15February

Shelagh Gastrow weighs in on "impact investing" at SAIIN 2015

Shelagh Gastrow was invited to take part in an Oxford Style debate on the value of impact investing at the annual Southern African Impact Investing Network (SAIIN) conference. Asked to present a counter-argument, Gastrow took the position that programmes that emphasise short-term, market solutions don't really change the world's biggest systemic humanitarian problems. 

Shelagh Gastrow weighs in on

I have been asked to speak about “Is Impact Investing a lot of Hype” and my underlying premise in taking this position is that I believe that the world is “not a machine, but a complex, interconnected living organism.”  This means we cannot view things through a mechanistic or linear lens.  Nor can we expect short term results.  Living systems have the capacity for renewal and realignment, but our society is full of paradox and contradiction – the world supports women’s rights in some places and oppresses them in others.  There is intransigence and there is dynamism.  There is tradition and there is change.  There is superstition and there is enlightenment.[i]   Individuals acting together in the civil society space have traditionally been the drivers of change as they work in community and provide solutions to systemic problems.  Examples include the anti-slavery movement, the women’s movement and the environmental movement.

So now we have “Impact Investing” – a new concept and movement being driven by various philanthropic and philanthro-capitalist interests.   For purposes of this debate I will define Impact Investing as an investment in social good, but with the expectation of a financial return.    The idea should really be to drag hard-nosed capitalists out of their sole focus on financial return into recognising that business has responsibilities because their activities affect the planet and its people.  Since the invention of the internet, the public can see bad business practice – deforestation, child labour and smokestacks. To make a profit, business has to be extractive - extracting what it can from its employees, from the environment, from its clients and customers.  But in the modern world, corporate reputations can be ruined in minutes by social media.   Hence the awareness of the need to build social capital, to appear to be good corporate citizens.  Impact investing, for me, is a way hard capitalists grow their social capital while growing market capital.   All kinds of marketing ploys have been adopted, such as cause related marketing – value is in the act of consumption, not the cause.

One of the greatest so-called impact investments was undertaken by Lever Brothers in the 19th century when they understood that if soap was sold in small bars, then the market increased and more people could bathe. This led to a massive social shift in hygiene.  By 1925 Lever Brothers was employing 85 000 people around the world.   They met all the criteria of impact investment : improvement in hygiene, reduction in disease, job creation and money in the bank.  However, what unintended consequences did soap have?  Did you know it pulled women off the land into the laundries and disempowered generations of women?  We won’t even mention the appalling conditions of labourers extracting palm oil in the Congo.  Soap also enhanced social and class divides – the rich and clean, the poor and dirty.  The spotless mansions and the disgusting slums.  Before that everyone was equally smelly.

What are the norms and values related to an act of consumption or an act of investment?  What do your MBA programmes teach you about human values? This is where Impact Investing is a peculiar notion.    Firstly, impact itself is about the recipient, it is not about the investor, but, with the current hype to build this so-called movement, we focus mainly on the objectives of the investor who is running around looking for a project to invest in.   Value is seen through the act of impact investing – the investor has no social values as such.  (investing in buildings – don’t mind if it is a pro-abortion organisation or an anti-abortion organisation). In addition, the kinds of linear or mechanistic measures that are the calling card of business do not fit the social sector. Secondly, social change is complex and messy.  The bulk of time (and therefore money) is the essential engagement with social structures.  It is about engaging with political structures, traditional structures, fears of change, mistrust, expectations of kickbacks etc.   As CK Prahalad has indicated - multiple players need to be involved including government, NGOs, communities, financial institutions and other companies.  You have to create buying power, shape aspirations, improve access and tailor local solutions. [ii]  What fits the local context can’t always be taken to scale.

Finally, the big question: Does impact investing change the world’s biggest systemic problems – our values and norms – the very frameworks that define how we live.  What are the market solutions for: 

  • Promoting and deepening democracy
  • Advancing civil and human rights
  • Dealing with inequality and racism
  • Countering Xenophobia
  • Fighting Human trafficking
  • Fighting Corruption
  • Reducing Crime
  • Dealing with Religious intolerance

Alleviating symptoms of bad socio-economic systems does not solve the underlying cause of the problem, even if thousands of people benefit from a particular product.   Business doesn’t focus on changing values and I quote Michael Edwards from his book Small Change, Why Business Won’t Save the World.

“No great social cause was mobilized through the market in the twentieth century. In the United States, the civil rights movement, the women’s movement, the environmental movement, the New Deal and the Great Society were all pushed ahead by civil society and anchored in the power of government as a force for the public good.  Business and markets play a vital role in taking these advances forward, but they are followers, not leaders, instruments in the orchestra, but not conductors.  No lasting change has been successful without large numbers of people acting consciously and collectively around human values of solidarity and social justice, not market values.  Markets are a great way to do some things, but not to fashion communities of caring and compassion. “[iii]

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[i] James Taylor, “The State we are in” Inyathelo Annual Report 2012
[ii] ibid
[iii] Michael Edwards, “Small Change – Why Business won’t Save the World”  Berrett-Koehler Publishers, San Francisco, 2010.--