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Impact Investing Expert Proposes ‘Impact Classes’ To Parallel ‘Asset Classes’

This post was originally produced for Forbes.

To paraphrase the great philosopher Forest Gump, impact investing is like a box of chocolates; you never know what impact you’re going to get.

One of the foremost experts on impact investing, Cathy Clark, Director of CASE i3 at Duke University, is working on that problem. She is focusing on labeling impact into categories that will be recognized by investors and issuers alike.

Sasha Dichter, Chief Innovation Officer at Acumen, sits on the advisory board for CASE i3. Of Clark, he says, “She understands where the field is and where it is going, and her thinking and writing consistently push the field forward.”

Clark says, “Impact Investing is hard to navigate. It covers a lot of activity in different areas done by different people. Yet the interest has never been higher. How can we simplify the field and make it easier for newcomers and experts to find the partners they need and help new investors find the products they want, more efficiently?”

“Getting the terms and categories right for people to customize their own portfolios is an essential building block that seems to be missing right now,” she says.

In light of the challenge, Clark has been working with Tideline to define the problem and start the work on a solution.

Dichter notes that Clark is an effective collaborator. “Cathy has a unique knack for partnership, bringing together practitioners and academics to created grounded, thoughtful pieces of work that address gaps in the underlying infrastructure of impact investing – whether market segmentation, impact measurement or new product development.’

Cathy Clark, courtesy of CASE i3

Cathy Clark, courtesy of CASE i3

Of the collaboration with Tideline, Clark says, “Together we interviewed experts across the field to hone in on what makes the field confusing. From this, I’ve developed an analogy that explains the issue a bit more clearly, and we’re started to float a possible solution: the idea of creating ‘impact classes’ to go alongside ‘asset classes’ to help people label and track the kind of impact they expect to achieve with their investment dollars.”

It looks like she’s on to something. “Over 80% of respondents to a recent survey thought it was a good idea,” she reports.

Ben Thornley, Managing Partner of Tideline, says of his work with Clark, “Cathy’s work has been catalytic for the fields of social entrepreneurship and impact investing – and, importantly, translating between the two. Cathy has that unique blend of intense intellectual curiosity and passion for sharing and collaborating on ideas that make her the ideal guide. She dives deep — delivering case studies and other analyses of the highest order — but is also able to communicate complicated findings with tremendous clarity, at multiple levels – for students, CEOs, funders, investors, and policymakers, which is why she is so sought after.”

The collaboration with Tideline yielded a report, which you can download here.

There are two distinct challenges that make the creation of impact classes difficult.

First, she says, “If everyone knew the kind of impact they wanted to achieve, we wouldn’t need a new labeling system.”

Second, she says, “Some providers are doing very well and actually financially benefiting from the lack of clarity as they talk to potential investors.”

This dual set of issues results in both “confusion and real resistance,” Clark explains.

“On the other hand, when you ask some considering a new impact investing,” she continues, “would you want a simple label that communicates the kind of impact you can expect, and allows you to diversify those impact expectations across a portfolio, nearly everyone says yes.”

This suggests a need to address the problem despite the challenges and implies that the key to success may to be to work with the investors to create demand or impact class labeling, she says.

Clark, who co-authored with Thornley and Jed Emerson the definitive book on impact investing–The Impact Investor–acknowledges that creating a simple classification system from the nearly infinite number of ways that people define impact today will be difficult.

She says, “I helped create the B Corp standards and have been a huge supporter of the IRIS metrics. This would not replace those, but would work to simplify them into some common categories. Almost like archetypes. Getting to consensus on this level of simplification will take a lot of time and interaction.”

Clark believes that her vision of providing a classification system would increase impact investing by making it easier.

“If everyone puts a portion their investment dollars to work toward impact and they come away satisfied with the impact–and financial return–they achieve, we will have changed the expectations of the financial system forever. Because if you could make things happen that you believe in and get a financial return, why would you ever want just financial returns again?”

On Thursday, September 1, 2016 at 1:00 Eastern, Clark will join me here for a live discussion to talk about impact classes and the implications for the impact investing industry. Tune in here then to watch the interview live. Post questions in the comments below or tweet questions before the interview to @devindthorpe.

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