The idea of responsible investment banking and impact investing is a paradigm shift in economics. By taking into account the social and environmental impact of the use of funds, the classical triangle of return, risk and liquidity gets extended by a fourth component. This new concept has to be explained, promoted, and theoretically developed but of course also practically implemented. We need new and sophisticated value chains, ideas for more effective use of resources, climate-friendly markets and new indicators for social and ecological impacts, and triple bottom line investment.
In order to guarantee fair competition, we need good governance, based on commonly agreed international standards and a so-called global administrative law, which levels the playing field. Referred to as “socially responsible investment” (SRI), part of the financial industry is already following this good governance approach, which is however having a tendency to restrict the existing business activities rather than creating new products for social goods. At the backdrop of the magnitude of the challenges we are facing today, however, we have to go beyond a “do no harm” and “best-in-class” strategy and seek to actively and intentionally create a positive and measurable impact through profitable investments.
Financial institutions must play their role as financial intermediaries and align the interests of investors with those of communities, stakeholders, clients and society. By doing so, they can help to transform the current limiting models and allocate capital in a sustainable manner leveraging the impact of public grants in public-private partnership schemes in order to maximize the positive impact of investments and financings.
In a nutshell, to truly unlock the full potential of impact investing, sustainability and responsibility have to become the core of every theory and strategy as well as an inherent part of products and services along the value chain in investment and banking.