary operations with no new resources provided to companies based on
their high-impact positioning. At best, their share price rises as more people seek “positive” impact. But is a rising share price the desired outcome of Impact?
- Measurement aligns with Utilitarianism (J. Bentham, J.S. Mill), guiding decisions based on the greatest sum of individual interests. Is this the necessary ethical approach, given many people’s preference for short-term gratification, performance, and profit? Or is it time to prioritize a Categorical Imperative (E.Kant), particularly as our increasingly digital society disconnects us from emotions in decision-making (J. Greene)?
Developments:
Impact Investing, grounded in measurement and/or management, calls for a redefinition of how the economy and finance view wealth and externalities as common goods. This rebalancing in accounting and financial measurement is still in its infancy.
How can we compare outcomes across different investment or financing options (e.g., risk-return- liquidity management, hedge funds, algorithmic strategies, passive index tracking ETFs)? Could double materiality lead to a shift, driving greater allocations toward positive impact? This will take time.
Perhaps a broader reallocation systematic approach is needed, focusing not on the investment’s outcomes but on mobilizing funds upfront. Will better impact tools attract more financing? Yes and no, but first, we must motivate systematic investment globally and individually. For example, allocating 1% of one’s portfolio or 10% of annual returns to impact each year could achieve the required scale—such as $200 billion annually for biodiversity (0.20% of global AUM) or increasing between countries transfers from 116 billions to 1000 billions as discussed at the COP29—to reach a first threshold of 5% by 2030 ($5 trillion).
Conclusion
Moving from impact measurement to impact management represents a critical evolution in aligning expectations between investors and businesses. By adopting a regenerative framework rooted in ecosystem principles, stakeholders can foster meaningful transformation, creating a positive impact across economic, environmental, and social dimensions. Such an approach is essential to achieving a sustainable economy that respects planetary boundaries while promoting inclusion and resilience.
A paradigm shift in impact investing demands an integrated approach, leveraging better tools and frameworks both upstream and downstream. By aligning financial flows with societal and environmental goals, we can foster a sustainable economy that prioritizes collective progress over individual short-term gains.