From billions to trillions : the role of Impact Investing in contributing to the attainment of the sustainable development goals : a case study of Impact Investing in Germany

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From Billions to Trillions: The Role of Impact Investing in Contributing to the

Attainment of the Sustainable Development Goals

A case study of Impact Investing in Germany

MSc International Development Studies 2018-2019 Graduate School of Social Sciences

Euan McCartney 12311618 August 2019 Word Count: 26350

Supervisor: Prof. Dr. Joyeeta Gupta Second Reader: Dr. Courtney Vegelin

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Abstract

Within a neoliberal environment of reduced government expenditures, persistent inequalities and the omnipresent threat of anthropogenic climate change, a space has emerged for private sector led solutions to address these global issues. The advent of the Sustainable Development Goals in 2015 has created a universalising framework to guide such interactions, and one which the burgeoning concept of impact investing seeks to engage with. Can this emerging concept deliver on its lofty ambitions to deliver positive social and/or environmental impact in conjunction with financial returns and in doing so contribute to attaining the SDGs? Despite its stated potential and the exponential growth of this concept thus far, there has been minimal academic engagement on impact investing beyond theoretical and semantic discussions, and impact investing is particularly lacking in concerted case studies. Notably, the relationship between impact investing and the Sustainable Development Goals has yet to be thoroughly assessed in academic enquiry. Through a lens of international development studies, this exploratory research attempts to address this gap in knowledge and provide a basis for future further academic engagement with this important interaction. Notably, this thesis seeks to assess the contributions this concept can make to these goals and whether it can be considered a viable addition to international development financing and initiatives. This query was addressed through a thorough literature review, a survey and conducting interviews with organisations involved in impact investing in Germany, an economically robust nation with an abundance of private capital, where this concept is gaining increasing traction and witnessing a growth in the impact investing sector. It focuses on those organisations that define themselves as involved with this concept and operate both domestically and internationally, given the universalising nature of the SDGs.

The research identified an incohesive concept that suffers from conceptual and practical ambiguities; particularly, a plethora of different measurement and evaluation frameworks designed to address differing notions of impact. Furthermore, throughout the research process, questions began to be raised about whether impact investing can even be spoken of as a coherent sector. Rather it appeared to comprise of disparate actors, utilising a variety of mechanisms designed to foster and then evaluate subjectively guided notions of impact. Despite these discrepancies, respondent organisations were unified by three core principles of intentionality, measurability and additionality, culminating in an underlying desire to utilise private capital to create positive outcomes in a world replete with issues. Whilst these principles were engaged with in a nuanced manner, they nonetheless served to distinguish impact investing as a distinct financial ethos. Furthermore, the SDGs provide a tangible objective that these various actors could cohesively align with. However, in spite of the universalising rhetoric of the UN’s SDGs and the plea for greater private sector engagement, there is no requisite for organisation to adhere to these summons. Thus, this thesis determined that there is an intrinsic value in those organisations that can demonstrate their genuine engagement with these goals and attempts to foster positive social and/or environmental impact. However, in order for this interaction to be more productive, it is imperative that greater synergies between the development community and practitioners is forged, both to critically assess the potential of this concept and to ameliorate its practical application. Furthermore, although the SDGs provide an essential normative framework for global engagement with values of sustainable development, the goals themselves must be subject to critical analysis and ultimately impact investing organisations should aim to transcend the ambitions set out in them.

Key Words: Sustainable Development Goals, impact investing, development finance, international development

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Acknowledgements

This thesis would not have been possible without the support and contributions from multiple people.

Firstly, I would like to thank my thesis supervisors, Professors Joyeeta Gupta and Courtney Vegelin for their support throughout this research process. Their guidance, suggestions, knowledge and patience have been essential, and I feel fortunate to have worked with them. I would also like to thank my parents, Ruth and Aidan, who have unfalteringly supported me throughout my life and academic trajectory, enabling me to choose whichever path most appealed to me. Without them, I would not be in such a privileged position to pursue a master’s degree in a wonderful city like Amsterdam.

I would also like to extend my gratitude to all of my research participants for taking the time during their busy working hours to contribute towards this research. I hope that it proves of some use to them, given that their contributions have been invaluable to me.

Finally, I would like to thank my course mates and friends Rory (Deric) Hugill and Charlie Nelson for their endless support and encouragement throughout the duration of not just the research period, but the entire master’s course. Their admirable work-ethic and dedication has been an important source of inspiration and without their help and the many long discussions we had, writing this thesis would have been a much more arduous process.

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List of Figures and Tables

Figure 1 – Priority of Global Issues

Figure 2 – Capital Flows of Development Finance Forms Figure 3 – Actors involved in Impact Investing Ecosystem Figure 4 – Survey Response concerning Non-Monetary Support Figure 5 – Integrating SDGs into Investment Cycle

Table 1 – Key Phrases Searched

Table 2 – Table of Research Respondents

Acronyms & Abbreviations

BMZ - Federal Ministry for Economic Cooperation and Development (Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung)

BOP – Base-of-Pyramid

CDM – Clean Development Mechanisms CSR – Corporate Social Responsibility

DEG - German Investment Corporation (Deutsche Investitions- und Entwicklungsgesellschaft) DFI – Development Finance Institution – not sure if I have referred to it yet.

ERD - European Report on Development

ESG - Environmental, social and corporate governance GHG – Greenhouse Gas

GIIN – Global Impact Investing Netowrk

GIZ - Deutsche Gesellschaft für Internationale Zusammenarbeit (German Society for International Cooperation)

GRI – Global Reporting Initiative

IATF – (UN) Intern-Agency Task Force on Financing for Development

ICESDF – (UN) Intergovernmental Committee of Experts on Sustainable Development Financing

IFC – International Finance Corporation KPIs – Key Performance Indicators MDGs – Millennium Development Goals MFI – Microfinance Institution

M&E – Measurement and Evaluation

OECD - Organisation for Economic Co-operation and Development UNPRI – United Nations Principles for Responsible Investing UNDP – United Nations Development Programme

UNEP – United Nations Environment Programme UNGA – United Nations General Assembly SDGs – Sustainable Development Goals SIIT - Social Impact Investment Taskforce SRI – Socially Responsible Investing TOC – Theory of Change

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1. Introduction

Anthropogenic climate change is an objective reality and poses the greatest existential threat humanity has ever faced. Despite all of humanity being complicit in exacerbating it, albeit to enormously varying degrees, there is a lack of concerted global action to address it. This is despite decades of knowledge, ever increasing manifestations of its negative impacts and the implementation of global initiatives designed to address it, most notably in recent years, the Paris Agreement and, more significantly in the context of this study, the Sustainable Development Goals. The SDGs are designed to provide a global framework for the trajectory humanity must take in order to mitigate against climate change and ensure humanity’s survival on the only known inhabitable planet (SDG Knowledge Platform, 2019a). Despite calls for universal engagement, attainment of the SDGs is particularly plagued by a lack of political will to address them and most significantly an enormous funding shortfall (UNPRI, 2016). Thus, current trajectories indicate that the SDGs will not be attained by 2030 (Sachs et al, 2019). In this overarching context, there have been diverse global efforts instigated by a variety of different actors, coming from multiple epistemological bases and utilising a variety of methods to address both the SDGs and the overarching problem of anthropogenic climate change they aim to address.

Environmental degradation is intrinsically a global issue, and both causes and perpetuates social inequalities, thus addressing it is a central tenant of international development studies. Therefor this exploratory research seeks to assess the role one of the concepts that has emerged in conjunction with these global concerns can play in addressing this existential threat, namely impact investing. Impact investing promises to harness the principles and qualities of capitalism to foster positive social and/or environmental impact in conjunction with financial return. Ultimately it seeks to utilise the “promise of the marketplace to supplement what the nonprofit sector and government have failed to do alone” (Tekula & Andersen, 2019, p156). Whilst much of the grey literature is cloaked in promising discourse concerning the potential of this concept, it is yet to be subjected to concerted academic enquiry, with this research aiming to address this shortfall and provide a basis for future research on this topic. This thesis therefore seeks to evaluate the role the concept of impact investing can play in the attainment of the SDGs, with this framework being elected because it offers both practical and theoretical opportunities to explore this interaction.

This chapter begins by expanding on the problem statement (1.1) and the societal and policy relevance (1.1.1) of this research. It then identifies a gap in academic literature (1.1.2) to justify the purpose of this study (1.2). Next the research questions guiding this inquiry are outlined (1.3) before providing an overview of the thesis structure (1.4).

1.1. Problem Statement

Global human activities are currently putting excessive strain on planetary systems and natural resources, resulting in anthropogenic climate change, commonly known as global warming.

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This climate crisis represents the greatest existential threat to humanity and will negatively impact all sectors of human activity, in all countries, particularly the poorest and most vulnerable. In an effort to mitigate against catastrophic climate change, all 193 UN member states ratified the adoption of the Sustainable Development Goals in 2015. These 17 globally encompassing goals set the most comprehensive and ambitious targets designed to address worldwide issues of sustainable development, demanding that action be undertaken in all countries simultaneously (Hajer et al, 2015). Further, the SDGs implore that all actors, from individuals upwards, participate in contributing towards them as a truly universalising initiative. Thus, responsibility towards the SDGs and sustainable development more broadly, no longer mainly falls on the shoulders of governments, NGOs and development institutions, but rather everybody.

However, despite the universalising rhetoric of the SDGs, they remain non-binding to nation states. Significantly, leaders in important global powers, notably the USA’s President Trump and Brazil’s President Bolsonaro, amongst others, are anthropogenic climate change skeptics that do not subscribe to the ideals of sustainable development (Davenport, 2018). A series of surveys conducted by the OECD also found that just over 1 in 10 Europeans ae knowledgeable of the SDGs. Amongst countries that have a significant role to play in their attainment, such as Germany, France, the UK and the USA, awareness of them remains relatively low (OECD, 2017). Furthermore, renowned development economist William Easterly argues that the UN and those inside the sphere of development significantly overestimate the traction the SDGs have in society and how much global attention is really paid towards them (Easterly, 2015). This is significant because not only does it undermine the universalising discourse of the UN, but because achieving the SDGs, and their broader aim of climate change mitigation, requires immense financial investment, namely between USD 5 to 7 trillion annually (UNPRI, 2016). Currently national governments, ODA flows and development actors are unable to meet this requirement and the UN has encouraged greater private sector commitment to the SDGs, failing which they will not be attained. This is precipitating a radical shift in development finance as the private sector becomes a critical actor, essential to mobilise sufficient funds (Mawdsley, 2018b). The necessity for private sector engagement is particularly acute in the Global South, where the estimated investment gap is roughly USD 2.5 trillion per year (UNHQ, 2018).

However, in spite of these frequently cited figures and despite concerted effort, the researcher could not find any clear outline on the financial requirements for respective SDGs, sectors or regions to help streamline and target additional finance accurately, nor was it ever made transparent how this sum was arrived at (6.2) (GPF, 2017). The 2019 Sustainable Development report does outline countries’ distance to SDG targets as well as global trends and issues pertaining to the goals. This serves as a helpful guide for highlighting which goals require greater engagement on a national level (Sachs et al, 2019). However, it does not provide clear indications or delineate on how much capital is required to address these shortcomings and arguably places excessive emphasis on the SDGs as primarily a national commitment, inadequately articulating intranational discrepancies. It also primarily reiterates the already known facts that across the globe, national governments are falling drastically short on their

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commitments, environmental degradation is being exacerbated in conjunction with rising inequality, and again simply calls for greater private sector engagement (Sachs et al, 2019; UN, 2019).

Accurately assessing specific financing gaps is an understandably difficult undertaking and may be partially attributed to the interdependencies and synergies between the goals, as well as difficulty in obtaining all relevant data. A report by the UN’s secretary general argues that on a global level “previous sector-focused policymaking, or a goal-by-goal approach, will not achieve the 2030 Agenda for Sustainable Development or its Goals”. Instead, “stronger integrated planning, strategic thinking and policy integration will be crucial” (UNGA, 2017, p7). Nonetheless, particularly private sector actors will not be able to contribute in such a comprehensive manner and will inevitably have sectoral or goal-level approaches, thus it is imperative to more specifically highlight where the SDG funding gap is occurring so that contributions can most productively be applied. Then the important task can begin of assessing how such contributions can be aggregated.

It is in this context of worsening climatic conditions, persistent socioenvironmental issues and lagging finance to address these issues, that this thesis seeks to examine the role that the emergence of impact investing can play in contributing towards the SDGs. This thesis frames the role of impact investing as contributing or supporting as opposed to achieving, given that no one actor can possibly be held responsible for their overall attainment in any context; at the goal, target or indicator level.

(Figure 1 – Source: My World Analytics, 2019) 1.1.1. Societal & Policy Relevance

This diagram reveals that action taken on climate change is an undervalued priority by global citizens. However, this thesis does acknowledge the

interdependency of many of these development issues.

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Currently there is significant, but still insufficient, engagement with principles of sustainable development at either end of the spectrum, from individuals to national governments and large corporations (UNEP, 2018). Thus, it is worth assessing the contribution of those actors who are proactively attempting to engage with notions of sustainable development, both to critically evaluate their current and predicted contributions and should this prove to be effective, assess their potential to pioneer catalysing shifts in financial practice. Sufficient capital does exist globally, now it is a matter of ensuring a transformative channeling of it towards sustainable development, as current trajectories point to deteriorating socioenvironmental conditions that will affect all (UNHQ, 2018).

Given that any instrumental development initiatives require increasingly scarce funding, the UN and OECD are actively encouraging the participation of a variety of new impact-oriented and innovative forms of financing to be directed towards achieving the SDGS: impact investing constitutes one of these (UNEP, 2019; OECD 2019). The participation of private sector actors is explicitly referred to in goal 17 of the SDGs that concerns global partnerships for sustainable development. The GIIN, the preeminent global organisation for impact investing, also actively encourages members to align their objectives with the SDGs (GIIN, 2018a). And, in Germany, where the primary data collection for this research took place, there is increasing interest in the concept of impact investing, both in terms of a growing number of actors entering the field and with regards to increased national policymaking designed to further foster this growth and improve the effectiveness of the market (Bertelsmann Stiftung, 2016b).

Impact investment has arisen in conjunction with broader societal concerns surrounding global warming, ethical consumerism, greater corporate scrutiny, austerity measures and a post 2008 financial crisis loss of faith in traditional financial sectors (Nichols, 2010; Sardy & Lewin, 2016; Mulgan et al, 2011). In light of these concerns, impact investing is an industry whose fundamental pejorative can most simply be described as doing good whilst doing well (SIIT, 2014). In impact investment, tangible and measurable social and/or environmental benefits accrued by an investment should be at the core of business strategy. However, this does not negate the fact that investments are expected to have a financial return, merely that this element should not be the primary overriding concern (Koh et al, 2012). The biggest proponents of impact investing argue that the ultimate goal of this concept should be the aforementioned desire to catalyse transformational shifts in financial practices: one which accounts for the holistic impacts, positive and negative, that business operations have in the world (Emerson, 2018).

Thus, on the surface, impact investment appears to address many pressing problems. It could assist in rallying the private sector to play a more important role in addressing pressing social and environmental challenges that are inherently glocal in nature (Epstein & Yuthus, 2017). It could act as the link between philanthropy and profit-driven investment in an unprecedented manner and in the process foster greater synergies between the development community and the private sector (Reeder et al, 2015). Ultimately, impact investing represents a practice that is conceptually well-aligned to contributing towards the SDGs, one that holds immense assets that can help to plug the finance gap required for their attainment, whilst still providing financial

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incentives for private sector actors to engage in sustainability issues. Impact investors are also subscribed to the ideals of sustainable development, despite there currently being no binding imperative to do so and, particularly in the German context, few additional incentives (Bertelsmann Stiftung, 2016a).

Unfortunately, given the conceptual ambiguities surrounding what constitutes impact investing (see 2.5), it is hard to estimate accurately the size of the sector. However, a recent GIIN study estimates that 1,340 diverse impact investing organisations currently manage USD 502 billion across all parts of the world, albeit they predominate in the Global North (GIIN, 2019b). The market continues to grow exponentially as the concept gains traction and thus requires greater research and academic engagement to more accurately gauge and ideally improve its contribution to the SDGs.

1.1.2. Gap in Scholarly Knowledge

In order to both inform this research and identify the gap in knowledge and literature, this research primarily used the following online resources; Google Scholar, the Journal of Development Studies, the Amsterdam University Library and Science Direct. Only publications in English were utilised.

Key Searches

Impact Investing Impact Investment

Impact Investing/Investment SDGs Impact Investing/Investment Germany Impact Investing/Investment Germany SDGs Private Sector SDGs

Private Sector Development Finance Social Finance SDGs

Social Finance Development Finance Philanthrocapitalism

Issues/Criticism of SDGs Sustainable Development

(Table 1 - Key Phrases Searched in Online Resources)

Literature pertaining to the SDGs was selected from 2012 onwards, following the Rio+20 conference when the idea of the SDGs began to gain traction (Caballero, 2019). There was an abundance of academic literature on this topic, so the researcher mainly focused on those

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papers most relevant in the context of this thesis, notably concerning the role of private sector actors in their attainment. To mitigate against bias, more critical perspectives of the SDGs were also reviewed, both concerning issues inherent within the SDGs themselves and particularly concerning the call for increased private sector engagement.

Literature concerning impact investment was primarily reviewed from 2007 onwards (see Annex I), as the term “impact investment” is regularly cited as formally emerging in 2007 after it was coined by the Rockefeller Foundation, albeit the practice has existed for longer (Rockefeller Foundation, 2007)1_{. Therefore, this thesis only engaged with a few publications}

deemed relevant from beforehand. There was significantly more literature concerning comparable practices within the field of social finance and these were also drawn upon to guide and supplement the research, as well as ascertain general gaps in knowledge. However, given that this thesis seeks to understand impact investment as a distinct practice and field of enquiry, predominant attention was paid to articles explicitly referring to the term in the title, with only 22 emerging that were deemed relevant in the context of this study.

The literature covered drew heavily on Clarkin & Cangioni’s 2016 “Impact Investing: A primer and Review of the Literature”, which undertook a broad review of academic literature pertaining to impact investment. This study concurs with the findings expressed by the authors, that most academic engagement thus far relates to the emergence and defining of the concept, particularly in relation to other social finance practices2_{or of literature pertaining to}

measurement and evaluation practices within the sector3. However, aside from these focuses there is a clear dearth of broader literature, particularly in the field of development studies. This is arguably symptomatic of the recent emergence of the concept, with the majority of interest concerning the tenants of impact investment, as opposed to how it has been practically applied, particularly in relation to developmental causes. This can largely be justified by the relatively short existence of the concept and thus the incapacity to have conducted rigorous longitudinal studies. Literature also predominantly focused on the potential and opportunities of impact investment, as opposed to more critical engagement that is generally wrought about latterly. This can be considered comparable to the concept of microfinance, which initially received overwhelmingly positive reviews, before longitudinal studies began to question both the underlying logic and application of the idea (Bateman & Chang, 2012).

However, the most notable discovery was that, aside from articles published by the GIIN, not a single academic publication from other sources had any reference to the SDGs in the entire text (see Annex I). As an organisation committed to the expansion of the industry, publications by the GIIN must be engaged with particularly critically. Significantly no articles are concerned with analysing the interaction of impact investing and the SDGs from a critical perspective. Those that do present the SDGs as an ideal-type solution for sustainable development and assume that alignment with the SDGs is inherently a positive thing. This supposition will be

1_{A few publications from beforehand were engaged with, notably from Jed Emerson & Cabaj (2000), pioneers in} this field

2_{E.g. (Bugg-Levine & Emerson, 2011; Brest & Born, 2013; Hebb, 2013; Höchstädter & Schek, 2015)} 3_{E.g. (Epstein & Yuthas, 2017; Evans, 2013; Jackson 2013; Reeder et al, 2015)}

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challenged in the discussion chapter (see 6.2) This revelation both serves to validate this research as a novel topic and can justify some of the inherent limitations of the research given there is no academic precedent for the researcher to draw upon. Further, there is currently no work on impact investing in IDS studies to be found on the UvA’s Scripties database. Ideally this research will serve as a basis for future study concerning the interaction between impact investment and the SDGs/development, notably because the broader topic of development finance was only briefly addressed throughout the master’s course. The novelty of the primary concept under focus also explains the length of the theoretical framework.

On the other hand, there is an abundance of grey literature from multiple organisations that generally extol the potential of impact investment and describe its potential to contribute to the SDGs. However, these are predominantly based on hypothesis, optimistic predictions, lacking in adequate evidence and research to back up claims and frequently published by enterprises themselves. These were mainly used to assist in guiding and placing the research in broader contexts and for the formulation of interview questions.

Given the urgency in addressing sustainable development challenges and considering the short temporal horizon of the SDGs, with only 11 years remaining, there is a clear dearth of academic engagement concerning the interaction of impact investment with the SDGs. Impact investment, despite its conceptual ambiguities and issues (see 2.5), nonetheless does hold potential in this regard, given that adhering companies hold sizeable assets and are explicitly trying to utilise them to foster positive social and/or environmental outcomes. Therefore, there are clear synergies to be forged with the development community, with further academic research an essential contributing factor even if it is currently not perceived as a viable addition to development finance. This will ensure that the promising discourse surrounding impact investment, notably as a paradigmatic shift (see section 2.5), is matched by rigorous and critical academic study.

1.2. Purpose and Scope of Study

The purpose of this study is to grapple with the conceptual ambiguities of impact investing to then evaluate the contribution the concept can make towards attaining the Sustainable Development Goals. In particular whether it presents a viable addition to conventional development efforts. This will be evaluated at the level of contribution that individual organisations can make, from which broader inferences will be made. It is far beyond the scope of this study to assess how these contributions can be aggregated to garner a holistic understanding of how those adhering to the concept of impact investment are contributing to overall progress in attaining the SDGs.

Although the primary data collection was drawn from private sector organisations within Germany that consider themselves involved in the sphere of impact investment, this thesis aims to be universally relevant, by more broadly assessing the interaction between impact investment and the SDGs. This exploratory research does not intend to systematically categorise those

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organisation involved in impact investing, nor the specific mechanisms they use, but more holistically appraise the potential of the emerging concept. It seeks to plug a gap in literature in this regard and provide a basis for future, more context-specific academic engagement concerning the interaction between impact investing and the SDGs. Ultimately due to difficulties and limitations (see Annex II) throughout the research process, this presents a more theoretical argument to this interaction than initially hoped.

1.3. Research Questions Main Research Question

What qualities of impact investing render it compatible as form of development finance that can contributing to addressing the SDGS?

Sub-Questions

1 - How is impact investing conceptualised in a manner that distinguishes it from other social finance and investment practices and renders it a more viable form of development finance?

2 – How are the synergies between the Sustainable Development Goals and impact investing articulated by practitioners in the field?

Sub-Sub Question 1 - How have the SDGs influenced actors involved in impact investing?

Sub-Sub Question 2 – How are respondent organisations contributing towards the SDGs?

1.4. Structure of Thesis

This thesis is composed of six chapters. Following this introduction, chapter 2 highlights the key concepts and theoretical debates guiding this study. Chapter 3 discusses the methodology employed throughout the research. The first empirical chapter, chapter 4, grapples with the conceptual ambiguities and debates inherent within impact investing and addresses the first research question. Chapter 5 explores the interactions between this concept and the SDGs and the next research question. Finally, chapter 6 offers a brief discussion of the interplay between impact investing and the SDGs, before providing a conclusion.

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2. Theoretical Framework

2.1. Introduction

The role of this extensive chapter is to operationalise and elucidate on the key concepts that are both guiding this study, and subject to enquiry so as not to take them for granted (Bergman, 2010, p172). Informed by relevant literature, this serves to situate the research problem within current theoretical debates and. It begins by examining the contested concept of sustainable development (2.2) that forms the basis in the conceptualisation and operationalisation of the Sustainable Development Goals (2.2.2), which is the overarching framework of this thesis. Next it examines the growing role of the private sector in development finance (2.3), firstly by establishing what development finance has conventionally consisted of (2.3.1) and why there has been space for new practices to emerge (2.3.2). Crucially, it then looks at the UN’s call for greater private sector engagement to achieve the SDGs (2.3.3). The growing notion of philanthrocapitalism (2.4.1) and the social finance (2.4.2) practices that have arisen under this categorisation are then briefly explore to further situate the main concept. Finally impact investing (2.5) is examined through an analysis of its three core tenants: intentionality (2.5.1), measurability (2.5.2) and additionality (2.5.3). This chapter ends with a summarizing conclusion (2.6) intended to justify the concepts and topic under analysis.

2.2 Sustainable Development

Sustainable Development is the cardinal concept guiding the conceptualisation and implementation of the SDGs. It must initially be addressed in a nuanced manner to ensure that this thesis does not present the understanding of the concept of sustainable development as portrayed in the SDGs as an objective and unanimously agreed upon reality (see 6.2). Although this thesis cannot adequately address the full complexities of this conceptual debate, one which has already been tackled in multiple papers4_{, it will seek to highlight those aspects most}

relevant to this study. Therefore, this thesis is cautious about offering a concrete definition of sustainable development, but rather seeks to explore how this concept has been engaged with through an analysis of impact investing’s interaction with the SDGs.

Sustainable Development has become such a prominent and widely employed term that some consider it virtually devoid of any tangible meaning (Holmberg and Sandbrook, 1992). Interest in the concept of sustainable development has largely arisen in conjunction with concerns

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surrounding anthropogenic climate change and the existential threat it poses to humanity. There is widespread acknowledgement that conventional development trajectories and global human activities are currently putting excessive strain on planetary systems and natural resources. This has led to concerted and diverse efforts to address this truly global issue, with the aim of ideally achieving a state of enduring human-ecosystem homeostasis that allows for human flourishing (Banerjee, 2008, p65). Therefor sustainable development is generally considered to consists of three pillars: social, economic and environmental which should all be integrated in a holistic manner to prevent trade-offs in processes of development (Estes, 2010). Nevertheless, despite being the overarching concept guiding development policy and planning in recent years, there is “still no general societal consensus over the societal goals that would count as sustainable development as a matter of definition or would contribute to it in practice” (Connelly, 2007, p259).

An embryonic understanding of sustainable development first gained prominence at the 1972 Stockholm Conference on the Human Environment where it was agreed that environmental sustainability and socioeconomic activity were intrinsically linked and should ideally be managed in a mutually beneficial way (Seyfang, 2003). However, it was the 1987 Brundtland report which first provided a seemingly seminal definition of sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland, 1987). Whilst this definition has since been widely adopted, spurring greater engagement with notions of sustainability, it has also been consistently criticised, in particular for the aforementioned issues of ambiguity and malleability (Hák et al, 2018). Thus, a plethora of different conceptualisations and definitions have emerged, many of which are contradictory and express particular worldviews incompatible with others (Jacobs, 1995). This has contributed to rendering the already multifaceted problem of sustainable development all the more complex, as different actors interpret the concept differently, jeopardising the implementation of broad strategies and multilateral cooperation. Attempting to establish a singular understanding of this concept would inherently entail a process of prioritisation, with certain notions becoming monopolised at the expense of others. Arguably to encapsulate such a diversity of perspectives and practices, understandings of sustainable development must necessarily be broad, so long as this ambiguity is acknowledged (Connelly, 2007, p260). In particular, the Brundtland definition of sustainable development has been called more of a slogan that serves to rally support, as opposed to a concrete and workable definition (Banerjee, 2008, p65). The popularity of the term has contributed to unprecedented engagement with issues of sustainability and a common concept that different, often competing, actors can mobilise around, fostering greater and ideally productive discussions on how to address anthropogenic climate change.

Ultimately, what is most important in the context of this paper, is that sustainable development is a highly contested and subjective term, and there is no truly unanimous agreement on what it should entail, nor the means required to achieve it. Further, it is important to acknowledge the legitimacy of different understandings, how these are shaped and mobilised in discourse, and the political and policy implications of this (Connelly, 2007, p262). Thus, when sustainable development or sustainability were referred to by research participants, I acknowledged the

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existence of plural understandings of these terms. Finally, as the UN perspective shall highlight, understandings of sustainable development are not static, but rather in a state of continual development due to the contestability of the concept. Because of their preeminent association with sustainable development, the SDGs are the framework through which I will be examining the contribution of impact investment in this field.

2.2.2. Operationalising Sustainable Development in the Sustainable Development Goals Given that the SDGs are the preeminent guiding framework for sustainable development for the foreseeable future, this next section shall explore the SDGs and notions of sustainable development inherent within them. Ratified by all 193 UN member states, the 2030 Agenda for Sustainable Developments comprises of 17 core goals, with 169 targets to assist in achieving those goals by 2030. Further, there are currently 232 indicators5_{designed to assess progress}

towards the targets and broader goals (UN, 2015). These goals should not just be viewed as abstract aspirations, but rather be engaged with rigorously to identify policies, interventions and the financing necessary to achieve them (Sachs, 2015, p272).

Implemented in 2015, the SDGS are the culmination of decades of summits, treaties and discussions by the UN and a multitude of stakeholders designed to serve as a “shared blueprint for peace and prosperity for people and the planet, now and into the future” (SDG Knowledge Platform, 2019a). The SDGs outline what actions should be taken to meet the urgent environmental, political and economic challenges of today. The ultimate goal of the SDGs is to “end poverty, protect the planet and ensure that all people enjoy peace and prosperity” (UNDP, 2019). They represent the most ambitious attempt to translate the concept of sustainable development, in all of its complexity and encapsulating all sectors of human activity, into something more tangible that all actors are able to contribute towards. On a more abstract level they are described as providing a unifying language to connect public and private sector efforts in sustainable investing and help foster a shared purpose (OECD, 2019b)

The SDGs also present an opportunity to examine concisely how the concept of sustainable development has evolved in UN rhetoric, with the transience of the concept being acknowledged by the UN itself (UN, 2015). Nonetheless, the aforementioned Brundtland definition forms the foundation of the UN’s interpretation, with this basis being built upon in the proceeding decades. As a global benchmark institution in the realm of development and international cooperation, the UN has significant institutional power to dictate much of the discourse and action surrounding sustainable development. Therefore, exploring this is crucial to situate the interaction between impact investing and the SDGs and the consequences, both positive and negative, of this interaction.

Firstly, the SDGs built upon the Millennium Development Goals (MDGs), with naturally a much greater emphasis placed on issues of sustainability and environmental considerations, (Wood & DeClerck, 2015). Whilst the MDGs were predominantly focused on poverty

5_{The UN has acknowledged that with developments, notably in technology, the indicators used may be subject to} change (UN, 2017a).

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alleviation, attention has now been shifted to focus more concertedly on broader notions of sustainable development, with the acknowledgement that poverty alleviation is not sustainable if is achieved at a huge cost to the environment (Loewe, 2012). Notably, the SDGs represent a more long-term and holistic understanding of development, with the aforementioned three pillars of economic development, social inclusion and environmental sustainability represented as inextricably intertwined (Dhari & Omri, 2018). These holistic interactions thus supposedly serve to mitigate against the prioritisation of achieving certain goals at the expense of others, given the synergies amongst them (Scheyvens et al 2016). This is reflective of an expanded conceptualisation of sustainable development compared to earlier ones, which focused more exclusively on environmental sustainability as a distinct sphere (Du Pisani, 2006).

The SDGs have also been expanded to explicitly account for more ethical and human-rights based approaches to development than present in previous UN initiatives, drawing on notions of human development as expressed by important theorists such as Amartya Sen (Hutton et al, 2018). These ethical and non-material considerations are not clearly articulated in the Brundtland definition, further revealing a more nuanced and expanded approach to sustainable definition by the UN today. Greater emphasis has also been placed on good governance and institutions as important vehicles towards achieving sustainable development (Gupta et al, 2015). The greater weighting of these factors may be representative of the massive consultation project and significantly more participatory approaches that were taken to initially formulate these goals compared to the MDGs (Kharas & Zhang, 2014, p27). This has contributed towards the two most important aspects of the SDGs in the context of this research, that is the universality of the goals and the call to action for all stakeholders to play a role in their attainment.

The SDGs are far more universally relevant than the MDGs, emphasising that sustainable development must be addressed and galvanised in all countries simultaneously as a truly global initiative, with a less explicit focus on nations in the Global South (Hajer et al, 2015). The Rio Declaration highlighted the notion of common, but differentiated responsibilities between nations, particularly with reference to environmental degradation from countries in the Global North (UNCED, 1992). This is an acknowledgement that the SDGs cannot be achieved without significant change in consumption patterns and resource use in the Global North (Leal Filho, 2019). In addition, this helps to articulate that issues of sustainable development are simultaneously deeply contextual and profoundly global in nature, whilst also appreciating the rights of countries in the Global South to use natural resources for their own developmental purposes (Arts, 2017, p59). The SDGs also serve to break down the dichotomy between

developing and developed countries given that in the context of sustainable development, all

nations are developing.

However, most notably in the context of this study, the goals call for the unprecedented participation by and important role of the private sector to ensure the successful implementation of the SDGs (Scheyvens et al 2016). Thus, responsibility towards the SDGs, and sustainable development more broadly, no longer just falls on the shoulders of governments, NGOs and

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development institutions, but rather all actors. This factor will be discussed in greater detail in the following section.

Finally, although the SDGs are inevitably subject to criticisms, they nonetheless represent the most encompassing and broadly embraced understanding of the trajectory sustainable development must take (Hajer, et al 2015, p1652; Scott & Lucci, 2015). It is for this reason I believe they are the best framework through which to assess impact investment’s contribution to sustainable development. Nonetheless, it is important at this stage to acknowledge some of the major criticisms leveraged against the SDG’s, which will be explored in greater depth in the discussion chapter. The main criticisms include the use of indicators employed (Hák et al, 2016), trade-offs in favour of economic factors (Gupta & Vegelin, 2016; Moyer & Bohl, 2019), incompatibility amongst goals (Spaiser et al, 2017), the non-binding nature of the goals (Easterly, 2015), a business-as-usual, growth-oriented approach to development (Kopnina, 2016) and eurocentrism particularly with reference towards the natural environment (Wood & DeClerck, 2015; Scherer et al, 2018).

Overall, the SDGs have assisted in transforming the concept of sustainable development, and the trajectory that humanity must take, into something more manageable and goal-oriented that diverse actors should be able to contribute their respective expertise towards (Sachs, 2015). Nevertheless, regardless of their substantive criticisms, the most pressing concern currently for the SDGs is finding sufficient capital and financing, as it has become apparent that the development community alone cannot address this shortfall (IFC, 2019, p9). This is where impact investment has emerged as a concept that could play an integral role in this regard. 2.3. Development Finance and the Growing Role of the Private Sector

This section shall briefly explore private sector engagement with international development to better situate this research. It must be noted that this section will be referring to the explicit and intentional (see section 2.5.1) orientation of the private sector towards development initiatives.

Development cannot be considered a sphere unrelated to broader socioeconomic activities, thus

on some level the private sector has always been engaged in the broad field of development, so this thesis does not suggest that this is only a recent occurrence. However, not all development finance, nor impact investing, is necessarily geared towards achieving the SDGs.

2.3.1 Development Finance

The debate on the most efficient means of providing development finance, if such finance should be provided at all, remains one of the most polarised topics within the field of development, with each perspective or mechanism making valuable contributions, albeit all have been subject to criticism. This is particularly relevant given concerns surrounding the true “scope, purposes, or effects of development finance” (Tierney et al, 2011, p1891). Although foreign assistance was not an entirely novel idea, the European economic reconstruction following the success of the Marshall Plan after the end of the World War Two, was seminal in introducing the concept of international economic assistance, or what can be understood as

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development finance (Markovits et al, 2017). Development finance has traditionally been described as “loans or grants from governments, official government aid agencies, and inter-governmental organisations intended mainly to promote the economic development and welfare (broadly defined) of developing countries” (Tierney et al, 2011, p1892). This definition draws upon that of the OECD whose Development Assistance Committee introduced the concept of Official Development Assistance (ODA) in 1969, which is now commonly referred simply to as aid6_{. This definition emphasises the official nature of such transactions and that when in the}

form of loans, concessionary terms should always be applied (OECD, 2019a). Such aid can be either granted directly from one country to another (bilateral) or be channeled through international institutions (multilateral). The 1969 Pearson Commission also implored countries in the Global North to allocate 0.7% of their GNP towards development assistance, with this target being reiterated during the MDGs, given that the majority of signatory nations had fallen short of this commitment (Vitalis, 2002).

The allocation of ODA is mostly borne by Development Finance Institutions (DFIs) often referred to as Development Banks. DFIs are primarily mandated to rectify market failures and stimulate economic activity in the private sector, creating jobs and GDP growth (Faure et al, 2015). Following increased economic liberalisation in the 1980s in the Global South, coupled with the growth of Foreign Direct Investment and reduced national budgets, DFIs have focused increasingly on sectors underserved by the market. Some have described DFIs as ideally “an efficient and effective government policy instrument operating on a quasi-commercial basis, filling both the long-term structural and short-term cyclical gaps in an open market driven economy”, (Gutierrez et al, 2011, p3). Although debates exist whether the DFIs should be competing or cooperating with the private sector, greater alignment between these two streams has been called for to achieve the SDGs (UN, 2014).

Whilst Foreign Direct Investment (FDI) is playing an increasingly important role in North/South financial flows (Moran, 2012) and could be considered a part of development finance, and even impact investing, given there is no requisite to foster positive outcomes in recipient countries, it will not be considered in this study, as intentionality and internalizing socioenvironmental considerations (2.5.1) are of paramount importance in the context of this research. Nonetheless, Figure 1 below shows that FDI has overtaken ODA in terms of total capital flows. The fluctuating, but growing, role of private sector engagement is also revealed.

6_{ODA is distinguished from humanitarian aid, which acts as an impartial, short-term response to a particular} emergency, rather than necessarily seeking to create enduring outcomes.

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(Figure 2 – Source: UN 2017B, p4) The aforementioned understanding of development finance as outlined by the OECD does not account for the presence of private sector activity in the realm of international development financing, nor is all development finance necessarily channeled from the Global North towards the Global South (Blowfield, 2012). Further, there is significant disparity surrounding what is considered as development finance or aid, including the role of NGOs in this debate (Tierney et al, 2011). As the global development context shifts, and with multi-sectoral interest in questions of sustainable development, the boundaries as to what constitutes development finance are becoming increasingly blurred (Mawdsley, 2018a).

Given the financing gap required to achieve the SDGs, (see 2.3.3) and that the UN has explicitly implored more actors to engage with them in order to overcome this issue, the role of the private sector in the broad realm of development finance cannot be neglected. This is particularly relevant in a context of volatile aid flows, shifting national priorities and the increased influence of non-state actors on development policy and practice. (Banks et al, 2015). Thus, for the purposes of this thesis, development finance is considered as any allocation of capital from a country, institution, enterprise or other, that is explicitly designed to foster a positive social, environmental and economic impact, and which may or may not demand a return on the investment. Development finance should ideally provide additionality, whereby it mobilises resources for an intervention that would otherwise be unavailable, essentially filling a financing gap (see 2.5.3) (Carter et al, 2018). Accounting for the variety of mechanisms that can fall under this umbrella categorisation of development finance, the next section shall briefly explore issues pertaining to different instruments, serving to place the ascent and role of impact investing in this debate.

2.3.2. Issues in Development Finance and Interest in New Actors and Concepts

This section does not intend to suggest that criticisms of the following mechanisms totally invalidate them, nor imply that impact investment represents a panacea that can overcome the issues outlined below. Rather, it aims to introduce some of the key issues within development finance and why there is space for alternative strategies to emerge.

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Official overseas development aid channeled through recipient governments has been fiercely criticised for fostering immense corruption and inequality, whilst showing minimal, or at best inconsistent, tangible results in many recipient countries, bringing into question its effectiveness (Moyo, 2009; McGillivray et al, 2006; Hansen & Tarp, 2000). Development banks founded specifically to address issues of international development, and poverty in particular, have also come under increasing scrutiny for failing to deliver on their mandate, fostering minimal per-capita growth and especially for the negative repercussions of Structural Adjustment Programmes (Easterly, 2003; 2007). They are also criticised for their lack of transparency and accountability, their unpredictable funding and for failing to adequately address social and environmental factors, with too much emphasis placed on economic outcomes and growth (Head, 2003; Carrasco et al 2017). More recently, microfinance emerged as an alternative, pro-poor and bottom-up initiative, and rapidly gained popularity as an ideal-type solution to address questions of poverty. Whilst it remains a popular and growing poverty alleviation mechanism around the world, with immense assets under the control of microfinance institutions, it too has been subject to significant criticism for producing inconsistent and sometimes outright damaging results (Hsu, 2014; Hudon & Sandberg, 2013; Bateman & Chang, 2012). Finally, philanthropic initiatives and NGOs have been criticised for being ineffective, costly to run, donor-driven, addressing symptoms rather than causes, reducing incentives amongst recipients and for allegations of neo-colonial activities (Banks et al, 2015).

Recently there have been discussions on the merits and impacts of for-profit versus not-for-profit organisations in the provision of development finance, with inconsistent evidence as to which is most effective (Bourguignon et al, 2007). Although each mechanism has made positive contributions, the omnipresence of inconsistencies suggests that tackling any issue is profoundly contextual and that despite various mechanisms, there are no ideal-type solutions (Easterly, 2007). This has led to the call for more hybridised and innovative approaches towards development finance, with the concept of impact investment emerging as a potential candidate (Casey, 2016). Although not explicitly discussed in this thesis, the UN has called for increased Multi-Stakeholder Partnerships in order to achieve the SDGs (Dodds, 2015). The issue of lagging SDG financing presents an opportunity for greater private sector, and in particular impact investing, engagement with sustainable development.

2.3.3. SDG Financing and Private Sector Participation

Despite the immense consultation process in the formulation of the SDGs, they have still been subject to criticism that they represent the latest in a string of technocratic, top-down UN initiatives that are not truly representative of the global population (Briant-Carant, 2017, p34). Whilst their conceptualisation may have had limited contributors, their implementation explicitly calls for global involvement and an unparalleled degree of cooperation amongst diverse actors in order to reach the targets, with Goal 17 especially dedicated towards this. Goal 8 on Decent Work and Economic Growth and Goal 9 on Industry, Innovation and Infrastructure more specifically target the inclusion of private sector actors. The concurrent 2015 Addis

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Ababa Action Agenda was explicitly mandated to provide a global framework for incentivising and financing sustainable development and offering guidance for diverse actors (UN, 2015). However, despite such agendas, the “linkage between the new SDGs and the necessary financing to achieve them remains extremely weak”, particularly at the national and multilateral level, further making the case for private sector contribution (Sachs, 2015, p273).

Studies by the UN Conference on Trade and Development (UNCTAD) have estimated that achieving the SDGs requires between USD 5 to 7 billion annually in investment, with roughly USD 2.5 trillion currently lacking in developing countries along (2014). However, as elucidated in (1.1), it has not been made obvious where exactly this gap is occurring. Regardless, UNCTAD states that private sector involvement is thus critical to mobilise sufficient resources as well as bring “agility in delivery and new approaches to financing the SDGs” (UNPRI, 2016, p9).

Following on from lessons learnt from the MDGs, and in a context of reduced ODA flows and government expenditures, there is an acknowledgement that the private sector must be rallied, given that it forms the largest part of the economy and is the biggest job provider in most countries (ERD, 2015, p26). Whilst emphasis remains mainly on nation-states to engage seriously with the SDGs, support them on an international level, design improved and cohesive national frameworks for sustainable development and implement policies geared towards achieving them, there is significant import on the role of non-state actors, particularly those holding sizeable assets (Janoušková et al, 2018, p5). It has been recommended that national sustainable development financing strategies should incorporate all sources of financing (private, public, domestic and international) and create synergies amongst them, given the unique characteristics of each that can contribute to increased effectiveness (ICESDF, 2014, p4). Notably, businesses ought to be forward-thinking, adaptive, technologically-savvy and innovative, all characteristics that will be essential to achieve the SDGs and more broadly to transition to a more sustainable economy. Simultaneously, the SDGs can guide enterprises with time-bound and quantifiable objectives to help with both investment and divestment strategies. The SDGs, with their limited temporal horizon, arguably necessitate a learning-by-doing mentality and a willingness to undertake new and risky endeavours.

Thus, it is encouraging that the SDGs are estimated to create USD 12 trillion worth of market opportunities, serving to incentivise private actors, although with an acknowledgement that this is contingent on a shift away from conventional, short-term profit-oriented practice (GRI, 2018, p4). Simultaneously, more sustainable strategies should already be in businesses’ self-interest, particularly for massive “universal owners”, whose transnational activities rely on stable ecosystems (both environmental and business-related) and who will suffer substantially from worsening climatic conditions (UNPRI, 2017). Utilising the SDG framework will enable private sector actors to engage more concertedly with the full spectrum of sustainability issues and take greater responsibility for their actions. It is important that private sector actors should not only map their positive contributions but be held accountable for the negative externalities their activities produce. Ideally, this engagement will catalyse a system-level change in

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business practice that accepts and works around the interdependency of economic, social and environmental factors.

Nonetheless, it is important to note that “finance alone will not be sufficient to promote and achieve the post-2015 development agenda. Policies also matter” (ERD, 2015, p26). Although outlining all contributing factors for the successful attainment of the SDGs is beyond the scope of this thesis, it recognises that a lack of capital is not the only major hurdle in achieving these multidimensional and complex goals. There are also valid reasons to be cautious about actors jumping on the bandwagon of sustainability post-2015, when awareness of such issues has long been present (Kopnina, 2016). Further, the IATF cautions that “the impact of this growing interest in sustainable development is unclear, in part because of confusion regarding what sustainable investment means and lack of consensus on how to measure impact” (IATF 2019, p53). The issue of impact measurability is one of the central concerns of impact investing (see 2.5.2) and a further reason why this thesis has chosen to focus on this concept as opposed to others. Finally, it is essential to support the poorest nations and populations of the world even though they may present less attractive and riskier investment opportunities.

Ultimately the development community is aware that it alone cannot achieve the SDGs and has thus paved the way for the inclusion of new actors and concepts (IFC, 2019, p13). Indeed, there was already significant input from certain powerful corporations in formulating the SDGs, with some attributing the important weighting of economic factors to their influence (Pingeot, 2014). Whilst the transition towards a more sustainable financial system is occurring, it is not at the required scale or pace to achieve the SDGs and more broadly mitigate against anthropogenic climate change. Broad private-sector alignment with the cause of sustainability will be an essential, but almost unfathomably complex, global transition. Certain private sector practices that aim to align with development objectives can be considered to fall under the broad categorisation of philanthrocapitalism, with impact investing being one amongst various concepts. The notion of philanthrocapitalism and impact investment will be discussed in the following section.

2.4. Philanthrocapitalism and Social Finance Practices Introduction

This section will provide context for the emergence and operationalisation of impact investing in relation to other social finance initiatives that are becomingly increasingly popular under the umbrella categorisation of philanthrocapitalism. Such approaches can be considered to have a fundamental pejorative of doing good whilst doing well and seek to apply the principles of capitalism in a manner that promotes social and environmental sustainability, whilst still seeking to turn a profit (SIIT, 2014). Philanthrocapitalism can be considered as the conceptual framework guiding social finance initiatives, which are viewed as the latest additions to development finance in the context of this thesis.

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Whilst philanthropy and profit-seeking enterprises may appear to be dichotomous, in recent years the convergence between the private sector and developmental organisations to tackle societal issues has been termed philanthrocapitalism. Philanthrocapitalism essentially consists of doing philanthropic work in a comparable manner to profit-driven enterprises with expected returns in both spheres; this is often also referred to as creating blended value (Bishop & Green, 2015; Clarkin & Cangioni, 2016). The notion that private capital can serve as an important force for good and when proven to be successful in this regard, foster transformational shifts in financial practice, is one of the key logics underpinning impact investment (Emerson, 2018). Whilst the various social finance practices that have emerged under the umbrella of philanthrocapitalism (CSR, SRI and Impact Investment to name a few) may be recent practices, they are nonetheless rooted in earlier epistemologies7_{(Landrum & Ohsowski, 2018). The}

growing prominence of philanthrocapitalism is symptomatic of aforementioned broader societal concerns in the 21st_{century. These include global warming, persistent (and growing) inequality,}

ethical consumerism, greater corporate scrutiny, austerity measures and a post 2008 financial crisis loss of faith in traditional finance sectors (Mulgan et al, 2011). Simultaneously, the aforementioned changes in development finance with non-government actors increasingly active in backing international development initiatives, have also spurred greater engagement. Although this thesis argues that this is a necessary development, reflective of greater global concerns surrounding sustainability, valid concerns have been raised. Most notably, philanthrocapitalism, which relies on large asset owners, can be considered as emerging as a product of inequality and under-regulated capitalist activities and thus its ability to be a solution to the same problems has raised doubts (Bishop & Green, 2015). Nonetheless, practices under this broad category are becoming increasingly popular, with the following section exploring social finance to situate the ascent of impact investment within this sphere.

2.4.2. Social Finance

Whilst all enterprises create some form of socioenvironmental and economic impact, most currently do not holistically account for these and are predominantly profit-oriented (Emerson, 2018). This, coupled with the lack of consideration for the externalities produced from business operations, has contributed significantly to deteriorating environmental conditions and persistent social issues, despite this issue having long been known (Pigou, 1920). Notions of social finance seek to remedy this by at least reducing harmful practices and at best trying to intentionally foster positive social and/or environmental returns (Moore et al, 2015; Sukitsch et al, 2015). Here, investors can invest in funds, projects or enterprises that tackle social and/or

7_{The notion of philanthrocapitalism is not an entirely new idea. Rather, it originates from eighteenth-century} perceptions of the moral values of capitalism that viewed the wealthy as partially responsible for the welfare of the rest of society (McGoey, 2012, p. 186). The notion of responsibility on behalf of the wealthiest has re-emerged in the 21st_{century where both individuals and enterprises have accumulated wealth in an unprecedented manner and} are increasingly seen as having an obligation to either distribute, or at least invest, it in ways that foster positive social (and environmental) outcomes (McGoey, 2012, p. 197).

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environmental issues, whilst still targeting a range of returns from below market, to market rate (Bugg-Levine & Emerson, 2011). This demands a re-operationalisation of how investment is understood; notably a distinction must be made between investments that inadvertently create impact as a positive externality and those that intentionally seek to foster positive impact. Socially neutral investors may create positive outcomes unintentionally or conversely completely disregard socioenvironmental concerns in favour of financial returns (Brest & Born, 2013a). Ultimately, social finance aims to break down the dichotomy between the perceived mutual exclusivity of favourable financial and social/environmental returns and explicitly account for the outcomes and externalities produced by business operations (Emerson & Cabaj 2000).

Social finance can involve diverse types of organisations, utilising a wide variety of instruments, tools, strategies and practices (Harji & Hebb, 2010). Thus, operationally, there are clear conceptual qualities that render notions of social finance compatible with development finance given that both seek to utilise capital allocation in a way designed to create shared value amongst multiple stakeholders, including the natural environment. This integration of economic, social and environmental factors and considerations forms the basis of blended value (Emerson, 2018).

Nonetheless, social finance continues to be adversely affected by insufficient mainstream engagement, a lack of longitudinal studies evaluating its efficacity, as well as conceptual discrepancies (Nicholls et al, 2015). This can be partially attributed to the fact that although practices falling under the broad categorisation of social finance do differ, notably ESG, CSR, and SRI (and impact investing), they are often referred to interchangeably8_{. Although these}

practices aim to either mitigate negative externalities and/or create positive ones, they nonetheless do not involve fundamentally altering the way enterprises operate as impact investment should, but rather aim to promote greater corporate engagement with notions of sustainability (Tekula & Andersen, 2019). Finally, questions have been raised concerning what percentage of a portfolio is required to be considered as a social finance-oriented investor (Jones, 2010; Ormiston et al, 2015, p 374).

2.5. Impact Investing

Despite concerted efforts within the industry, impact investing continues to struggle with a lack of conceptual, terminological and practical clarity that clearly distinguishes it from other aforementioned social finance practices (Clarkin & Cangioni, 2016). The absence of a unanimously agreed upon definition of impact investment both as a concept and a practice has been attributed to the dearth of “clearly defined epistemological boundaries and institutional structures and, as a consequence, lacks a normative narrative with which to build its wider legitimacy” to both scholars and the general public (Nichols, 2010, p. 74; Höchstädter &

8_{Outlining these distinctions is beyond the scope of this thesis. For a discussion on these practices see Caplan et al} 2013.

From billions to trillions : the role of Impact Investing in contributing to the attainment of the sustainable development goals : a case study of Impact Investing in Germany