The Purpose of Capital: Elements of Impact, Financial Flows, and Natural Being
364 pages, Blended Value Group, 2018
Impact investors seemingly have a great deal to celebrate. After decades of promoting the vision that capital should be managed with more than financial consideration alone, actors within sustainable, responsible and direct impact investing are now seeing their agenda embraced and advanced by mainstream financial institutions and investors. We’ve broken the barrier of billion dollar impact funds, our side bar workshops are now center stage discussions, and if you enter impactinvesting.com into your browser you’re taken to the website of the investment firm BlackRock. While we may not have won the war, all must admit we’re at the dawn of a new day for those concerned with doing well and doing good.
What is also true is we are at risk of losing sight of the foundational vision of what this all was supposed to be about. Some in our community appear to be confusing size with effectiveness, new eyes with true insight and knowledge with wisdom. In the process, we are at risk of losing our way as we become the impact version of that bumper sticker which reads, “I’m lost but, boy, am I making great time!”
What we are called to do is step back from our exploration and celebration of strategy and tactics in order to cultivate a deeper, more profound understanding of our intent, meaning, and purpose. In doing so, we may find the degree of clarity and perspective required to take our work simultaneously deeper and yet higher, to rise to our greatest potential as opposed to simply capture yet one more commercial market opportunity as we build the brand of Impact Investing.
I’ve spent the last three years in a process of reading and reflection on these issues, the product of which is my latest offering, The Purpose of Capital: Elements of Impact, Financial Flows and Natural Being. The book explores a wide variety of aspects of our current and historic journey. This excerpt describes the implications of our understanding of the purpose of capital for how impact investors are called to act in the world.
To facilitate wide discussion of this topic, the e-Book version of The Purpose of Capital is being offered free of charge at the book’s website, www.purposeofcapital.org. —Jed Emerson
The Chicago School economist, Milton Friedman, wrote a seminal piece entitled, Capitalism and Freedom, in which he describes the connection between democracy and capitalism. His focus on the interplay between the two as well as his understanding of the potential of capital to be a vehicle for freedom is insightful, yet the blinders of an old school, bifurcated economist with near-sighted vision limit Friedman’s perspective. His understanding of capital as freedom is correct but hindered by being couched only in individualist, economic terms (which we know is simply a construct, so we may critique it as such and add to it not only economic considerations but social and environmental ones as well).
More than economic principles and consideration drives capital. It is fuel and energy, a flow that when constricted is limited and inhibited from attaining its full freedom and value creation potential. It may be restricted to a single portfolio and set of practices and grow on economic terms but will never fulfill its real potential when understood on financial terms alone. It may be “successful” but not attain significance relative to overall human experience or the intentional generation of value beyond an economic understanding of what value is. A strictly economic knowledge of the purpose of capital is, by definition, one that will underperform its real potential.
One must take care, however, since when placed within a political frame, capital as freedom can take on a nationalistic bent, as expressed by investment firms such as Freedom Capital that seek to take the notion of impact investing and re-direct it toward an “America First” agenda, placing capital into investment strategies focused upon “national security,” economic “independence” for the United States and so on. Regardless of one’s individual, political posture, vision or agenda, as the Norwegian Philosopher Arne Naess, in Ecology, Community and Lifestyle, says,
“Any analysis of economic activity presupposes that there are certain norms which have to be satisfied in the analysis. The most prominent economists until this century, including Francois Quesnay, Adam Smith, John Stuart Mill and Karl Marx, have been engaged as much in moral philosophy as in detailed economic affairs. In this century there has been a dangerous narrowing of the scope of textbooks on economics, so that very little of the normative philosophical basis of the field is left. Economics is dried up. We are left with a kind of flat country of factual quantitative considerations, with no deep canyons or impressive mountain peaks to admire.”
Spinoza believed the legitimacy of the State comes from the self-interest of individual actors within society and that all beings are driven by self-interest and that this competing self-interest is best mediated via an ordered State, based upon a social contract, similar to that described by Hobbes. Spinoza, in Tractatus Theologico-Politicus, even went so far as to say that “the purpose of the state is, in reality, freedom.”
Similarly, we extend this notion of the role of the state to that of capital by saying the purpose of capital is freedom—to act as the fuel, if not vehicle, to support the creation of the world one seeks to create—and view that freedom as focused upon the individual but the individual in the context of community and planet. The values we embrace may manifest in a variety of forms as moderated by a democratic process—which, in its purest form, is our expression of and experience in community. Spinoza views his social contract as continually up for renegotiation, in the same way, the previously referenced impact term sheets outline specific conditions upon which each investment of capital is to be managed, deployed and its performance assessed.
Within this framework capital becomes that fuel of freedom upon which individuals, organizations, and society each may draw. And, as previously referenced, Friedman also stated that concentrated power is not rendered harmless by the good intentions of those who create it. No doubt he was most likely referring to the consolidation of power within government, but one must wonder what he might make of the concentration of economic power we’re witnessing today. For impact investors, we are called to reflect on those words and challenge the systems of finance working to consolidate wealth, extract value from community and planet, and inhibit individuals from realizing their potential and freedoms as healthy, fulfilled members of our communities and diverse ecosystems.
We must also acknowledge that if we are going to engage in impact investing and operate within a framework of individual lodged within community and planet, we must ask:
How do we get there?
Namely, what are the political implications of impact investing in this day of partisan politics and, within the United States, our nation’s drift toward a strong government rolling back protections for the environment while simultaneously running roughshod over individual human, social, and our planet’s natural rights?
Some claim it inappropriate to combine politics with investing, but this is farce. To take no position is to endorse the present status quo; not to vote is to vote in favor of the current order, just as not to discuss the politics of capital is to affirm its present form and use in our world. Capital investment is a political act endorsing, supporting, and fueling our present system of financial capitalism as it exists and as it has evolved over past decades. If one knows enough to invest capital, one knows enough to grasp the implications of investing in either stasis or transformation, investing in business models of the past centuries or the centuries to come. You should not only know what you own, but own what you know to be the power of your presence as an investor, as an agent of your actions and as a force in the world.
As mentioned above, some have already stepped forward to embrace impact investing as an act of conservative capital deployment and so-called America First investment practices. Others have claimed that as wealth advisors, their obligation to clients is to deploy capital on whatever terms those clients desire—and that therefore investing in strategies that are “right wing” or conservative are just as valid as investing with “social” screens and priorities of progressive, “liberal” values. This may be correct if one is investing via screened funds, aligning the individual values of a single investor with the value creation potential (as the client defines it) of any given investment opportunity. In that case, the only tensions to be resolved may be those of wealth advisors themselves who might have to grapple with the ethics of facilitating investments into strategies antithetical to their own personal beliefs. In traditional investor terms within a bifurcated, “do well and then do good” framework, this would be fine since historically we’ve pretended one may separate what one does during the week from who one is, personally, on the weekend. I suppose if you can sleep on that basis, it is your life and career—not mine—and you will have to find your own way through that swamp.
If, however, we are going to call this impact investing and we are doing so in order to have a positive impact on the world, then by definition what one is trying to impact is the status quo, the world as it currently exists and the direction in which we are now headed, a direction from which we must turn. What we seek is a changed society, a valued planet and greater justice among our various relationships of power, hierarchy, and politics. This means we believe the current state of the world is not what we want it to be and we are acting to resist forces promoting and seeking to protect traditional financial capitalism and the social and environmental injustices upon which it is built and our traditional investing practices advance.
This means impact investors seek to promote a change agenda and not one of conserving, defending or maintaining the status quo, much less freeing financial institutions to have yet greater advantage over consumers or liberating companies from regulation of the amount and form of pollution they can generate to the detriment of our communities and ecosystems. This means we seek to structure our capital to advance greater individual choice within our communities—not support policies restricting the choice of individuals to live their lives and manage their health decisions as they see fit.
Impact investing means expanding our understanding of justice to include not simply those who are citizens of our nation, but those with whom we share our citizenship of the Earth.
Impact investing means defending not the unlimited free speech of corporations as “people” but rather the promotion of truth, scientific and experiential evidence and the real facts upon which we must base the words we seek to speak freely and use to promote our agenda of justice.
Impact investing means protecting those not able to stand to protect themselves, whether they are a refugee family, a line worker in a manufacturing facility or voiceless animals being processed through factories, wandering in the woods or moving through the world’s rivers and oceans.
This does not mean impact investors are Democrats as opposed to Republicans.
Impact Investing is active and political in pursuit of an agenda of social justice and sustaining environmental relationships and neither of the two dominant parties presently active in the United States owns that agenda. As individual impact investors bring our values to the fore—as we work to integrate values with value creation—we may indeed find ourselves fundamentally at odds with much of the current Washington agenda and certainly not part of the “Me First!” culture now running rampant within our society. That does not mean we go by default to the other side of the aisle, but rather must work to use our capital to hold both sides of the aisle to account.
The politics of impact are those of change, empowerment and shared self-determination for those presently standing outside our walls as well as those within our borders seeking greater participation, opportunity and equity—in both senses of the word. The politics of impact are those of challenge and transformation, of working to attain our true potential to advance a just and sustainable planet to the greatest benefit of human and non-human beings. Impact Investing is as political as it gets—just not on the terms of our present partisanship which asks us to believe future answers will lie within the old framing of what we used to take as “political” or the simplistic and selfish framing of what it seems to mean to now be “conservative” in this Trumpian era.
Impact Investing returns us to the very roots and foundations of engaged, truly populist democracy as renewed by a new generation of thought, practice and vision that transcends party doctrine and dogma.
Impact Investing is about change in and of the current economic and political order, but is also about bringing a sense of presence and witness to our process of political engagement. The politics of impact investing is that of Buddhist Action and the Quaker and Christian philosophies of bearing witness to oppression as we seek to bring greater compassion and justice to the world.
In the end, the politics of impact investing is that of putting your assets on the line to finance a new order, a new world and a new reality. Much of today’s politics is loud and abusive, which we must recognize, call out and appropriately respond to in the manner of, “I can’t hear what you’re saying cuz your actions are speaking so loudly.” We must seek to get behind and around our rhetoric to affirm and advance our agenda of sustained, deep engagement and socio-environmental justice. We are called to envision and advance an approach to politics that in some ways will take us back to our historic fundamentals and in others will require we transcend the dualism of our current political order in the same way we are transcending the dualism of financial capitalism as we’ve known it these past centuries.
The Purpose of Capital: Elements of Impact, Financial Flows, and Natural Being
By Jed Emerson
342 pages, Blended Value Group Press, 2018