Investment for positive impact, hurdles on the way and how to step over them

By Sabine Desczka in collaboration with Caroline de Lauwere

It is one thing to define what is good for the planet and its population, it is another to make it work for everyone. You can make impact and achieve your goals by taking action, fast. But there are some hurdles to take. Here are few tricky points to consider with the help of insights from behavioural economics.

“We may be hesitant to make investment decisions that aim at societal impact because we are anxious about the future”

Sabine Desczka, Impact investment Researcher

This knowledge helps us to understand the dilemma’s experienced by all of those who want to make an impact on society. When we want to make the leap toward societal impact, we are facing decisions that entail some challenges.

No immediate results

The decision to strive for positive impact might not lead to immediate results. The action we take might only have an effect somewhere in the far-away future. Think of working on a better environment and trying to reduce poverty somewhere in Africa. These are far-away goals which – at the moment of decision making – need a long term commitment. There are no quick fixes.

What if my goals change, what if there are other more pressing needs in the future? We may be hesitant to make investment decisions that aim at societal impact because we are anxious about the future.

Bounded rationality

When we decide to invest, we do not know if it will have the desired effect. While our decisions will always be surrounded by uncertainty – simply because it is not possible to know everything – the complex interactions necessary to increase societal impact make these decisions even more difficult. For example, how do you know if an investment in climate resistant cocoa plants can eventually increase the income of local farmers? It will take years of research to find out.

cocoa

Will an investment in climate resistant cocoa plants eventually increase the income of this farmers?

Pro-social behaviour and fairness

Impact does not necessarily arise from our own action, but is often the result of collaboration and is reinforced when others are doing it as well. Say there is child labour in the supply chain. Sometimes this happens without other actors in the chain knowing. As long as nobody asks questions, this will not be discovered. It will take collaborations with local governments and raising awareness with local populations on the benefits of education to get rid of child labour. This could also mean that good schools have to be build. And that other means of income have to be generated so children do not have to work to provide for their family.

For producers it means asking the right questions, being aware of the issue and having the right tools in place to exclude child labour in the value chain. Whatever measure it is, it requires a common understanding that this is something we do not tolerate.

Making smart use of framing

Climate change and circular economy are still surrounded with inertia. It is often easier to deny that it exists than to adjust our own behaviour, because it often requires an extra effort to change – mentally or physically. A good understanding of human behaviour can help consumers and producers to overcome hurdles towards more social and environmental friendly approaches.

In conclusion, there are a number of hurdles to take when we want to make an investment in positive impact but by changing our ways of acting we can translate positive ideas into actionable solutions with societal impact.

Sabine Desczka

Sabine Desczka

Senior Research Coordinator Impact Investment at Wageningen Economic Research, part of WUR, the Netherlands. Economic (1999) and legal (2010) background from Hamburg University, Germany and Leiden University, the Netherlands, on impact research. Current research interests: Impact Investment in agro-food and climate, Impact Assessment, Impact Evaluation, Cost Benefit Analysis, Ecosystems analysis and systems thinking, blended finance and knowledge creation for sustainable development.

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