05/23/2012 06:36 pm ET Updated Jul 23, 2012

Tom Steyer: Impact Investing Icon

Before the current fascination with celebrities, there were icons. Elvis. Brando. Buffett.

Icons are celebrities for sure, but more significant and authentic -- enduring symbols representative of a movement or idea.

The closest impact investing has to an icon is Tom Steyer, at least in the United States.
In 1986 Tom founded one of the world's largest hedge funds, Farallon Capital, with over $20 billion in assets under management. More recently, in 2007, Tom and his wife Kat Taylor opened the first branch of One California Bank in Oakland, now One PacificCoast Bank, a registered Community Development Financial Institution with a mission focus on economic and environmental sustainability.

Steyer is not an icon for the obvious reason of being a renowned impact investor. In fact, Steyer is not an impact investor at all. Taylor runs One PacificCoast Bank. Rather, Steyer is an icon because he represents the duality at the heart of impact investing; the challenge of bringing together mainstream investing on the one hand, and double- or triple-bottom line investing on the other.

Moreover, the priorities inherent in Steyer's interests are uncannily reflective of the capital market's current phase of development -- conventional investing for market-rate financial returns at the center; mission-driven investing for below-market total returns as a meaningful, but modest side project.

If only it was that simple. Like the capital market itself, Steyer is evolving.

Take his remarkable conversation with Drummond Pike, of Equilibrium Capital (EQ), at the 2011 Social Capital Markets (SOCAP) conference in San Francisco. (I was recently reminded of the discussion, in Nairobi of all places, when a consultant told me his current work in impact investing had been motivated by Steyer's reflections that day).

So forceful were Steyer's comments on the future of capital markets it was impossible not to think something important had just happened. And now, nine months later, a clip from the session has finally surfaced on the EQ homepage.

Responding to a question about reconciling the two worlds of social finance and traditional capital markets, Steyer's remarks reveal a man grounded in the binary status quo, but animated by the inevitability of convergence:

I actually think that there is going to be a new way of thinking about investing... the whole idea will be to include all of the externalities of your behavior. The simplest example is that, if you pollute a lot, you are going to have to pay to clean up your pollution. In effect, I think we are going to move to a model that includes all of the ramifications and the concept of sustainability and continuity, and not of depletion.

So... I think [social finance and traditional capital markets] are actually going to merge. It's going to take longer than I expect, but I think the thing that will make it happen faster is that... it turns out to be really profitable.

I'm drawing a little bit of a distinction between what is thought of as social investing and investing with a concept of sustainability... If you think about what we're doing in Oakland, at One PacificCoast Bank, the expectation is that the returns, on a purely monetary basis, will be lower than most banks want. Whereas from our point of view, that's not what we see the returns as.

"Honestly, if we lend money to someone who goes around and fixes up a whole bunch of apartment buildings in Oakland, and that makes it a safer community and allows jobs to be created, then that's a return that, to us, is incredibly valuable, but might not show up on the income statement. So that would be how I think of social investing. You're trying to step back and look at the world and see the overall returns.

From the standpoint of [sustainable investing], you need to think about how you are going to return the place [in which you invest] at a minimum to what it was before, if that's even possible. And if you look at it that way, is there really a return for this money. I honestly think this is going to be the dominant form of investing at some point.

Celebrity is helpful in the growth of a new industry, but unsustainable. What impact investing needs is a diverse pool of talent and widespread innovation.

Icons, on the other hand, provide ballast as we navigate uncharted territory searching for concrete explanations for how and why impact investing has emerged with such tremendous momentum.

Steyer's own journey will undoubtedly continue to be iconic.