Impact investing has two goals: a financial goal and an impact goal. This is a clear difference compared to philanthropy, which does not have a financial objective. Of course, the word ‘investing’ in impact investing also indicates a financial objective.
In practice, people seem to find it difficult to deal with this dual objective. We regularly notice that there is a ‘bias’ that an investment with two objectives is less likely to be able to achieve both objectives compared to an investment that is specifically focused on one objective. In other words, an impact investment is likely to generate less financial return than an investment that is not focused on impact. We even catch ourselves thinking this from time to time.
Behavioural sciences provide an explanation for this. It turns out that people generally think that an object that performs two functions is less efficient than an object that is specifically designed to perform only one function. I am not an expert on amphibious vehicles, i.e. vehicles that can move both on land and water. But my gut feeling says that an amphibious vehicle won’t drive as well as a ‘normal’ car. And by the way, it will not sail as well as a boat. And we used to have a coffee machine in the office that could also make chocolate milk and soup. I regularly had vermicelli in my coffee…
Still, I don’t have that negative feeling with a combi microwave. I don’t think that would be at the expense of the oven function. And examples of success on multiple objectives can also be seen in sports. For example, Femke Bol is currently both European champion in the 400 meter sprint (indoor and outdoor) and world champion in the 400 meter hurdles. And Matthieu van der Poel is currently world champion in both road cycling and cyclocross.
These two examples from sports also give us an idea of when it is possible to be successful on multiple objectives. Apparently, it is about the extent to which both objectives are in line with each other (can be reconciled) versus whether they are opposed to each other. Or the perception that this is the case. By definition, an affordable rental home provides less rental income than an expensive rental home and therefore a lower return. But we might be forgetting that an affordable home has a more stable value development and has fewer vacancies. And in our view, an investment in a climate solution, in circularity, education or healthcare has (under the right conditions) an impact objective that can certainly be reconciled with financial returns. For example, within regenerative agriculture, the investment of one euro in soil restoration can yield between 7 and 30 euros in economic benefit, according to the UN.
The Chinese philosopher Confucius (551-479 B.C.) is said to have said, “He who pursues two rabbits catches neither.” But we do think this is possible if both rabbits run in the same direction. And that it is possible to kill two birds with one stone.
