Despite this momentum, the debate around impact investing persists, with some voices arguing for a sole focus on financial metrics, dismissing the relevance of extra-financial attributes. Detractors are most often worried about “impact-washing”, a term that has gained traction alongside “greenwashing”, and about the perceived trade-off between impact (social and environmental return) and alpha generation.

Do investors have to choose between doing good (impact) and doing well (financial return)?

Impact investing sits at the intersection of the Venn diagram. It is the only investment philosophy where the interests of all stakeholders (People, Planet, Prosperity) are aligned, in harmony and without compromise. The concept of Triple Bottom Line (or Triple P) challenges the perennial dilemma of impact versus return and implies that Impact Investing is not a zero-sum game. In other words, caring about sustainability does not mean ignoring fundamentals, but it does indeed limit the size of the investment universe as only the heart of the Venn diagram exhibits purity.

The histogram shows an empirical comparison of total returns by SFDR (Sustainable Finance Disclosure Regulation) classification as compiled by J.P. Morgan with Morningstar data in March 2024. We use Article 9 funds as a proxy for impact funds because they meet the most stringent sustainability constraints as defined by the SFDR (even though not all Article 9 funds in the market are impact funds, arguably). The first observation is that dark green funds significantly outperform both light green and traditional investment strategies over the long term (five-year horizon). In contrast, the second observation is that impact funds underperform their peers in the short term (three years or less).

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