Around the world, inspiring pioneers are demonstrating that business and investment can be a morally legitimate and economically effective way to tackle social challenges. But how will we move beyond these inspiring anecdotes to harness the potential of the social enterprise and impact investing movements? Asking four fundamental questions can help steer our path. Are we:
- Asking the right question?
- Building the systems?
- Considering the context?
- Deepening our sense of obligation to each other?
Asking the Right Questions
If we orient around the question "where can we find investments that generate social good?" we limit the power of our work. What we should be asking instead is: "What are the social issues we want to address and how can we best contribute to their solution?
This is more than mere semantics. The Nonprofit Finance Fund has been making impact investments for more than 30 years. In 2009 we set up a program to lend to social service agencies in the City of New York to help them weather the fallout of the financial crisis. We set out asking, "Where can we find credit-worthy borrowers in the social service sector?" But many of these organizations were no longer healthy enough to take on debt in the face of first payment delays and then budget cuts from the City of New York. We could not lend to them.
But when we changed our question to, "What part can we play to ensure that New York has a viable safety net?" we realized that we needed to combine debt, loan guarantees, and grant money for advisory services to help these organizations reposition themselves for long-term sustainability. So by focusing on what we could do to help solve the problem confronting these organizations, we came up with this approach we now call "Complete Capital." We believe many of the most powerful social solutions will employ "Complete Capital" approaches bringing donors together with government, investors and the strategic advisory services necessary to transform these organizations in a way that allows them to thrive in this new operating context. That's just one example of how asking the right question can change the way your approach your work.
Building the systems
As important as asking the right question is, it's not enough. Without the systems to support our work, it will be harder than it needs to be, and the frustrations will drive many people away. Legal systems, educational systems, and measurement systems all support activity that is either purely charitable or purely profit-seeking, but what happens for those of us working in the middle? How do we create laws and regulations that incentivize impact investors without creating an easy-way for people to falsely claim impact intentions in order to avoid taxes? How do we train a new generation of professionals who want the market savvy a business school offers and the social insight our policy and social work schools currently offer? And how will we measure the success of our social enterprises and impact investments that generate a blended value of social and financial return?
The great thing about systems change is that it creates a role for everybody. You can participate in changing the educational system by the questions you ask your professors. You can participate in changing the legal systems through your vote and the way you engage with lawmakers. In measurement, you can become a more savvy consumer of the information that is available to those who care about social outcomes. Our systems are not handed to us; we create them everyday through our actions.
Considering the Context
Too many social enterprise and impact investing discussions ignore the context in which we work. We talk a lot about amazing innovations, but we don't talk enough about how they apply to the great challenges of our time. In the West over the next decade, we need to figure out: how will we secure and expand the social safety net so that it endures as government retreats? In emerging markets, we need to determine: how economic growth can reach more and more people? Our work as social entrepreneurs and impact investors need to contribute to the answers to those fundamental questions. If we continue to have conferences and conversations and businesses that ignore this operating context we will never reach our potential.
Deeping our Connections
Given our focus on business and markets, we often understate how important basic human compassion is to our work. At some point, the fuel that allows any of our ventures to succeed is a recognition that we all need to take care of each other. This commitment motivates many social entrepreneurs. It motivates impact investors. And it motivates governments and philanthropists to buy our services directly or help provide income to our clients to pay for them.
I worry that this sense of mutual obligation is in retreat. In the West, macroeconomic pressures are causing too many people to hunker down and protect their own narrow interests. And in fast-growing emerging markets, a generation is grabbing an opportunity to attain unimagined wealth for themselves even while leaving others behind. If we don't reignite the sense that we have an obligation to each other, then the fuel that runs this whole machine is eventually going to run out.
My grandfather Yudel Levy was born around the turn of the 20th century in Germany. He was orphaned as a young boy and quit school to work. After a few years he found work in a textile factory. When my grandfather was a young adult, the factory owner gave my grandfather money to start his own factory in another town. Now that man did not call himself an impact investor, but his investment embodied the spirit of impact investing. He didn't believe that the only purpose of investing was to make money. And while he felt a sense of obligation to my grandfather, he did not give him charity. Instead he offered my grandfather start-up capital and told my grandfather to pay him back when his company became profitable.
I suspect that everyone in this room today got here because at some point in your family line, someone supported you or your forebears out of a similar recognition that we have an obligation to support each other. If we don't reinvigorate that spirit, then not only will our work be much harder, but we could will ultimately not contribute to realizing the world we want to see.
So I will leave you with a quote from my favorite political philosopher, Bruce Springsteen:
"Where are the eyes, the eyes with the will to see? Where are the hearts that run over with mercy? Where is the work that will set my hands, my soul free?"
If you have the eyes with the will to see what's going on around you, if you have the hearts to connect the work you do to a sense that we have an obligation to one another, then this is the work that will set your hands and your soul free.
This post was originally the keynote address at the Wharton Social Impact Conference.