Photo courtesy of Clockwork Lemon baking blog
For people of wealth and conscience, impact investing offers a compelling and convenient promise—that money can be a force for good even as the owners of capital continue to accrue wealth under the auspices of generally accepted investing practices. Impact investing tells us that the proper “deployment” of our capital will lift the poor out of poverty, clean the air and water, and reinvent our energy systems – all while still earning us a “market rate” return or higher.
Socially responsible investing (SRI), which predates impact investing by several decades, originated in moral stances that investors felt compelled to take even if they had to “sacrifice” returns. Eventually, though, SRI evolved into something very much like impact investing. Both now rest on the “cake” promise—you can do good and make money while you do it.
The idea of sacrificing or sharing returns for the common good, or for the good of those less fortunate, is anathema to impact investors who feel it’s their social right and personal responsibility to seek the highest financial returns possible. Today’s impact investors—wealthy young beneficiaries, Silicon Valley m(b)illionaires, foundations, and pension funds—see no contradiction in seeking out the highest financial returns from investments that aim to have a “positive impact”. One young impact investor profiled in the article linked above had this to say: “The people I know who are thoughtful about impact investing are not crunchy tree-huggers. This is part of the way investing should be done.”
There is a general failure, indeed a refusal, to question the assumption that investing is about making the most money one can with the least amount of personal risk. Perhaps this is because it’s exceedingly uncomfortable to examine the impact that “earning” those market-rate returns has in the world and whether further concentration of wealth in the investor class is worth it, even if they are doing great things.
The cake promise is so appealing precisely because it fails to question certain implicit and unsettling beliefs about ourselves and the economy -- that there is righteousness in growing wealth; that continual growth is necessary and possible even in the face of clear ecological limits and gaping wealth disparities; that we’re under no moral obligation to limit our personal wealth accumulation; and, most egregiously, that money, wealth, and metrics trump (pun intended) other forms of wisdom and knowing that can guide our economic lives. If we don’t question these assumptions, then it sure looks like we can have our cake and eat it too. And we can do so while building a movement, celebrating our impact, and scaling everything in sight.
Perhaps impact investing’s shift to the center and away from the fringe has been inevitable and even desirable within our current culture and systems. More and more people are waking up to the fact that we are exceeding ecological limits, that all of our so-called progress has had devastating and unfair consequences, and that our legacy may be shameful. In the face of such suffering, it makes sense to want to do something—to have an impact, to change the world, to fix things. The possibility of doing so while also securing our personal fortune is both comforting and comfortable.
But let’s not forget the value of the fringe—the contrarian voices, the questioners and doubters, the troublemakers, and cynics. We need their voices more than ever as what was once fringe becomes increasingly mainstream.
Many impact investors consider themselves part of the fringe. And indeed they are—when compared with Wall Street culture and institutional investment norms. My question is whether we’re all still operating within the establishment or whether we are willing and able to rock our own boats. I’m not sure that it’s possible to reconcile our personal desires for wealth and financial security with the inequities of our current capitalist economy when we are operating from positions of comfort or luxury. I admire my clients who tackle this question, and I admire organizations like RSF Social Finance and Capital Institute, where questioning seems to be a prerequisite for employment.
As we witness, support and participate in the impact investing field, I encourage all of us to consider the cake promise. Is it really possible to both have it and eat it? The surge in impact investing relies on increasing aggregation and intermediation to serve the mass market, as evidenced by the involvement of companies like Goldman Sachs and Blackrock. Similar to industrial food and agriculture, the investments they offer may look great and even taste great in your portfolio, but they’ll very likely be made in harmful and exploitative ways that have been buried under the veneer of impact. The push toward scaling up by profit-driven financial companies is one of those inherent capitalist forces that might be beneficial on a small scale, but which has extremely questionable benefit, if not certain harm, for the general public. At its heart and in its SRI origins, impact investing is countercultural. Until the day that all is perfect in our economic and ecological worlds, we need desperately to keep it that way.