From tackling everything from climate change to AI, funders around the world are seeking to do good for shareholders and stakeholders across society.
In the investing sector, there’s sometimes a tendency to look for “silver bullets” – investments that might grab the attention in headlines, pitch competitions or with a compelling narrative around a founder “hero.” But in impact investing, a strategy that combines seeking financial returns with positive social and environmental effects, balancing doing well for an organization, investor and the world does not always lend itself to a quick fix. Indeed, many of the challenges that the impact investment community is seeking to address are intricate and often rooted in deeply entrenched systems.
Yet more and more asset managers are ditching the easy solutions and diving deep into more intricate fixes related to climate change, AI and many other areas.
This week kicks off SOCAP Global, a gathering of impact investors from around the world who are driving change in their communities and hoping to spark change. This year, the main theme explores how impact investors tackle complexity through systemic investing. Here are few of the themes that we will be exploring at the conference, which can offer broader lessons for investors at all levels to make a difference where they are:
Support small businesses as a driving force for innovation. Investors are recognizing the potential of smaller and growing businesses, particularly those with owners from underrepresented communities, to drive significant social and economic transformation. That’s especially true in emerging markets in Africa and Latin America. By funding small businesses at the community level, funders can build and support entire ecosystems that create jobs and improve access to essential services.
For instance, a 2023 collaboration between international nonprofit Building Markets and the Conrad N. Hilton Foundation (founded by the former head of the Hilton hotel chain) is supporting more than 700 small businesses in Colombia that are owned by or employ migrants and refugees. Such efforts and philanthropic tools can not only help the business ecosystem there but also support refugees who live in developing countries so they can provide for themselves and create jobs in their host nations.
Likewise, investors like Canada’s Regenerative Capital Group and New Majority Capital, based in Rhode Island, are looking to influence the purpose and equity of ownership of small and medium-sized enterprises. They achieve this by acquiring existing businesses and either reengineering them to follow a so-called regenerative business model (where a business creates net-positive system value for a wide range of stakeholders) or by funding founders from underrepresented backgrounds to own more businesses. Again, such efforts support business and community hand in hand.
Rethink the ways we try to tackle climate change. Climate change and environmental degradation pose significant threats to our planet and future generations. Investors are engaging these challenges through systemic thinking, including by ensuring that nature is on the balance sheet. By developing innovative, nature-oriented finance tools, entrepreneurs and innovators are enabling businesses to incorporate the value of natural assets into their financial statements. One such example is the Open Earth Foundation, a California-based nonprofit that is developing a global climate accounting system.
This kind of shift empowers chief financial officers and other business leaders to take a more active and quantifiable role in nature conservation and sustainability initiatives, moving these responsibilities from just the sustainability segment of a business to the financial realm. The nonprofit BioFi Project is developing what it calls bioregional financing facilities, which connect financial resources with on-the ground leaders who manage projects that regenerate deforested landscapes in the world’s most biodiverse regions.
Elsewhere on the climate front, organizations are developing food systems that create incentives to actually conserve the Amazon rainforest, not just use resources from it. By supporting business models and value chains that commercialize fruits, roots and vegetables that grow only in forests, investors can protect biodiversity and mitigate climate change in some of the world’s most sacred natural wonders. Forest-grown superfoods like acaí and macambo are slowly making their way to global consumers. As demand grows, sustainable businesses like Amayu and ekuia in the Amazon are seeking to scale while also generating income for local communities in South America, providing an alternative to solely deforestation-driven activities.
Tap into AI strategically and ethically.
This is the year that artificial intelligence has taken markets by storm, with the potential for changing the way so much of our world operates. For impact investors, a key effort as AI develops and scales is also ensuring that it maintains and pushes the organizations that use it toward high ethical standards.
To that end, earlier this year, a group of philanthropic foundations purchased 50,000 shares of Anthropic, an AI company known for holding itself to high ethical standards after splitting off from OpenAI because of concerns. Foundations see these types of investments as potentially playing a beneficial role in shaping AI for the public good.
Look inward to make changes outside yourself or your community.
One more promising strategy that will be discussed at SOCAP lies in looking inward. The idea is that, by addressing personal or collective trauma, internal perspectives and behaviors, we can catalyze transformative shifts in the larger systems that contribute to crises.
Sometimes, systemic change comes from unlikely allies breaking silos for impact. For instance, Christiana Figueres, a global diplomat and architect of the Paris Climate Agreement, signed by nearly all of the world’s countries in 2015, has partnered with Plum Village, a global Zen mindfulness community, to invest in the mental health of climate leaders. By understanding the link between mindfulness and strategy to support protecting the climate, Figueres asserts that climate leaders will be more effective with tools for clarity, peace, and compassion.
Similarly, pioneering hip-hop artist Chuck D, leader of the group Public Enemy, has partnered with dozens of community health organizations across the United States to highlight the therapeutic effects of music in addressing trauma, which has been shown to deliver better health outcom
As impact investing continues to evolve, investors are becoming increasingly sophisticated in their approach to driving change, particularly in new ways or by forging unconventional partnerships. By focusing on emerging markets, environmental challenges and social equity, they are making a significant contribution to not only a business’ bottom line but also to addressing some of the world's most pressing issues and creating a more sustainable and equitable future.
Michelle Arevalo-Carpenter is a practicing impact investor and Executive Director and Curator at SOCAP Global, the largest convenor of the impact investment ecosystem globally, bringing together capital and impact opportunities to catalyze change. SOCAP Global 2024 will take place Oct. 28-30 in San Francisco.
