|Impact Investing: Transforming how we make money while making a difference - An excerpt|
|by Antony Bugg-Levine and Jed Emerson|
|on March 12, 2012|
Chapter 1: The Coming Disruption
Impact investing has gained its foothold following an historic period of upheaval in the capital markets. In fact, the financial crisis of 2008 precipitated the largest impact investments of all time. Just like pioneering impact investors, governments around the world recognized the need and opportunity to go beyond donations in their scramble to protect jobs and social stability by shoring up private companies. They invested tens of billions in loans, equity investments, and guarantees, the basic tools of the impact investors that we describe extensively in this book. And the forces that set off the first ripples of the impact investing movement continue to grow:
• With gathering intensity, wealthy investors and philanthropists have become impatient with old approaches in the face of intractable and increasingly visible environmental damage and poverty.
• A new generation of business and socially savvy entrepreneurs is launching ventures across an array of geographies and sectors that creatively structure investment capital to tackle society’s challenges and pursue new market opportunities.
• Cash-strapped governments are redefining the ir relationships with private business as demographic realities force a reexamination of fundamental components of the social contract.
• The rise of online social networking platforms creates the potential for thousands of investors to talk, share, and engage with each other as they identify, vet, and place investments in social entrepreneurs the world over.
These forces are finding their outlet in impact investing for blended value. Implementing this simple concept is not easy. Although impact investors see the opportunities in an integrated approach, our systems have not yet caught up. Frustration abounds as the old only grudgingly gives way to the new.
The current of impact investing is washing along the shores of a bifurcated world still organized to separate profit making from social and environmental problem solving. For now, this bifurcated world channels the energy of impact investors into the hidden pools and underground rivers on the margins of mainstream investment and philanthropic activity. But water has a powerful ability to reshape the world it flows through. The gathering weight of impact investment activity is wearing away the bedrock of seemingly immovable institutions and investment practices.
Impact investors will not long be content to force-fit their aspirations into a set of systems created to support a bifurcated vision. Instead, these systems will inevitably change under the collective weight of a new generation of investors, entrepreneurs, and government officials flowing together in the pursuit of blended value:
• In the bifurcated world, established for-profit and nonprofit business models facilitate separate profit-maximizing investments and philanthropic contributions. In the world of blended value, a new class of social enterprises will organize to maximize the full blended value of investment.
• In the bifurcated world, laws and regulations clearly define and protect traditional entrepreneurs, investors, and philanthropists. But they are ill suited to understand, yet alone guide, enterprises and investors seeking to maximize blended value. In the world of blended value, governments will determine how to harness impact investment to complement public resources in capitalizing the solutions to society’s most pressing challenges.
• In the bifurcated world, leadership development systems and support services create clear pathways for talented people to navigate separate careers in charity or business. In the world of blended value, we will need new approaches to find and develop the professionals who want to apply their business savvy to create wealth and tackle social and environmental challenges together.
• In the bifurcated world, we know how to measure the value of financial investments and are getting better at describing the social impact of charity. In the world of blended value, we will create common language and measurement systems that can ensure we steer our capital and attention to the enterprises most adept at creating profit together with social value.
• In the bifurcated world, a vast array of institutions constitutes the capital markets that separately facilitate exchange between the donor and the charity and the investor and the business. In the world of blended value, these capital markets will turn to the task of connecting impact investors and social entrepreneurs.
We do not seek to overstate the changes that are occurring or the challenges in sustaining that innovation. The bifurcated world will certainly linger. For many people, separating investing and charity will continue to make sense. But some established systems will inevitably adapt. And others will become increasingly isolated as they fail to evolve in response to the new conditions, replaced by new systems that do.
[Editor's note: Click here to listen to our interview with Antony Bugg-Levine]
This material is reproduced with permission of John Wiley & Sons, Inc.
Authors: Antony Bugg-Levine and Jed Emerson.
Copyright 2011 by John Wiley & Sons, Inc.