Is impact investing a risky business?
As a growing number of asset owners question whether they can manage their assets for more than financial returns, impact investing receives mounting attention. In spite of this, many still believe that impact investments constitute higher risks. We explore how by reframing their relationship to risk, family offices can take bigger bets and win in the long run.

By Francois Botha & Rachel Browning
Published on Simple October 26, 2020

Impact investments are designed to generate a measurable, beneficial social or environmental impact, alongside a financial return. As a growing number of asset owners question whether they manage their assets for more than financial returns, impact investing requires mounting attention. In the latest report by the Global Impact Investing Network (GIIN), the global impact investment market has been estimated to be worth more than half a trillion dollars qualifying it as one of the fastest-growing areas of asset management.

Partially fuelling this impact-zeitgeist, are the next-generation of investors who are looking to leverage their capital to make the world a better place. By paying due attention to this macro-trend, family offices are able to engage with the next generation and co-create a future where investing in impact businesses is the norm.

In spite of this growing accolade, many still believe that impact investments constitute higher risks. How do costs, due diligence, and return timelines play out within impact investing? Does investing with your values mean you have to sacrifice on returns? Answering such questions requires a revision of existing investment logic.

From Black to Green Swans

In New York Times 2007 bestseller, ‘The Black Swan: The Impact of the Highly Improbable’, former risk analyst Nassim Nicholas Taleb argues that what we don’t know is far more relevant than what we do know when calculating risk. The black swan logic argues for the extreme impact of rare and unpredictable outlier events – such as the rise of Google as a global powerhouse and the 9/11 terrorist attacks – and how through reframing our relationship to risk, society can better withstand these difficult-to-predict events.

Rather than understanding probability as a computation of odds, Taleb reframes probability as an acceptance of what we don’t know. The ultimate task for us is to develop methods to deal with this ignorance.

Most recently discussion has moved from black to green. John Elkington, the founder of the triple bottom line (people-planet-profit), has introduced the idea from Green Swans. Though sustainability and CSR have had a long history, the current climate crisis has brought the green transition front and centre of international discussions.

About the Authors

Francois Botha

Francois Botha

Simple Founder. Strategy Advisor

Francois believes that the next generation of family leaders need new, simple tools and trusted experts with a fresh outlook.

Connect with Francois BothaView Francois Botha Profile
Rachel Browning

Rachel Browning

Impact Investment Advisor

Rachel has dedicated her career to looking at how we can make investing more directed and meaningful through ESG and Impact investing.

Connect with Rachel BrowningView Rachel Browning Profile

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