Articles / 02.06.2018
I was a big fan of BlackRock CEO Laurence Fink’s letter to CEOs, in which he stressed that “businesses must contribute to society.” I think the world would be a better place if this were the case (which is just one reason I’m proud to work for a B Corp). Two of my preferred news outlets had similarly positive responses: the NYTimes suggested that it “may be a watershed moment on Wall Street,” while Impact Alpha declared that “BlackRock’s decision could actually change the day-to-day behavior of CEOs, boards and leadership teams in ways that philanthropy, CSR and past impact investing initiatives have not.” Of course, others were more skeptical. Indeed, some CEOs in Davos were purportedly “pissed off.”
I couldn’t help but wonder how, in today’s vitriolic, hyperpartisan world, Fink’s sentiment was portrayed…elsewhere. I quickly discovered the following on Breitbart:
“There’s an important lesson for conservatives, Trump voters, and working-class Americans in Fink’s letter…the moneyed power on Wall Street does not care about you, your family, your jobs, or your community. It is not your ally. Increasingly, it is your enemy.”
Coincidentally, that same day, while I was perusing Zero Hedge (a publication, unlike Breitbart, that I actually read from time to time), I saw the following headline: “A Post-Mortem on the Corpse of ‘Social Justice’”. We have witnessed a considerable uptick in impact investors interested in social justice, so I was surprised to see it declared dead. But the author writes:
“I do not want to diminish or underestimate the threat still posed to personal freedom by the adherents of the social justice cult, but at this stage I think it is safe to say that political correctness is effectively a dead movement walking.”
The social justice movement, lampooned in the cartoon below, is likened repeatedly to “cultural Marxism” and apparently “not selling so great in the marketplace.”
I was intrigued, to say the least. So I did a bit of cyber-sleuthing, and found an indictment of the impact investing discipline on Breitbart, in an article entitled “Liberals Are Stealing Our Hearts and Minds and Now Our Money.” This short article declares
“Trouble is divestment movements and activist socially responsible investing movements are mainstream and are attacking the very industries that make America great…this is a dirty business – big institutions have co-opted your money and are using it to their lofty progressive ends that are damaging to our national and personal freedoms. This is nothing short of economic jihad, and it needs to be stopped.”
At least SRI investing, in the eyes of this scribe, has officially gone mainstream!1
In all seriousness, the impact investment industry does not benefit from this sort of corrosive politicization. In fact, I think the mischaracterization of impact investing as an exclusively liberal pursuit is a significant threat to the discipline.
For starters, politicizing impact investment risks repelling a significant portion of potential practitioners. Let’s not forget that convincing people to invest for impact is hard; we don’t need to make it more difficult by suggesting its aims only appeal to a certain subset of the population. (Related, as I’ve lamented on Twitter, we need to be careful with our fixation on celebrities.)
Similarly, I suspect there will be some investors who either stop investing for impact, or opt not to initiate the practice, if it is inextricably linked to a Democratic agenda. Some foundations won’t want the political affiliation. But foundation board members and their investment committee members won’t be the only ones who get uneasy: families will also prefer to avoid the disagreements that could be expected to follow.
Those predictions aside, I would point to the saddening politicization of climate change as the main reason we should avoid the same influences in impact investing. Al Gore no doubt raised global awareness of the Anthropocene. But as a former Democratic Vice President and Presidential candidate, he inadvertently helped polarize the issue of climate change, to the point where our divided country now stands alone as the only country unwilling to join the Paris Climate Accord.
We do not want impact investing to go the way of climate change.
And yet, many of my fellow practitioners fuel the narrative – at times, quite purposefully and unapologetically – about impact investing that is beginning to emerge in conservative circles. The most obvious example is the way gun manufacturers are labeled as “sin stocks.”2 But I also attended plenty of impact investing conferences last year where attendees publicly pledged to combat the Republican legislative agenda. There’s no need to single out any person or organization. Just take a spin through Twitter and search for the #impinv hashtag; you will witness overwhelming resistance to President Trump’s policies. Related, there have been numerous headlines over the last year about the surge of capital inflows – a “Trump bump” – enjoyed by SRI / ESG funds. But as the impact investing industry continues to define its aims in explicit opposition toward our President and Republican-controlled Congress, it makes the shortsighted mistake of committing to only one side of our great partisan divide.
I don’t think this needs to be the case, even on the issue of climate change.3 After all, a carbon tax was recently embraced by elder Republican statesmen. Climate change risks are rigorously examined by insurance companies around the world. And renewable energy is increasingly financed by multinational corporations, banks, pension funds, and utilities for economic reasons, not environmental.
Selfishly, I’d like to think that my professional efforts to support job creation, gender equality, and financial inclusion together defy partisanship. And yet, anyone viewing my preferred publications, professional history, or Twitter feed could easily guess my political motivations. But does that mean I have to work exclusively with people whose world views match my own? How myopic, boring, and insular would that be?
At Caprock, we find solutions that enable our clients to express their objectives and values through their portfolios. Some of our clients don’t know or care about impact investing. Others are committed to combatting climate change, furthering early childhood education, supporting the arts, and spreading Christianity. We work with one public equity manager who can support an anti-LGBTQ exclusion or Catholic values, as well as a geographic tilt toward Israel or a faith-based strategy emphasizing Islamic values.
In short, impact investing is driven by investor values, not a left-wing agenda.
Neither I nor any of my colleagues consider ourselves to be the final arbiters of what constitutes impact. The definition of how one defines social or environmental benefit differs from one family or foundation to the next. Some of those benefits matter more to me than others. Indeed, some of these values may run counter to what I believe. Much more important is that there exists a fair and transparent marketplace, where anyone is free to construct their portfolio around their values. In this scenario, to misappropriate a common quote, I believe the arc of the capital markets will continue to bend toward justice.
1 Then again, he is the CEO of Freedom Capital Investment Management, “the first American Impact investment fund,” so he’s a bit biased.
2 I understand that this is a relic of many religious institutions’ decisions, decades ago, to divest from gambling, pornography, tobacco, etc. But I don’t think views on those industries have the sort of stark political affiliation that guns do.
3 This type of institutional investment may beg another existential question: should climate even be considered an impact investment theme? After all, we used to apply the “but-for” philosophy to help define impact: “but for” impact intent, this investment would not have occurred. Investments going toward renewable energy, energy efficiency, and battery storage would no longer pass that test…