Impact Investing Mainstreaming?
Doing social and environmental good in the post-Trump era … or even now.
Will impact investing reach mainstream acceptance? Does it need to?
Will it outpace financial-only returns investing, especially when that “single bottom line” (SBL) driver takes little or no regard for projects that cause or perpetuate social/environmental harm?
By Daniel Robin
Multiple recent articles, and our own practice, reinforce that despite more obvious indicators and rhetoric to the contrary, impact investing had reached $1.57 Trillion Assets Under Management (AUM) per a 2024 annualized survey and has proliferated to all ages and backgrounds, not just the “woke” or liberal progressives on both US coasts, but hardcore angels and institutional investors as well.
This happens to include many “value-oriented,” others “values-oriented” and philanthropic interests that now embrace the so-called Impact Investing Industry, greater responsibility for the ecology that sustains, well, us, and the rising tide of sustainability across all sectors, as defined by GIIN, amongst others. Impact investing is slowly edging toward mainstream acceptance. Will it get there in time?
In this context, slow is good. Slow money, slow food, slow-dawning awareness that positive social/environmental impacts last, they’re “for good” (in both senses of the phrase), not just flash-in-the-pan “new new” things that fire and fizzle before having a chance to ripen and mature. But also that capital can be an agent of good, that improves human existence, gives us better lives, not just more money without the underlying joy and life-sustaining purpose behind investing it.
Or, more often, SBL investments just implode because of risk in the fundamentals like unsustainable demand for
- Energy & Water — the widespread downside of conventional datacenters, with some figuring out how to “de-carbonize” so we can all use AI without guilt about unintended consequences
- Nutrients and other life-supporting and life-sustaining resources — think healthy fisheries, or
- Housing built with bamboo panels instead of tree wood, or fireproof, wind and earthquake tolerant sustainable bricks… or
- The finite, nature-based inputs that enable even electrified transportation such as rare earth metals for conventional storage batteries
- Healthy soils, NPK fertilizers, rock dust elements like iron, and biochar for soil structure and water retention, keys to sustainable agriculture, or
- Rubber tires with both natural and “furnace” carbon black.
Investments that gradually deplete these resources and drive up prices to ridiculous levels (take petroleum in the current market … please) and become scarce due to mismanagement by industry are by decree “unsustainable.”
Some of us feel that such opportunities are already so ripe they’re falling off the vine. Perhaps.
History shows that emerging humanitarian, civil rights, and new cultural standards based on dignity, mutual respect, honesty and integrity get both adopted by the “right” people – those who sincerely want to increase impacts, who build purpose-driven institutions and are committed to ESG/sustainability – but also co-opted by those who bend and pervert such trends in an effort to water down their purported meaning. This power struggle is constantly at work. Who will win? We all do, eventually. It is the proverbial “good fight.” Armed conflict is not.
Sometimes the perceived value or reputation of an entire industry like Impact Investing or “Fair Trade Certified” (alongside the uprise of Farming Cooperatives) will rise and fall in popularity on the path to reaching mainstream grandeur. Fair Trade coffee, for example, took a serious hit back in 2015 when the Fair Trade standard was lowered to embrace more mainstream capitalism (25% or more Fair Trade content was deemed FT). Same story with the US-government’s Biobased Preferred Procurement program, which you’ve probably never heard of because … well, it means very little to very few of us green chemistry nerds.
Ditto for some “certified organic” food standards, with many now advocating that sustainable and no-till “regenerative” agriculture are the only meaningful keys to climate change mitigation, while organic stops short. It is inarguably a step in the right direction, eliminating toxins and environmental disasters-in-the-making (agricultural practices should not have “drainage” water that contains so many salts, born of synthetics, grown on dead soil), but by itself, organic is still not nearly enough.
Similar to the rise and fall of celebrities or celebrated innovators like Apple and Amazon (still going strong, taking over the world) or even Uber (is it faltering and bringing Silicon Valley values into question?), the marketplace remains a fickle measure of popularity, a “beauty contest” in the short term, while in the longer term it weighs the value or true worth of the products or services. This is particularly obvious in trading of public equities, as observed the so-called father of value investing, Benjamin Graham, describing the stock market as a “voting” and “weighing” machine.
The word “sustainability” itself has survived similar boom and bust cycles. Now perhaps it is impact investing’s time to shine? Those involved in the early days of impact investing, back then called variously Socially Responsible Investing (SRI), social investing, or ethical investing, have always focused on purpose-driven uses of capital, not unlike voting with one’s money (not to be confused with the behind-the-scenes mechanisms of recent US political elections). The difference today is a much greater variety and diversity of purposes, and in particular not screening out negative effects (tobacco, weapons), largely seen as inadequate, but instead seeking to maximize the positive outcomes from powerful, scalable solutions in a world gone positively crazy.
Early-stage and development-stage investments are still by far the most risky to those who invests in them, thus management teams are finding sources of grants and forgivable loans to launch new purpose-driven enterprises. Impact-oriented angels, family offices, government agencies (USAID, etc.), regional development banks and more philanthropic institutional investors such as foundations usually focus on quite specific aspects of the triple-bottom-line — by geography, social cause, environmental issues like climate change mitigation, food security, etc. — where the potential social and/or environmental impacts are cause enough to invest their values.
But the “blended capital” approach, as Jed Emerson first coined it, delivers developmental benefits without creating dependency on further grants, subsidies or market incentives. This is how entire new industries are born and given a chance to thrive in a market that already “incentivizes” the incumbents such as fossil fuels (do we really need to mine more coal?), big pharma (Obamacare is already a give-away to the insurance and pharmaceutical drug industries, so we really need to make it favor the rich, too?) and war.
It’s about the economy, as usual, with many new players rowing in the same direction, toward clean, circular, responsible and sustainable economic activity. . . seems worth having, as if we all could vote with our capital (in all its forms — social, political, intellectual and financial) with every decision. What will you do differently this week, this month or year?
See what we’re doing: In3’s Investment Strategy