Impact Investing reaching mainstream acceptance — will it outpace financial-only returns?
Doing social and environmental good in the post-Trump era
By Daniel Robin
Multiple recent articles (examples of EdTech in 2017 receiving $5m from the Kellogg Foundation, and many others) indicate that impact investing has reached investors of all ages and backgrounds, not just the liberal progressives on both US coasts, but hardcore angels and institutional investors as well, including many “value-oriented,” others “values-oriented” and many philanthropic that now embrace the so-called Impact Investing Industry, as defined by GIIN. Impact investing is slowly edging toward mainstream acceptance. Will it get there in time?
In this context, slow is good. Slow money, slow food, slow-dawning awareness that impacts last, they’re “for good” (in both senses of the phrase), not just flash-in-the-pan “new new” things that fire and fizzle before having a chance to ripen and mature. Some of us feel that such opportunities are already so ripe they’re falling off the vine. Perhaps.
History shows that emerging humanitarian, civil rights, and new cultural standards based on honesty and integrity get both adopted by the “right” people – those who sincerely want to increase impacts, who build purpose-driven institutions and are committed to ESG/sustainability – but also co-opted by those who bend and pervert such trends in an effort to water down their purported meaning. This power struggle is constantly at work. Who will win? We all do, eventually. It is the proverbial “good fight.”
Sometimes the perceived value or reputation of an entire industry like Impact Investing or “Fair Trade Certified” will rise and fall in popularity on the path to reaching mainstream grandeur. Fair Trade coffee, for example, took a serious hit back in 2015 when the Fair Trade standard was lowered to embrace more mainstream capitalism (25% or more Fair Trade content was deemed FT). Same story with the US-government’s Biobased Preferred Procurement program, which you’ve probably never heard of because … well, it means very little to very few of us green chemistry nerds.
Ditto for some “certified organic” food standards, with many now advocating that sustainable and no-till “regenerative” agriculture are the only meaningful keys to climate change mitigation, while organic stops short. It is inarguably a step in the right direction, eliminating toxins and environmental disasters-in-the-making (agricultural practices should not have “drainage” water that contains so many salts, born of synthetics, grown on dead soil), but by itself, organic is still not nearly enough.
Similar to the rise and fall of celebrities or celebrated innovators like Apple and Amazon (still going strong, taking over the world) or even Uber (is it faltering and bringing Silicon Valley values into question?), the marketplace remains a fickle measure of popularity, a “beauty contest” in the short term, while in the longer term it weighs the value or true worth of the products or services. This is particularly obvious in trading of public equities, as observed the so-called father of value investing, Benjamin Graham, describing the stock market as a “voting” and “weighing” machine.
The word “sustainability” itself has survived similar boom and bust cycles. Now perhaps it is now impact investing’s time to shine? Those involved in the early days of impact investing, back then called variously Socially Responsible Investing (SRI), social investing, or ethical investing, have always focused on purpose-driven uses of capital, not unlike voting with one’s money (not to be confused with the behind-the-scene mechanisms of recent US political elections). The difference today is a much greater variety and diversity of purposes, and in particular not screening out negative effects (tobacco, weapons), largely seen as inadequate, but instead seeking to maximize the positive outcomes from powerful, scalable solutions in a world gone positively crazy.
Early-stage and development-stage investments are still by far the most risky, thus management teams are finding sources of grants and forgivable loans to launch new purpose-driven enterprises. Impact-oriented angels, family offices, government agencies (USAID, etc.), regional development banks and more philanthropic institutional investors such as foundations usually focus on quite specific aspects of the triple-bottom-line — by geography, social cause, environmental issues like climate change mitigation, food security, etc. — where the potential social and/or environmental impacts are cause enough to invest their values.
But the “blended capital” approach (as Jed Emerson first put it) delivers developmental benefits without creating dependency on further grants, subsidies or market incentives. This is how entire new industries are born and given a chance to thrive in a market that already “incentivizes” the incumbents such as fossil fuels (do we really need to mine more coal?), big pharma (Obamacare is already a give-away to the insurance and pharmaceutical drug industries, so we really need to make it favor the rich, too?) and war.
Its about the economy, as usual, with many new players rowing in the same direction, toward clean, circular, responsible and sustainable economic activity. . . seems worth having, as if we all could vote with our capital (in all its forms — social, political, intellectual and financial) with every decision. What will you do differently this week, this month or year?
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