Reflections on SOCAP18
Impact investing: a paradox?
The depicted purpose of, and branding around, impact investing is the compatibility between making positive social impact and earning competitive profit. While it may sound great to the baby-boomer investor seeking a clean conscience, or indeed the ambitious millennial in search of a meaningful career lucrative enough to pay off the debts, there is an issue in need of resolution. It involves a deep consideration of the goal of ‘impact’ and the re-thinking of the ultimate duty of the ‘investor.’
If ‘impact’ means transformative change to address the power and wealth imbalances in the global economic system, making wealthy investors and their clients even wealthier solely through the investment of their capital undermines the very goal of the ‘impact.’ This appears to turn ‘impact investing’ into an inescapable paradox. So is this definition of impact too radical? Or alternatively, must the role of the investor, and the purpose of profit, be challenged.
First, a quick intro to SOCAP, the world’s leading conference to drive markets towards an ‘intersection of money and meaning.’ It is a collection of impact investors, social entrepreneurs, philanthropists, business leaders, innovators…and the odd grad like me trying to figure out what next and how to make that ‘next’ something meaningful. The three-day conference brought together a huge collection of diverse people with diverse opinions under one common goal (outwardly at least): to shift the economy in a more human-centred and environmentally sustainable direction. Personal highlights included Wednesday morning’s ‘gender-lens breakfast’ in which over thirty men and women from all over the world explained in 30 seconds how their work was contributing to gender-equality in finance, economics and entrepreneurship. Speakers spoke of how projects, businesses and investments are empowering refugees and displaced peoples, indigenous communities from all over the Americas, racial minorities and women in all sorts of creative ways. One workshop provided the opportunity to take time to envision and deliberate how the ‘Next Economy’ might look. The sun shone. The food was delicious.
Yet there was this one difficult and uncomfortable recurring theme throughout the talks and discussions: the level of change the community of ‘impact investors’ actually wanted. At one session, social entrepreneurs and investors debated, “Do we seek evolution, or revolution?” Laurie Spengler of Enclude Capital questioned, “Are we just chipping away at the existing system or are we creating actual transformation?”
It is the ultimate aim which impact investors really need to talk about: what is their theory of change for the global economic system? SOCAP successfully brought together hugely diverse opinions under the ‘big tent’, ranging from head-honchos at Morgan Stanley and Bain Capital to pioneering indigenous leaders. Warren Valdmanis, from Bain Capital Double Impact, argued that it is possible to have a ‘humane and robust’ economy with investors gaining ‘market rate of return.’ ‘Humane’ was not defined. On the same stage, I heard the radical call for the decolonisation of wealth, thought and power.
Andrea Armeni, of Transform Finance, captured this disparity in perspective, noting a clear difference between impact investing and systematic change investing. He argued that for structural transformation, the investor must revolve around the social change, not vice versa. This involves challenging the accepted power dynamic between investors and their investees, which is embodied in the legitimacy of investor ownership over their investments. This relationship, embodied in corporate law, exists to benefit investors. How did this happen? Because they designed the system. As such, non-transformative impact investing becomes a way for entrenched interests to continue making money and feel better about themselves by providing capital to communities who otherwise might not gain access to it. But my point is that self-proclaimed ‘impact’ investors’ historical amnesia about how and why the current financial system functions as it does is unacceptable. Those who refuse to share the wealth and power they gained via an economic system built by entrenched interests for entrenched interests, which prohibits equal opportunity for all, remain loyal to that system. They should not pretend otherwise.
Morgan Simon persuasively argued that being an authentic impact investor is about becoming a partner in stewardship, sharing the power from the situation of privilege you are in, rather than prioritising market rate return. Here, the priority of the ‘investor’ changes from profit to impact. This isn’t to say that no profit is gained — indeed evidence shows the contrary — but it is to highlight that the impact is the sacred element. The impression I got from various speakers — though nowhere was it said so explicitly — was that for the projects with transformative impact at their heart, investors must lower their expectations of return. This challenges the traditional investor’s priority and duty of creating maximum return. In changing their role from one of complicity with the system to one of transformation, the authenticity of the ‘impact’ is verified. One can see why the metaphor of the ‘Houseboat — not a good house, and not a good boat’ is applied so frequently. The two options seem to be: prioritise the transformative impact, actively share your privilege and compromise on the profit, or prioritise the profit and deliver impact which will only ever be palliative.
Perhaps Andrea’s distinction between impact investing and transformative change investing is useful: it acknowledges and articulates the diversity in this field. Yet I still feel somewhat resentful towards the palliative ‘impact investors.’
There are two arguments in favour of the transformational version. First, Jed Emerson provides a spiritual theory: he argues that ‘the purpose of capital is not more capital…but rather self-actualisation.’ He posits deep impact and participation in a community, inclusive of environment, as a necessity to a fulfilling life, arguing that achieving our own potential without doing so is impossible. That’s the idea that you as an impact investor should go down the transformational route for your own benefit, because money alone can’t buy you happiness.
The need for the global economy to readjust itself to focus on happiness or self-fulfilment is well-argued. Yet Jed still (and I may come back to edit as I haven’t yet finished reading his book) appears to argue that transformational impact investing is in the interests of the investors and the clients — the privileged. I argue something less comfortable. Transformational, systems-change impact investing is actually not about the benefit of investors and clients. It is not about your spiritual fulfilment. Actually, it may even require your compromise. However, it is about building a just, inclusive global economy and society which gives everyone a more equal opportunity in life. That should be enough.
Relevant/influential resources
Kate Raworth’s book Doughnut Economics
Morgan Simon’s book Real Impact
Jed Emerson’s book Purpose of Capital
LIFT Economy’s podcast
