Impact investment is a relatively new phenomenon - the trillion-dollar trend most people have never heard of.
In 2016 , $119 billion was invested in projects seeking both a social and financial return, such as clean energy and worker owned cooperatives, according to the Global Impact Investing Network, an organisation that seeks to publicise and offer advice on impact investing.
But let’s face it: most of these investments are made from the 40th floor of a Wall Street skyscraper. Impact investors may have great intentions, but how do we know if these investments are actually doing social good if we are so far away from the people our investments affect?
The good news is that, just as there are thousands of professionals globally dedicated to the fine art of money management, there are just as many people dedicated to social justice, whether taking action in their own communities or working within non-profit organisations.
Impact investors can learn from these activists how to ensure their investments are actually doing social good.
I have been part of the impact investment world for over 17 years, helping endowments, wealthy individuals and foundations to increase their social and environmental impact with their over $150 billion of investment.
In that time, I’ve been grateful to learn the following lessons from social justice activists—lessons that all impact investors should bring into their practice.
Nothing about us without us
In order to serve target populations (whether its rural women in El Salvador, or low-income black families in Baltimore) we have to make sure we consistently communicate with people on the ground who are best positioned to determine whether a particular intervention is actually serving their needs, or just “impinging.”
Is a micro-finance organisation providing reasonable or exploitative rates? Is what a developer might call “affordable” housing actually affordable to low-income residents, or just enhancing gentrification? We have to build stronger alliances to make sure we can answer these questions effectively and not just from a distance.
Strength in diversity
Less than 2 per cent of Silicon Valley venture capital firms have a black or Latino partner, and less than 8 per cent have a woman in leadership according to research by venture capital firm Social Capital. And overall - less than 1.1 per cent of capital in North America is managed by firms owned by a woman or person of colour. We won’t make smart investment decisions if our investment teams don’t start resembling the world.
Impact investors must also be intentional about who they fund or engage with. We certainly won’t help the racial wealth gap in first world countries if we don’t start levelling the playing field for black and brown entrepreneurs to have access to capital.
Investors should commit themselves to their social education, and the activist principles that will enable them to effect real social change.
Add more value than you extract
A lot of projects are pitched as being better than the status quo, but that doesn’t necessarily make them fair. For instance a rural woman may get a 1,000 per cent rate from the local money lender, but does that make 200 per cent from the micro-finance bank fair, or just a little less exploitative?
Markets drive low-income consumers to make the best choices they can within the generally terrible options available to them. It’s up to us to be a lot more creative and thoughtful about what a non-extractive approach to structuring an economy can mean.
Don’t be satisfied by easy wins
We don’t have time for “clean coal” that stores emissions underground when witnessing the climate impact of extreme weather and fires in Puerto Rico, Florida and northern California. We don’t have time to celebrate job creation at the federal minimum wage of $7.25 an hour ($15,080) when the poverty line for a family of four is $24,600. We need to focus on long-term, structural change, even when it’s hard, if we want to look our grandchildren in the eye and tell them we did our best to save the earth and humanity.
These are just a few drops of wisdom from the deep well of knowledge activists tend to carry within their communities. Investors should feel lucky to learn from them, and would be far more effective as impact investors—or simply, as investors—if they took their wisdom to heart.
Investors should commit themselves to their social education, and the activist principles that will enable them to effect real social change.This type of experience and commitment is absolutely necessary if impact investors want to be truly effective.
Morgan Simon is a Managing Partner at Candide Group, and author of Real Impact: The New Economics of Social Change. This story was published with permission from Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women’s rights, corruption and climate change. Visit news.trust.org.
Did you find this article useful? Join the EB Circle!
Your support helps keep our journalism independent and our content free for everyone to read. Join our community here.