Welcomed by Secretary of State Hilary Clinton, who spoke eloquently of the extraordinary opportunities that lay open to investors in the twenty first century and the essential role that the business and financial communities have to play in the transition to a sustainable economy, participants were tasked with four overall objectives:
- To focus on shifting from aid to investment
- To shift from short-term to long-term horizons
- To work in synergy not silos
- To shift from the status quo to develop a new and supportive policy framework
High level speakers included Richard Branson, speaking dynamically on the need to ‘screw business as usual’; Audrey Choi, Head of Environment & Social Finance Group at Morgan Stanley; Zia Khan, Vice President, Strategy & Evaluation at the Rockefeller Foundation; and Ed Martin, Director International Insights and New Methods at Hershey’s. The quality of insights was exceptionally high and the dialogue was rich in successful examples of impact investing.
Impact Investing and Rio+20
In the context of Rio+20 - where it is likely that there will be a paragraph relating to phasing out fossil fuel subsidies; and recognition of the importance of moving beyond short-term silo-thinking – the Forum certainly offered a glimpse into how impact investment could play a critical role in the implementation of Rio+20 outcomes and goals.
The basic premise of impact investing is that, instead of simply investing to only achieve the bottom line of financial returns, there is a responsibility on investors to seek out opportunities whereby governments and philanthropic resources can catalyse business and investment opportunities that will yield social and environmental benefits as well. In this regard, such investments will play a critical role post-Rio, in supporting those on-the-ground practices and projects that will help achieve and meet any targets or goals that are agreed to.
Potentially, impact investing can bridge the divide between global policy frameworks (that may not trickle down into national, sub-national, and local actions) and grass roots activities that are making positive changes on the ground (but which need to be significantly up-scaled and replicated). The top down versus bottom up approach continues to be debated; however, we know that in practice such a binary distinction does not exist. It may just be, therefore, that impact investing can fill in the ‘shades of grey’ to support the transition towards the new and responsible economic paradigm we are seeking.
A word of caution
That being said, if the solutions to the challenges we face are predicated upon the assumption that the pursuit of financial growth remains the primary goal of the business and investment community, social and environmental benefits notwithstanding, it will be important to fully consider the long-term consequences of impact investing itself. If financial returns are pursued, we need to ask if there will still be a point in time when the net social and environmental benefits are compromised; when the profit motivation will ultimately win out over the potential negative impacts that might arise as a consequence of the investment? Is it not also the case that investing in social and environmentally favourable projects will ultimately result in the mission of the projects themselves being achieved, and the need for further intervention being rendered obsolete as a result?
These are but a few of the questions I still have. This is not to throw a spanner in the works of such initiatives, because – at least in the short term – significant investments are needed to kick start the transition to the sustainable world we aspire to. But before fully embracing this approach perhaps guiding principles need to be laid down as a first step towards mitigating against impact investing having an overall negative impact. After all, as we know from Einstein we can’t save the problems with the same thinking that created it in the first place.
For more information on the Global Impact Investment Forum, see: http://www.state.gov/s/partnerships/impact/index.htm