Are impact investors being taken advantage of?
Impact investments may be ethical, but many peddling them are not. Misleading descriptions and hidden gotchas abound. Caveat Emptor!
Russ Bubley (@RussBubley) September 11, 2012
Ethics covers a wide area. Ethics in impact investment shouldn’t just be about where your money goes and what impact is has, but also about what investment you have been sold.
Impact investors are seen by some as a soft touch: there is a dangerous assumption that impact investors won’t be as careful in evaluating investments – they will be much more trusting of what they are being told. As a result, all sorts of details may conveniently be forgotten. Details like:
There are other (mainstream) investors who are not investing for impact and are getting better economic terms for the exact same deal. I’ve seen examples where money was being lent both by banks and impact investors. The impact investors were getting a worse rate of interest, and the banks were getting security on their loan.
Impact investors are generally optimistic about the impact they will have, so we don’t need to bother explaining what happens if things go wrong. I’ve seen examples here where the worst case presented didn’t show the investor taking a loss, even though that was perfectly feasible (e.g. the delivery partner fails to deliver, or the property market actually goes down). One was at least slightly amusing – in explaining that an investment was not guaranteed by the FSCS but instead involved lending money to a social housing provider, they described this loan as “safe as houses”!
We can slap on more costs for impact investors, because we can point to the impact investment label – even though we know perfectly well that the investor can have the same impact on better economic terms elsewhere.
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