Impact Investing, an investment “into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return”1 is being hyped right now. Go to any conference related to investing and it will be mentioned at some point. Banks, wealth managers, advisors – everybody is trying to jump on the train to fulfil the growing demand for impact-oriented products and services. The landscape is growing with new funds emerging, impact investor networks such as The ImPact and Toniic attracting new members and of course new social entrepreneurs raising investment with their groundbreaking ideas.
In the last couple of years I have led three parallel lives. As an activist, trying to increase transparency in the Greek parliament. As a philanthropist, funding organizations in the area of political activism, social entrepreneurship and refugee aid. And finally, as an impact investor through our family office in Munich. Impact investing is a fascinating field and a great way to support commercial activities that tackle the social and environmental challenges of our time. Yet, my experience with political activism and philanthropy taught me that impact investing alone cannot achieve the breakthrough change we need. The big issues facing humanity, most importantly climate change and the growing divide between rich and poor, cannot be solved by impact investing alone. These issues call for cultural change regarding our values, frames and belief systems as well as changes to our political, economic and social institutions.
For many social entrepreneurs the highest achievement actually is achieving systems and policy change.2 For example, social entrepreneurs might advocate for closing the gaps in the welfare system that made their own emergence necessary. Ashoka, one of the leading organizations supporting social entrepreneurs worldwide, also supports the idea that actual service provision is only one side of the social impact coin. Their four level impact model 3 lists Influencing systems and frameworks as the other – often neglected – side. I am therefore convinced that impact investing strategies need to be coupled with efforts at achieving change at the level of root causes and systems. Policy change is an important aspect of this. It can have the same, if not greater impact than impact investing.
Last year for example, I made a donation to a UK NGO called Share Action to support one of their campaigns for pension fund reform in the UK and Europe. As members of a broad alliance of European NGOs, Share Action lobbied the European Parliament to allow pension funds to become more responsible investors. The suggested changes in the EU legislation include an adaptation of the Shareholder Rights Directive which would give investors more power to hold companies to account with respect to their environmental performance and the use of pension fund assets. The European Council and the European Commission will hopefully reach a final agreement on this matter by the end of this year, which could have a tremendous impact. European pension funds with combined assets of around 3 trillion € would then have to actively consider environmental, social and governance factors in their investment decisions. The project was supported chiefly by the Mava Foundation Pour La Nature and KR Foundations with an overall budget of just over € 208,000. Although my own donation was below 15,000 € the effect it could contribute to is arguably massive, helping shift billions of Euros into more sustainable investing and changing the behavior of an entire sector!
Another great example for the effects of advocacy funding are the $27 Million donation that Atlantic Philanthropies, the foundation created by Duty Free Shoppers Group co-founder Chuck Feeney, made to the Health Care for America Now coalition in 2007. The coalition eventually succeeded in lobbying congress to pass the Affordable Care Act also known as “Obamacare” that provided millions of people access to critical health services. According to the Huffington Post and other media, the legislation would most likely not have passed without this critical support by Atlantic Philanthropies.4
Advocacy impact strategies are surely accompanied by high levels of risk. Outcomes are by no means guaranteed and your donation will be gone indefinitely irrespective of whether a change was achieved on the actual issue. However, if you are a risk-taker and care about achieving the maximum impact with your money, investing into political advocacy is very much worth looking into. Moreover, even failed campaigns can have their upside if alliances were built, knowledge was shared and organizational capacity was increased. These effects will outlast an individual campaign effort and can fuel future advocacy. In the case of the Share Action donation, the result was the formation of ERIN (European Responsible Investment Network), which brings together a wide-range of civil society organizations interested in improving public accountability and investment practices of Europe’s investment sector.
Another angle on advocacy funding is how ESG (ecological, social and governance) issues can have a financial impact for investors given a certain policy framework. For example, in a policy framework where the ‘polluter pays’ for damaging the environment, sustainable companies represent better investment choices. Creating such a framework, the state (and entities like the EU) could help create markets for responsible and sustainable products. Public policies can mobilize more resources than anyone else; they can create an environment where new solutions are allowed to scale; they can discipline offenders and encourage early adopters in ways that the market alone cannot do. One example in this context is how the European Investment Fund is helping to build the social investing space in Europe by investing more than 250 mio. € into private equity impact investing funds through its Social Impact Accelerator program. These funds allow social businesses around Europe to become investment-ready for larger follow-up investments.
The bottom line is that Impact Investment and policy work really should support and complement each other. Undoubtedly, there is no one solution to solving the world’s problems, as the world’s struggles are interconnected from democracy to climate change, from rising inequality to consumer protection. In the end achieving policy change and impact investing are part of the same coin, different strategies for achieving the same goal that is a peaceful and prosperous society.
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