Last November, two articles raised some fundamental questions about impact investing. “Impact Investing Benchmark: What’s ‘Impact Got to Do With It?’ (Paul DiLeo, Grassroots Capital Management) and “Impact Investing: Financial Returns are Only Half the Story” (by Roots of Impact’s Bjoern Struewer and Rory Tews) both begin as reactions to various specific points raised in a recent joint publication from Cambridge Associates and the Global Impact Investing Network (GIIN). But both articles quickly expand to address the important, broader debate that the report has spurred.

The Cambridge/GIIN report, published in June 2015, seeks to define, for the first time ever, a benchmark for impact investments. It provides detailed analysis of financial returns on “impact investments,” but curiously, it leaves social returns entirely in the eye of the beholder. And as Struewer and Tews note, “The [GIIN/Cambridge] report uses a self-reported ‘intention to generate social impact’ as the only impact-related inclusion criteria”—in other words, impact means whatever anyone says it means. DiLeo, for his part, forthrightly asks “why we bother to distinguish [impact investing] from conventional investing at all, other than for marketing purposes” if the only metric is shareholder returns.

Both articles acknowledge that impact assessment is complex, and that it would be unreasonable to expect that the first-ever attempt at an investment benchmark would or could be definitive. But as they also point out, benchmarks have a self-fulfilling quality: Once in general circulation, they become the target toward which the industry aims. Benchmarks don’t just describe market conditions; to a large extent, they shape them.

Ten years ago, the microfinance industry was exactly where the impact investment community finds itself now. We prided ourselves on the “double bottom line”—delivering meaningful social performance while operating on a financially self-sustaining, even profitable, basis. Great efforts were underway to measure financial performance. But—and stop us if any of this is sounding familiar—with a few notable early exceptions, no one was measuring social performance. No one was even defining the term. It was simply taken for granted that if a financial institution said it had a social mission, it was serving poor people well. In short, social performance back then, like impact investment today, meant whatever anyone said it meant.

The backlash did not hit until 2007, but when it did, it was fierce. The windfall profits from high-profile IPOs—and the mind-boggling interest rates paid by very poor people that had made those profits possible—soured the public on an industry that had enjoyed respect, not to mention taxpayer funding. Never mind that the IPOs were hardly representative of the whole industry. Without universal standards, the public understandably concluded that “social performance” was nothing more than a marketing slogan.

With the benefit of hindsight, it’s striking how closely the story the microfinance industry told itself then parallels the story the impact investment community (at least segments of it) appears to be telling itself now. The pre-IPO narrative in microfinance went something like this: If a customer pays off her loan and comes back for a new one, it proves that she values the product and can manage the interest. Therefore, the institution can charge a premium and still rest assured of its “social performance”—no trade-off required. Ten years later, Paul DiLeo tackles the “no trade-offs required” assumption head on. He notes that investors believe—because they choose to believe—that they can earn comparable or greater return on their “impact investments” because experience proves that people will pay more for cruelty-free chicken, or dual-fuel cars, or solar panels. But as he points out, when we are talking not about affluent customers paying more for virtue-signaling luxuries, but instead about poor people buying necessities, “the idea of them choosing to pay more makes no sense.” If an investor still demands above-market returns from a company that provides necessary goods or services to poor people, on what basis, DiLeo asks, should it be considered an “impact investment?”

The Social Performance Task Force (SPTF) was created in 2005—crucially, so it turned out, before the IPOs—as a platform for the industry to get real about social performance: defining it, measuring it, promoting best practice. It took 10 years, and intensive collaboration among all the major stakeholders, but today the microfinance industry has the Universal Standards for Social Performance. These standards enjoy credibility (because the work was well underway before the IPOs and thus could not be dismissed as damage control) and wide adoption (because everyone had a say in them). We have a suite of other tools, too, including some specifically for social investors in microfinance, and we have an active Investor Working Group.

Our journey provides a roadmap for the impact investors, considering how closely history appears to be repeating itself. Following that roadmap could help them avoid some of the quick sands we stepped in along the way. Above all, our experience suggests that unless impact investors resist the powerfully seductive lure of “no trade offs required,” disaster will ensue, causing the greatest harm to the most vulnerable.

SPTF also has a vested interest in sharing our experience with investors because so much impact investment is aimed at our sector. We’ve seen what happens when a market gets flooded with new money from investors who demand aggressive returns and are content not to ask the tough questions about what makes those returns possible. That story never ends well.

The impact investor community has an opportunity to write a new story, and get it right from the beginning. Judging from the new benchmark, and the debate it inspired, the story could end up going either way.

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