Impact investing: Can it change the world?
- Shelagh Gastrow
- 17 Mar 2015 10:40 (South Africa)
Impact investing is a relatively new concept and its proponents are trying to create a movement that in some ways they believe would be a market solution to the world’s ills. It is extremely attractive to people who are not particularly altruistic, but know that social change is imperative for our survival. Included in this would be goods and services for the poor including micro-credit, investment in new energy technology so that we don’t warm up as fast as predicted, and of course creating jobs to alleviate poverty. The idea should be about dragging hard-nosed capitalists out of their sole focus on financial return into recognising that business has responsibilities because it affects the planet.
Since the invention of the internet, the public can see bad business practice such as deforestation, child labour and smokestacks. Corporate reputations can be ruined in minutes by social media. Hence the awareness of the need to build social capital and to appear to be good corporate citizens. Impact investing is, therefore, a way for business people who are really only interested in financial returns to grow their social capital while growing market capital.
Can impact investing then fall within the philanthropic sector as this is where the philanthro-capitalists are trying to position the concept? It is generally accepted that social change involves addressing systemic issues is extremely complex and cannot be viewed in a mechanistic or linear way. Significant time and resources are required to negotiate through social and political structures before any end product can be implemented. It is about engaging with political structures, traditional structures, fears of change, mistrust, and expectations of kickbacks.
Social change also requires cross-sectoral partnerships with, inter alia, government, civil society organisations, the corporate sector and communities. This is the basis of effective social change. This has been the problem with general development theory over the last decades – there is no straightforward domino effect of an intervention as human beings are more complex and unpredictable than theorists expected. We have to deal with inconsistency and contradiction, obstinacy and dynamism, tradition and modernity, superstition and enlightenment. The idea that we can change society using a measureable market solution is anathema to me, yet business is managing to sell itself as the solution, even when many of the problems we face are as a result of extractive and ruthless business practices.
When reading material about impact investing, there is a lot of swagger about business knowing best. Business knows best about investment, maximising returns, scaling up, blended value, triple bottom lines etc. Goods and services for the poor often make more financial sense as there are many more poor people than rich. In this respect I refer to CK Prahald’s book on The Fortune at the Bottom of the Pyramid. Ten years ago he identified four billion people with annual incomes below $1,500. As Doron Isaacs of Equal Education says, four billion multiplied by anything is a lot. I have yet to be convinced that a company can actually make a good return for its investors when making products for the poor as it will require massive scale with very low returns. However, if the aim is social impact, that also needs to be unpacked. I have yet to see evidence that these kinds of investments, including micro-finance, shift society fundamentally. They rather contribute to making poverty bearable.
In all the buzz about impact investment, there is little about the fundamental values that we would like to see in our society. Impact investing appears to be about the investor – value is seen in the act of impact investing, not necessarily in the benefit to society. Does impact investing creating a kinder society, a society without prejudice? What are the market solutions for racism, xenophobia, religious intolerance, civil and human rights, violence against women, human trafficking, corruption and crime?
From the philanthropic perspective we need to be very cautious about moving philanthropic money into investing in what are essentially businesses instead of investing in causes. Pulling philanthropy into the sphere of impact investment removes its unique advantages relating to its ability to take risk as it is not answerable to voters and shareholders. Because philanthropy has this edge, it is the one resource that can really innovate, can create leverage and can pursue causes that might not be popular in a particular era, but which can have massive subsequent positive ramifications. It was philanthropy that built the women’s movement and the environmental movement for example. How could impact investing ever deal with issues that link to fundamental values – all it can do is produce and sell products – a big hype on innovation, but today’s innovation is tomorrow’s dinosaur.
I view this new trend as something positive in that it is a way of shifting resources to companies that can make a contribution to a better world. However, real impact is investing in systemic change and this is where philanthropy always wins. Alleviating the symptoms of bad social systems does not solve the underlying cause of the problem, even if thousands of people benefit. Business doesn’t focus on changing values and I quote Michael Edwards from his book Small Change, Why Business Won’t Save the World.
"No great social cause was mobilised through the market in the twentieth century. In the United States, the civil rights movement, the women’s movement, the environmental movement, the New Deal and the Great Society were all pushed ahead by civil society and anchored in the power of government as a force for the public good. Business and markets play a vital role in taking these advances forward, but they are followers, not leaders, instruments in the orchestra, but not conductors. No lasting change has been successful without large numbers of people acting consciously and collectively around human values of solidarity and social justice, not market values. Markets are a great way to do some things, but not to fashion communities of caring and compassion.” DM