This post originally appeared on the Social Edge. Join the conversation there!
Antony Bugg-Levine and Jed Emerson recently released their new book, Impact Investing: Transforming How We Make Money While Making a Difference. It explores a wide range of issues essential to developing impact investing as a tool to achieve a just and decent society. I invited them onto SocialEdge to answer a few questions about the relationship between social entrepreneurship and impact investing.
Clark: In your book, you argue that impact investing is a necessary and transformative ingredient for making real progress on social issues. Why?
Emerson / Bugg-Levine:As we reflect on the complexity and depth of issues facing our planet—environmental challenges to sustainability, social challenges regarding health, education, justice and so on—it is clear that while traditional, nonprofit and development strategies are critical and there is a pressing need for effective government and public policy, the fact of the matter is neither of these two sectors alone is enough. We believe there is a morally legitimate role to be played by both the business sector and social entrepreneurs who are drawing upon business tactics to help complement the work of development NGOs and governmental agencies. If we are to truly unleash the potential power of social enterprise to address these challenges, those enterprises must have access to not only adequate amounts of capital, but also capital which is structured on terms that “work” for those entrepreneurs—a type of capital which is presently in short supply. We believe impact investors have the potential to enter into this capital breach and offer new options for financing change and advancing justice.
Clark: Many social entrepreneurs are excited about the promise of new kinds of capital and investors. Others are quite wary of the lure of having your cake and eating it too (the promise of profit and impact). They worry that subsidies (grants) will be looked at as the poor stepsister of the more sexy investing activity and wonder what that will mean for the poorest and neediest around the globe. How do you reconcile these tensions?
Emerson / Bugg-Levine: Many social entrepreneurs have business models that require philanthropy to scale. If impact investing was crowding out donations then these social entrepreneurs should be worried–but in our experience that is not happening. Instead impact investing is tapping into new pools of capital that used to be entirely disengaged from supporting social enterprise at all. As long as this holds, then impact investing is providing social entrepreneurs with more choice, not less–for the subset of social enterprises that have business models that can pay back investors, impact investing lays a new road for them to get to scale. The real magic is not about either/or discussions of whether impact investing or charity is better but about matching the right capital sources to the right business models at the right time (and often combining them in interesting ways).
Clark: At CASE at Duke, we’ve just established CASE i3, the first global comprehensive initiative on impact investing at a top 10 business school in the US. One of our goals is to develop leaders for this new capital market space that are prepared to achieve real impact on global social problems, using their skills, networks and values. In the book you assert that the field needs to move from support of exemplary pioneers to developing a much broader field of talent that can contribute toward outcomes. How do we reconcile this with the early-stage funding landscape for social entrepreneurs, which tends to select and reward founders with charisma and visionary-type leadership qualities?
Emerson / Bugg-Levine:Our traditional approach to celebrating social entrepreneurs has been great in profiling individuals with vision and passion; we don’t think this will go away, nor should it. However, if we really want social entrepreneurship and impact investing to attain their true potential at scale, we must end our deification of the individual and turn our focus to the community of which those individuals are a part. In the same way it takes a village to raise a child, it takes a large community to make for a successful social enterprise over a 50 year period—whether for-profit, non-profit or hybrid. Educational institutions are particularly well positioned to help advance this mindset.
Clark: In the book you talk about impact investing’s need for the Apple IPO-like moment, when an entire industry rallies around a success that everyone else then tries to emulate. You say we haven’t had one yet in impact investing. But is that the right metaphor for this emerging movement? And in the absence of the big, cool IPO where everyone can watch the ticker go up, how do we rally around true, long-term success?
Emerson / Bugg-Levine:As we mention in the book, we need an attention-grabbing success that manifests the promise of impact investing. That is what all innovations require to go from an abstract concept to a widely recognized force. The venture capital industry had it in the Apple IPO. But as we make clear in the book, “our” Apple IPO is not going to be measured just in financial valuation and windfall profits. It’s going to be the social challenge — such as education gaps in slums in India, malaria in West Africa or food deserts in US inner-cities–that gets solved because of impact investment in social enterprise that would not have been solved with old approaches alone. But the real victory will come when that clear success then galvanizes far deeper and broader change in how individuals and institutions arrange their investment portfolios, how policy makers create a supportive environment for impact investing and social enterprise, and how talented people build entire careers focused on an integrated approach to generating financial value and social return. The “IPO” will not constitute success but is necessary to precipitate it.
Clark: The book is so wide-ranging, exploring the impact of microfinance, how foundations should use all their capital as leverage toward social problems, talent development, metrics, and policy as a way to enable the field for action. Of all these potential levers for the field of impact investing, which is the most critical in the next 3-5 years?
Emerson / Bugg-Levine:Our experience writing and talking about the book has convinced us more than ever that impact investing is at a take-off point. Around the world people are breaking out of the comfortable, but ultimately limiting, confines of business-as-usual habits and perspectives. Whatever your current position or future ambitions you now have a role to play in this gathering movement, whether you are an investor who can demand more from your bank or advisor, a student who can challenge out-of-date assumptions in the classroom, a Board member who can demand that all assets pursue social purpose or a policy maker who can break down the silos of social and financial regulation. This is not just about developing new products or making great investments—it’s ultimately about building new systems to support new ambitions that can meet the challenges of our time.
We must—each one of us—understand that we are now part of a global parade of actors advancing the Whole and that therefore each of us is called to promote whatever part of this process of field building best fits our talents and passions. There is quite simply no single piece that is more important in the same way that there is no single entrepreneur or investor who stands out as critical to our future common success.
It is all one; the parts are the whole; the future is now!
Clark: Thanks, Jed and Antony, for this amazing book and bringing such a strong call to action to all of us who care about social impact!
Now, it’s your turn…
- What questions do you have for Antony and Jed about the future of impact investing?
- Are their solutions sufficient?
- What did they leave out? Is the market gap (see the Impact Investing Wave) an obstacle for you as you seek investment capital?
- Are entrepreneurs in the space finding the capital they need? What other structural needs are there? And what can we do about it?
- What’s your role in this new movement?
Join Cathy Clark (CASE at Duke), Jed Emerson (ImpactAssets) and Antony Bugg-Levine (Rockefeller Foundation/Nonprofit Finance Fund) in the conversation on the Social Edge!