This article was originally published by the Duke Divinity School’s Faith & Leadership online magazine and is bring reprinted with their permission.
Antony Bugg-Levine, the chief executive officer of the Nonprofit Finance Fund, said individuals and organizations that support humanitarian social programs should carefully consider the environmental and cultural impacts of their investment vehicles.
“When we look at our investments, we should do so in a way that is related to the way we want to see the world,” Bugg-Levine said. “For many people, that’s a combination of financial return and social values.”
Bugg-Levine, former managing director of the Rockefeller Foundation, leads NFF’s programs in social-sector lending and sustainable, ethical investment strategies.
Along with Jed Emerson, Bugg-Levine wrote “Impact Investing: Transforming How We Make Money While Making a Difference,” which was published in September 2011. He also teaches at Columbia Business School.
Bugg-Levine was at Duke to receive the Leadership in Social Entrepreneurship Award from the Center for the Advancement of Social Entrepreneurship at the Fuqua School of Business. He spoke with Faith & Leadership about how philanthropic-minded investors can multiply their impact by putting their own values into play.
Q: What is your faith background, and how does it influence the work that you do?
I’m Jewish, and I’m an immigrant. I actually grew up in South Africa. My grandmother, who I got to know quite well, was a Holocaust refugee. For me, issues of faith have been overlaid with issues of social commitment and justice from a very early age.
I was raised to understand that you didn’t just live to secure your own comforts, or for your family, but that you lived to create a more just world.
I had two very powerful experiences of what happened when that didn’t occur. One was my grandmother’s story of being a refugee from Hitler, and the other was of growing up under apartheid in Africa.
Q: And your father-in-law is a minister?
My father-in-law, John Bugg, is retired. He’s been ministering in the prisons of Newark, as well as in the town of Newark, New Jersey. It’s a nondenominational, small ministry built around the local community.
My wife’s family comes from a tradition in which faith isn’t just something that you practice on Sundays at church. It’s something that you take out into the world with you.
Q: Could you define the notion of “impact investments” in terms of social entrepreneurship or social business concepts?
It’s the idea that when we make investments, financial investments, we can use those as a tool to promote social justice and environmental sustainability — and not simply think of it as a way to make money.
It was the Quakers in 17th- and 18th-century England who really helped develop the initial thinking around the idea that when we live our lives, we need to live our total lives in alignment with our values.
That spirit has landed in various places, such as in the environmental movement and in the anti-apartheid movement. In the 1980s, people — led in many cases by the churches — started saying, “We don’t want our assets to be used in service to evil.”
But the reason it’s a radical idea is that it’s the assertion by many people that we can live comfortably in what I call a bifurcated world, in which the only purpose of investing is to make money and the only way to solve social problems or pursue a mission is through charity work, church work or government. And those two things are kept apart.
So “impact investing” is simply a phrase that tries to capture the spirit behind what is really a hundreds-of-years-old idea that when we look at our investments, we should do so in a way that is related to the way we want to see the world.
Q: How is it different from social entrepreneurship?
I think social entrepreneurship comes from the same spirit.
There’s a great person who leads a nonprofit finance fund, an impact investing fund called Root Capital in Boston, named Willy Foote. He calls social entrepreneurship and impact investing the two sides of the Velcro. They very much come together.
Impact investors are trying to put money to work to solve social problems, and social entrepreneurs, in many cases, are people who are taking on investments in order to grow their businesses to solve social problems.
It’s this idea that we can live in an integrated way and that we can pursue business in order to address social issues. That spirit fuels both the social entrepreneurship movement as well as impact investing.
Q: As you say, it is a simple idea — but how does it work?
There are many investors who do not believe they have to trade off financial return in order to pursue social good. There’s increasing evidence that people don’t have to make that trade-off.
At the same time, there are many other investors who say, “If I can get social good, I’m willing to earn a little bit less money, because at the end of the day, it’s not about the money. It’s about how my assets are being put to work to create the world I want to see.”
If you’re willing to make that trade-off, then the universe of investments available to you is obviously much bigger.
It’s quite easy to measure the financial value. The tools that measure social value are less established, but there is lots of great work going on to create the kinds of analytical tools that will allow investors to be able to quantify the social impact they deliver — or at least to measure it and understand it.
With impact investing, we’re asking, “What is the ultimate purpose of those assets?” And it’s not just to make more money so we can do good. It’s to really understand what good those assets can do while you hold them.
Q: Don’t you also need a way of measuring whether the social goal is being pursued in the right kind of way?
I think a big question is the law of unintended consequences.
If we’re too narrow in measuring what we care about, we might invest in a factory in a poor community that helps create jobs, because we know that jobs will lead to a more equal society and a form of justice we seek. But what if that factory is polluting? While we might be measuring just the jobs created, if we’re not also looking at the health of the community, we could actually make very poor investment choices.
What it demands from us is an integrated and systemwide understanding of the impacts we have on the world as opposed to what the financial world has offered us for many years, which is a very reductionist view that the only things that matter are those things that show up in the accounting statements.
Q: Who is developing these tools to measure social value?
There’s academic work being done in this area. There’s also work being done by investment analysts to look at the aspects of a company’s impacts on the world beyond just what’s reported in the bottom line. And some companies now are tracking their carbon footprint or they’re tracking the extent to which their goods are being produced by child labor.
The Impact Reporting and Investment Standards (IRIS) team, a nonprofit that is a project of the Global Impact Investing Network, is developing an open-source set of standards that anyone can download on the Internet that will allow people and social entrepreneurs to report in a comparable way about the jobs they’re creating, the impact on the environment, and other aspects of social and environmental issues.
Governments ultimately need to get involved to really help move some of these from small projects to industrywide standards. That’s the role government has played in the mainstream side of finance, and it’s a similar role governments are starting to play here as well.
Q: What do you think needs to be done to bridge this bifurcation you describe?
Impact investors and social entrepreneurs operate in a world that assumes your purpose is to either create social good — therefore, you are set up as a church or a nonprofit — or your purpose is to run a business, in which case you are seeking to make money.
But in many cases, impact investors want their money used not just to create financial return but also to create social impact. So investors and social entrepreneurs are stuck in the middle of a regulatory system that doesn’t understand their aspirations.
We need a regulatory and legal system that really deeply understands this new generation with an aspiration to run businesses and make investments that are about making money and creating social purpose.
We need an educational system that similarly understands that people increasingly see it as a false choice to have to either go into business or go into social services. So there are many systems that need change.
We know that the basic model of how we deliver a just and decent society in this country is falling apart in front of our eyes. We have an unemployment crisis and a crisis of justice and equality that’s very much in the present.
Now that government doesn’t have enough money and churches are finding their budgets shrinking, we can only expect more of that. Our society has become more unequal than it’s been in decades.
What’s really exciting about the movement of social entrepreneurship and impact investing is the idea that we create something new that really brings investors and government and the social service agencies together in new ways.
Q: I’ve heard you say investors need to allocate their dollars to the best problem solvers rather than the best storytellers.
We need not just charismatic individuals and great entrepreneurs creating interesting anecdotes but inspiring entrepreneurs.
Charismatic leaders can break through systemic barriers and build new businesses and enterprises that are able to integrate business principles and social justice in their operations. That’s a great start, but that’s ultimately limiting.
As long as we limit impact investing and social enterprise to charismatic leaders, we’re going to leave behind many more people who could be contributing their time and their talents to this movement.
We need to develop a new model and approach to creating a just and vibrant society. That’s going to take not just charismatic individuals but the many hundreds and thousands of people behind them who have a lot of talent to contribute.
Many of the heroes in the social enterprise movement quit jobs to do it. Willy Foote, of Root Capital, quit Harvard Business School after two weeks.
But a social movement is not going to be populated only by people who are able to make these radical moves like quit their jobs. It’s going to require people who just have more normal lives to be able to find ways to get into this space.
The vast majority of the social services that are delivered to poor communities continue to be delivered by small-scale, very community-based, local nonprofits that derive most of their revenues from government.
I don’t want to live in a country in which we haven’t figured out how to keep our soup kitchens open, keep our homeless shelters open, and make sure that our after-school programs — whether they’re in church basements or in local community halls — are staffed by competent and caring people.
All of that is going to require more than just helping the charismatic entrepreneurs succeed. It’s also going to require us to think in a much more fundamental way about the new ways we can capitalize the solutions and social problems we care about.
Q: It sounds like you’re talking about creating institutions.
When we talk about systems and institutions, everyone has a role to play. You don’t have to be an investor to be able to ask your minister what your church is doing with its investment assets, sit on that committee and ask the question, “How aligned are our assets with our values?”
Similarly, if in your community you volunteer at a local soup kitchen, you don’t have to be a charismatic leader to say, “The sustainability of our operation is really important, and we shouldn’t separate those who deliver the mission from those who manage the money.”
At the Nonprofit Finance Fund, it’s what we do — work with nonprofit organizations across the country to understand how they can deeply connect the way they deliver the mission with the way they manage the money. That’s more important as the fundamental model that many of those organizations have operated under becomes more threatened.