Last December, NPQ senior editor Steve Dubb asked a critical question: Does investing with “good intentions” make any difference in saving the world? The data clearly imply that, at least so far, the answer is “no.” Despite exponential growth of impact investing over the past decade, wealth inequality, conflict, and global heating have only worsened. Is impact investing merely, as critics like Winners Take All author Anand Giridharadas contend, another tool of wealthy “philanthrocapitalists” making more money while assuaging their guilt?
In fairness, impact investing has achieved some impressive results. Its stated goal is to marshal the humongous power of market capital. If successful, it could offer a strong foundation on which to build a better world. That architecture, however, remains fuzzy. This article aims to help fill in the blueprint and, through a proposed set of principles and list of actionable ideas, address some of the core building blocks for constructing not just an efficient industry but a broad-based movement that could support social justice through markets.
The Sobering Reality
A critical starting point is acknowledging the severity of the problem with our current economy. Despite epic branding, the US hasn’t been the land of opportunity for decades. The $7.25 federal minimum wage is now more than 25 percent below where it was in real terms half a century ago.1 For social mobility, we are barely in the top 30 industrialized nations. Our children fare worse with each passing decade; a child born into poverty in Denmark is four times more likely than an American kid to exceed the well-being of its parents.2 We remain the only industrialized nation without national health coverage. Private sector unions have been decimated. A quarter of Americans are without retirement savings, and our sacred homeownership rate has dropped towards the bottom of developed countries.
The past few decades has led to unconscionable wealth inequality, with the US having the greatest income inequality of all G7 countries (the others being Germany, France, Great Britain, Italy, Canada, and Japan). Globally, nearly half the world’s population still lives in debilitating conditions, on less than $5.50 per day.3
Perhaps cognizant of growing unrest at the bottom, leading global corporations issued a letter last year acknowledging that profit had become too much of a sole fixation, at the expense of workers and the planet. And yet, as scrutinized by a Ford Foundation-supported study4 and attested to by a BlackRock senior executive, this appears to have been little more than a public relations effort.
The Need for a New Vision
Clearly, impact investing should not have to be a silver bullet for all of these ills. It is reasonable, however, to expect that a serious social impact model would provide at least a vision for moving out of this morass. Yet, one is challenged to find a vision within impact investing that moves beyond a focus on growth and modest reforms.
I am offering therefore an outline of principles based on alternative values. This is not easy. Roots are deep, and deeply tainted. Capitalism has emerged out of hundreds of years of extraction and exploitation. The underlying assumptions of scarcity and individualism have become gospel to many.
Yet, here we stand, “impact investors,” seeking to do what activist-author Audre Lorde described as impossible: using “the master’s tools” to construct something different.
Is the field willing to engage in a robust discussion regarding what impact investing might look like with a different set of starting assumptions? And how do we make this “just transition” to a new and regenerative economy?
A vision of truly transformative finance would balance legitimate concerns of productivity, efficiency, and profitability with tenets of equity, distribution, and mutual aid. In a beautiful article and podcast describing the natural world’s “economy of abundance,” author/scientist Robin Wall Kimmerer, a member of the Citizen Potawatomi Nation, offers a powerful analogy via forest ecology.
Fortunately, such discussions are gaining traction, at least in marginal progressive circles such as the Racial Justice Investing group in which I am involved. The proposed principles reflect therefore what I have heard directly from impact investors, and from themes emerging from more humane…