The Future of Finance: From Impact Style to Impact, Sustained
Jed Emerson is Senior Advisor to Tiedemann Advisors, Senior Fellow with ImpactAssets and Toniic, and author of The Purpose of Capital: Elements of Impact, Financial Flows and Natural Being.
For many of us, these are heady days. After decades of advocating that investing should be about more than money, we find ourselves at a time when
- Direct, impact investing, said to have been $135bb in 2015, is projected to exceed $300bb two years from now.[i]
- If one takes a Total Portfolio Management[ii] approach and considers all mission-directed capital (sustainable, responsible and ESG investing, together with direct impact and philanthropic capital), the amount of assets under management in the United States is approaching $9 trillion and is already at $14 trillion in Europe,[iii]with an additional $715 billion of potential investible assets sitting in the endowments of foundations across the United States.[iv]
- The ImpactAssets-50 (a landscape overview of 50 leading impact investing funds) reported significant growth in 2017 in the size of funds (six had more than $1 billion under management) and the experience of fund managers (32 out of the 50 profiled funds had been operating for over ten years). Meanwhile, 48% of IA 50 funds have investment management teams with 50% or more women and other underrepresented groups.[v]
While not on the tip of every fiduciary and traditional wealth advisor’s tongue, impact investing has clearly left the fringe and is moving into the mainstream. And, with growing numbers of asset owners who are Millennials and women taking their rightful place at the trustee table, impact investing around the world may safely be predicted to continue this growth curve over coming decades.
Although there is a lot to like about that, there is also cause for concern and deeper reflection as we move from boutique to global, since impact investing is about a great deal more than simply growing a new market segment for investing in pursuit of profit and expanding one’s assets under management.
As part of this discussion of the growth of impact investing, it seems every conference this fall has at least one panel discussing whether it is possible to attain “impact at scale.” To be clear, all capital has impact, so in many ways we are already at scale. The question is whether in our rush to “go mainstream” and welcome a host of new entrants to the impact investing field, we run the risk of pursuing a form of what I call Cheap Impact[vi]that focuses on broad, distributed impact at a light level, and calling that sufficient and quality impact. Such impact may be adequate for a firm’s outcomes report, but light impact of this sort does not challenge systems of inequity or environmental degradation. While some will feel broad impact is adequate and all one might expect from efforts is to “do well and do good,” many of us understand such impact is not adequate for advancing the change we require in our world today.
By way of example, for the past several years the United Nations has been promoting what are called The Global Goals, a set of broad areas of concern that need to be addressed if we are to improve the lot of not simply the few, but the many.[vii] The Global Goals are perhaps best known for their snazzy colors, with each goal having its own shade taken from a broad pallet. The Goals have been well received within both business and investing communities, with growing numbers adopting a goal and its color to demonstrate their support of the U.N.’s initiative.
In an expansion beyond the well-known notion of “greenwashing,” this rainbow of Global Goals colors related to impact has led the European academic Wayne Visser to refer to the danger of “rainbow-washing” as we are bombarded with a host of offerings from companies and investment firms all claiming to fall under and advance one or more of the 17 Global Goals. “Can we claim our water investment strategy falls under Goal 14? Great—let’s color our deck blue and we’re good to go!”
Admittedly, this is not a new critique and, in addition to the existing Global Impact Investing Network (GIIN) principles,[viii] there are other initiatives being announced to promote a set of unifying impact investing principles. Time will tell not only how these are received, but also to what degree they are adhered to—and to what degree they drive meaningful, sustained impact.
Adoption of impact investing and such programs as The Global Goals is all for the general good, but as we move to make impact investing more broadly accessible, we may succumb to a practice of trimming here and tightening there in order to create the “conforming product” required for global distribution of financial offerings at scale through our existing investment pipelines and firms—with deep impact resting on the cutting room floor.
The greatest threat to impact investing may not be that it loses its effectiveness as a vehicle for advancing change, but that it evolves into simply one more style of investment practice. It envelops into sitting all nice and comfortable next to our other approaches to managing wealth that we may now offer fiduciaries, which do nothing to advance the level of meaningful, systems changes required to address economic inequality and environmental degradation.
A second area of concern is that asset owners will continue to function as if their capital and lives are two separate areas of consideration. We presently operate within a dualistic, bifurcated value framework that asks us to either do well or good, to make an investment or a grant, to work for a nonprofit or a for-profit, when in fact the value we create in our world and over the course of a life is whole and indivisible—a blend of multiple components, economic and financial, to be sure, but certainly social and environmental as well.
Our traditional approach to wealth management is one in which we accept the purpose of capital as being its own replication—to simply generate more capital. And when this task is achieved, we then think we might go on to do something “good” in the world.
However, our present understanding of the purpose of capital is a social construct upon which our current system has come to rest. An alternative perspective combining the perspectives of Karl Marx[ix] and Milton Friedman[x] would understand the purpose of capital as more than simply generating more capital, but rather a purpose of serving as a fuel for individual freedom within community and ecosystem.
This may manifest in a variety of forms and manner of impact, one of which is offering the potential for wealth holders themselves to be objects of impact—an understanding of impact as something mutual and reciprocal, not merely as something we seek to do to others, or to count and report and track the supposed economic value of. This type of Mutual Impact as described in The Purpose of Capital[xi] is where we will find the true value of our wealth and lives as we challenge ourselves to become more profoundly connected with our larger community, greater world and, in the end, the potential for our individual selves to be transformed through our process of impact investing.
In this way, our investing goal is not simply something we do to meet our personal goals, but rather something in which we engage for the benefit of self and Other—a much more challenging and rewarding task for wealth holders accustomed to simply considering their own investment objectives and ambitions.
By crafting a holistic understanding of ourselves and our place within a global community, we are able to approach a deeper, more significant understanding of the purpose of capital for our world, which may then anchor our individual definition of the purpose of capital, how we understand the nature of returns (both financial and extra-financial) and our cultivation of a deeper understanding of the meaning of money.
Tiedemann Advisors (“Tiedemann”) is a SEC-registered investment advisor. Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside financial return. Impact investments span multiple asset classes and investment structures. Tiedemann makes no representation as to the performance metrics of any third-party organizations or the achievement of underlying impact goals. Where applicable, achievement or compliance with these metrics should be evaluated over the longer-term rather than any shorter time periods indicated. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and Tiedemann is not responsible for third-party errors. This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Tiedemann or its affiliates.
[i] https://www.marketsandmarkets.... (July 2017)
[ii] For an overview of this approach, which considers all an asset owners capital ranging from philanthropic, to near-market and market-rate assets, please see: http://www.blendedvalue.org/wp-content/uploads/2015/10/Total-Portfolio-Management-15.pdf. (October 2015) See also: https://www.toniic.com/wp-cont... (October 2013)
[iii] The 2016 US-SIF Report cites nearly $9 trillion as of 2016, with a new report being released on October 31, 2018 will surely document a significant increase over the past two years. https://www.ussif.org/files/Trends/US%20SIF%202016%20Trends%20Overview.pdf
[iv] https://www.impactassets.org/n... (February" class="redactor-autoparser-object">http://foundationcenter.org/ga... 2018)
[vi] Please see Chapter Two of my book, The Purpose of Capital: Elements of Impact, Financial Flows and Natural Being, titled, On Impact: From Ignorant to Mutual. (2018)
[ix] Philosophers have only interpreted the world, the point however is to change it. https://www.goodreads.com/quotes/17310-the-philosophers-have-only-interpreted-the-world-in-various-ways
[x] “Concentrated power is not rendered harmless by the good intentions of those who create it.” https://www.watchdog.org/issue... (July 2014)
[xi] Jed Emerson The Purpose of Capital – Elements of Impact, Financial Flows, and Natural Being. (San Francisco, Blended Value Group Press, 2018)