In Defense of Impact Investing

This text was originally written as a response letter to a fund-of-funds investment manager who criticized impact investing by pointing to alleged conceptual weaknesses of the field.

I would like to begin this response by thanking Spectra for bringing the debate on impact investing to the forefront in their latest letter to investors. It is noteworthy to see a traditional player from the financial mainstream recognizing the growing relevance of a field that is still, at times, marginalized in decision-making circles.

However, it is precisely in the title of the letter — “The Middle Way” — that we find a fundamental irony. For it is exactly this spirit that guides impact investing: the search for a balance point between generating financial value and driving positive social and environmental transformation. It is about using capital not as an end in itself, but as a means to address, in a systemic and scalable way, humanity’s greatest challenges. Challenges that, contrary to what one might expect, are not peripheral to economic rationality but central to its very sustainability.

The true “middle way” should be an economy that recognizes it is irrational to ignore social and environmental costs in the name of short-term financial returns. A system that prices negative externalities and rewards those who avoid them or transform them into solutions. The so-called “net positive” impact, in this context, is not a moral accessory but a material, economic, and urgent variable in a world literally and socially on fire.

On Measurement, Maximization, Scalability, and a Modest Addition: Morality

Since the term Impact Investing was coined in 2008, the discussion around impact measurement and management (commonly known internationally as IMM — Impact Management and Monitoring) and the trade-offs between impact and returns has consistently been disproportionately highlighted by critics. Starting with the maximization discussion, allow me to return to my early years studying economics at the University of São Paulo to contest one of the central premises of Spectra’s letter: the idea that it is “mathematically impossible to maximize two variables at the same time,” allegedly a unique feature of impact investing. This argument disregards classical microeconomic fundamentals such as utility curves and budget constraints and ignores more recent developments in multi-criteria optimization.

Indeed, by adding any constraint — such as the requirement for positive impact or the exclusion of sectors like tobacco or weapons — the frontier of possibilities may be reduced, ceteris paribus. But this is true for any criterion, including risk, liquidity, or investment horizon. Nevertheless, the investor continues to seek to maximize their variables and reach their preferred optimum, respecting their relative weights. The impossibility of “maximizing everything” simultaneously and its exclusive attribution to impact investing is trivial, and the construction of efficient solutions within multiple criteria is the foundation of various applied fields, from engineering to public policy, including, of course, portfolio theory itself.

More than a mathematical impossibility, what is at stake is the conscious choice of criteria and objectives. Positive impact is indeed a legitimate — and measurable — variable of return, as long as it is understood within a preference system. The attempt to invalidate it under the argument of trade-offs is a simplification bordering on reductionism.

But there is something even more fundamental that must be brought to light. Economics is, above all, a human science — and as such, it is traversed by values, choices, and social norms. As I wrote in Valor Econômico in my article “Decisive Investments,” we live in times that demand the reintegration of ethics into economics. If in other areas of our lives we respect minimal social norms, why should the investment world be the only one to operate in a moral vacuum? Why would it be reasonable to expect capital to be allocated solely based on private returns, ignoring obvious and often harmful collective effects?

To disregard the ethical and moral field of the capital allocator — whether the consumer voting with their wallet or the investor choosing where to allocate their wealth — is to turn a blind eye to one of the most powerful dynamics of the modern economy: intentionality. Ultimately, allocating capital is about making choices that have real consequences on lives, territories, supply chains, and future generations. And if we, as citizens, respect red lights, stand in lines with civility, and adhere to implicit social norms, shouldn’t we expect the same level of ethical responsibility in investment decisions?

Is the Supposed Trade-off Between Impact and Financial Return Exclusive to Impact Investing?

In conventional investing, this question is already widely accepted: different sectors offer different risk and return profiles. Some companies grow slowly but are resilient; others have a more aggressive return profile but face greater regulatory or technological risks. Why would it be any different when social and environmental impact enter the equation? In impact investing, for example, there are solutions that decarbonize supply chains, generating savings and therefore economic value for their clients, offering potentially very competitive financial returns to their investors. There are also strategies with more modest financial returns but lower risk or with deeper social impact on vulnerable populations. Both profiles are valid, potentially scalable, and legitimate, and no serious empirical study has proven that impact, by itself, precludes competitive returns or scale. What is often missing is method and clarity in measurement, not a revision of economic principles.

Standardization

It is true, however, that the authors of the letter touch on a legitimate concern by pointing out the difficulty of standardization in the impact investing field. I agree: the language of profit is universal, direct, objective, and widely understood. Still, even in the purely financial universe, companies with the same bottom line receive drastically different valuations because of perceptions around risk, potential, governance, or narrative. In impact investing, the complexity is greater and inherent. After all, we are dealing with different natures of impact: evaluating the value of expanded access to affordable healthcare services is very different from evaluating the challenge of decarbonizing an emissions-intensive industry. This diversity of causes, geographies, and metrics does make direct comparison harder, but it does not invalidate the effort. On the contrary, it makes it even more necessary. The sector is maturing and developing its own languages, whether under the ESG, sustainability, or impact banner, and each of these taxonomies carries relevant distinctions. But in the end, we will have to build — here, yes — a true middle way. The classic risk-return duality is insufficient to price the multiple negative externalities already affecting lives, markets, and ecosystems. Ignoring this is not pragmatism. It is short-sightedness.

In Defense of… Copper Mining Industries!?

The letter also presents a provocative and curious example by questioning whether investing in a copper mining company could be considered impact investing. The reasoning goes something like this: more investment generates more copper, reducing its price, making smartphones more affordable, and ultimately promoting digital inclusion. The logic, although ingenious, is somewhat stretched. If we adopt this criterion, almost any economic activity could be classified as impact-generating, as long as we follow second- or third-order consequences with enough goodwill. The pressing question is: Is this what we mean when we talk about impact? Or are we diluting the concept until it loses any analytical or transformative power? Impact investing is born precisely from the intentionality of generating relevant positive externalities, not as a hypothetical side effect, but as the central and measurable purpose of business activity. Without this, we risk calling “impact” what is, at its core, just traditional logic disguised as purpose.

It is important to emphasize, however, that the impact investor harbors no sense of superiority over an investor in a copper mine, especially when that mine operates within the legal and ethical boundaries of a given society. It would be naïve and technically immature to disregard the fundamental role that various basic industries have played in human progress. Even generic criticisms of the oil and gas industry can be excessive, considering that the mobility that shaped the 20th century and the polymers that make up our computers and cell phones derive from this matrix. The point is different: we know that the negative externalities associated with extractive practices, whether in mining or fossil fuels, are today among the main drivers of collective value erosion, disproportionately affecting the most vulnerable, often lacking social or environmental safety nets. Acknowledging the historical importance of these industries is not contradictory to advancing theses that seek, intentionally, measurably, and profitably, to correct the imbalances they have generated. Classifying a copper miner as impact investing may be a creative exercise in indirect causality, but it contributes nothing to the serious debate about the transformative role of capital.

Context and Conclusion

Any entrepreneur — whether from an NGO, an impact business, a traditional company, or an investment manager — walks a difficult path. Spectra has undoubtedly earned its place and respect in the financial community and carries undeniable merit for its consistent and relevant trajectory. And amidst so many disagreements, I couldn’t agree more with one central point of the letter: attacking bad practices that persist in Brazil, or any other country, would be a decisive step toward normalizing the rules of the game and moving toward a more ethical, transparent, and functional economy.

In our field — that of investors who explicitly intend to correct negative externalities produced by other industries, often historically and involuntarily, but unfortunately still knowingly practiced today in the name of profit — there is much progress to be made. Serious firms in Brazil and around the world are trying, often with lean structures and facing allocator prejudice or lack of institutional commitment, to develop management tools, adhere to international standards, and build bridges between returns and responsibility.

In the case of the firm I represent, our commitment is clear: to seriously develop ways to measure impact, communicate transparently, and engage in constant dialogue with our investor community and the broader ecosystem to improve our practices. Open to criticism and eager for improvement, we believe progress comes through constructive confrontation of ideas. Evolution never happens in a straight line. And we live in times where even what seemed settled — like the undeniable anthropogenic role in global warming, widely consolidated in scientific communities — is being questioned. Difficult times.

To those who, like us, believe that innovation, financial returns, and social impact are not opposing forces but complementary dimensions of the same challenge, I leave one conviction: these variables not only can, but must coexist. As long as we are willing to put humanity and the planet at the center, as foundations, not mere consequences of investment decisions. This is not a mathematical impossibility. It is a moral possibility. And above all, a historical necessity.