In October, I went to New Delhi in India to attend one of the biggest annual impact investing conferences in the world, driven by the Global Steering Group (GSG) on Impact Investing, which is chaired by Sir Ronald Cohen, a venture capital veteran credited with starting one of the largest venture capital firms in the UK.
Globally, impact investing is growing exponentially. Twenty-one countries and the European Union have created National Advisory Boards (NABs) and been inaugurated into the GSG. In India, South Africa was one of 4 or 5 countries – and the first country on the African continent – formally welcomed into the fold.
“Impact investment optimizes risk, return and impact to benefit people and the planet. It does so by setting specific social and environmental objectives alongside financial ones, and measuring their achievement.”
The GSG for Impact Investing
The GSG’s big hairy audacious goal is “that measurable impact is embraced as a deliberate driver in every investment and business decision affecting people and the planet”. As Simanye, this goal resonates with us as being the ultimate future of investment, and we often push back against the common economic diagrams showing the social economy as some kind of separate economy or ecosystem to the mainstream one. The social economy is a subset of the mainstream economy and in fact, increasingly intertwined with it.
But this increasing integration is a double-edged sword. On the one hand, the total integration of impact – whether positive or negative – into the measures of a company’s success, creates transparency for investors and mindset changes in the world of investing, and further drives capital into areas where it is much needed. On the other hand, the Investment World seems to be pursuing Impact Investing with a hedonistic intent, without always pausing to reflect on its own role with Traditional Capitalist Investment and the baggage it will be carrying into this new relationship.
It is important to examine some of the potential reasons for this new influx of capital and the drivers thereof as this has implications for how the Impact Investing world might change and is already changing. For example, what is the danger of mission drift becoming commonplace, because part of the Investment World’s baggage is a co-dependent relationship with Investors on maximising short-term returns.
When are we going to ask, and answer, hard questions like how we address the fundamental issues of greed and self-interest across the globe? When lower impact projects get funding because of 10x expected returns and the endless quest for Unicorns (privately held startups valued at over $1 billion), what will really have changed? Investing in innovation and technology is important of course, and in some cases, scaling is hugely beneficial along a wide range of criteria, but focusing on this alone means that people and planet may get placed second, and inequality rising will lead to more and more unfairness across the globe as well as more instability. Scaling impact may be the right thing to do, but we shouldn’t assume it is for each and every project and we should critically assess the drivers behind this and the possible unintended consequences. What works in some places will not work in the same way, or at all, in others.
Another hard question that comes to mind is how do we ensure local participation and ownership? Fund Managers and the holders of capital – some 1% with around half of global wealth – generally want to not only maintain but increase their wealth. South Africa is the first, and only, NAB part of the GSG in Africa, but Africa is a hot continent for impact investing with a lot of activity already taking place, whether it is called that or not. How do we ensure that impact investing isn’t just a second wave of colonisation of Africa and exploitation of its resources under a more noble guise, rather like humanitarian aid has been over the last few decades?
Another element to consider, that that creating jobs is not acceptably sufficient impact in the social economy when considered on its own. Economists and politicians have long promoted the benefits of foreign investors bringing jobs and taxes to economies and this holds true in the short term (assuming non-exploitative jobs), but in the long term, we have to ask what do we get as a nation or continent of people compared to the wealth generated from the natural resources that these companies extract and the local markets they access. Providing wind turbine technology to power African cities has a positive impact on the environment and on the city powered if it didn’t have power before, but at what long-term cost if some of these assets and profit streams are not also owned locally?
I read a story recently of a Cape Town tech business that exited to Silicon Valley and this was lauded as every tech company’s goal and a marvellous success. While it indicates the talent and opportunity that exists in South Africa, I see the exit as the opposite of success. The fact that there is not enough risk capital in this country willing to invest in local businesses and technologies is an indictment on the wealth that resides here, not to mention that we gave away homegrown IP to the highest bidder in a foreign economy. Again, in my opinion, the thinking is flawed that scaling the business quickly is the definition of success and its ok that we gave away the ownership because the business is still creating jobs here so there is still value for South Africa.
We need to stop to ask, and answer, hard questions if the Impact Investing sector is to really move forward and create real impact both globally and locally. How we change our culture to “Less Me” and “More We” might be by far the biggest impact we could have.
B. Bus. Sci. (Hons) Finance and Accounting from the University of Cape Town
Co-founder and Director of Simanye and a Trustee of The Simanye Trust