Beats | October 29, 2019

Impact investing’s road to relevance led through Santiago – until it didn’t

David Bank
ImpactAlpha Editor

David Bank

ImpactAlpha, Oct. 29 – The fall circuit of major impact investing conferences was supposed to end next month in Santiago. Then the capital of Chile erupted with street protests over prices and services.

The Global Steering Group on Impact Investing, or GSG, on Monday canceled plans to hold its fifth annual “summit” in Santiago, citing the violent protests and continuing curfew as endangering the safety of participants. The protests started over a four-cent rise in subway fares, spread to a larger rejection of rising inequality and falling quality of life, triggered a state of emergency, and led to the firing of the entire cabinet and at least 20 deaths. 

“The inequalities which have led to the violence in Chile and in several other countries highlight the importance of our movement’s leadership in bringing about impact economies,” the GSG said in announcing it would try to salvage this year’s event in Buenos Aires in neighboring Argentina. 

Indeed, the uprising of popular uprising puts the relevance of impact investing in sharp relief. Four million global climate strikers in September, millions in the streets of Hong Kong, Jakarta, Baghdad and Haiti, as well as Santiago, are demanding impact now. From yellow vests in France, to Dutch farmers on tractors to women in Washington, people power is mobilizing. 

Impact investing is caught between a stalled global agenda, represented by the Paris climate agreement and the Sustainable Development Goals, and surging populism on the left and the right that is properly skeptical of bankers, corporations, billionaires and fund managers.

Engaging the poor

The GSG’s earlier selection of Santiago was part of the organization’s effort to bring impact investing to the global south. Last year’s gathering was in New Delhi; 2020’s conference is planned for Johannesburg. The GSG expected official delegations from about 30 “national advisory boards” and aspiring chapters from about 30 more countries to build on the impact investing work for what was then the G-8, led by British venture capitalist Sir Ronald Cohen, who chairs the GSG. 

In New Delhi, the GSG recognizes leaders and launches funds

“We are going from an investor movement to a mainstream movement, and engaging the poor in whose name we speak,” said the GSG’s Amit Bhatia, in an conversation from New Delhi before the protests exploded. “The idea must get political and I think we are a few years away from there.”

The question is, how many years? Even before the inequality protests, September’s Climate Week in New York, including the youth-led Climate Strike established the urgency and scale of the challenges. The Global Impact Investing Network’s investor forum in Amsterdam suggested financial institutions better be ready for the shift. This month’s SOCAP and COCAP gatherings in the Bay Area demonstrated a broader movement for transformative change. 

If impact investing is to be a lever for true change, the protests in the streets suggest it best get on with it. The GSG’s 2017 summit promised to drive toward “Tipping Point 2020.” 

The GSG’s original motivation for selecting Santiago was arguably part of that more elite strategy. The impact investing gathering directly follows the “leaders summit” of the Asia-Pacific Economic Forum, which will include Donald Trump, Xi Jinping and Vladimir Putin, as well as leaders of Canada, Mexico, New Zealand, Peru and at least 15,000 visitors. As of last week, that meeting was still on

Does impact investing resonate with these leaders? “Not yet,” Bhatia said, although Justin Trudeau in Canada and Jacinta Ahern in New Zealand have signaled action to enlist private investors. Progress within major trading blocks in Africa and Asia has been slow. Europe’s steps toward establishing a sustainable business framework were recently delayed again. “Backing the promise up with real budgets and real dollars, is going to be their acid test,” Bhatia said.

Also in Santiago was to be the year’s big climate conference, the Conference of the Parties or, as it is called, COP25, from Dec. 2-13. Four years on from 2015’s COP 21in Paris, this COP was supposed to be the scene for a dramatic “ratchet” of national climate ambitions. If last month’s Climate Week in New York was a leading indicator, that is not likely.

Climate Agents

So impact investing is straddling two worlds, both problematic. Since the high-water mark of 2015, the elite process of global collaboration has stalled and failed so far to establish a trajectory toward meeting urgent global goals for climate action or sustainable development.

On that front, the GSG has backed the development of ‘impact-weighted accounts,’ borrowing tools from the accounting for risk that were developed in the 20th century. Bhatia says corporation’s will elevate Chief Impact Officers just as they raised the status of controllers to CFOs and “the IT guy” to chief information officer. 

The GSG and the  Impact Management Project enlisted Harvard Business School’s George Serafeim to quantify in monetary terms a company’s social and environmental value. “Impact-weighted accounts” would serve as a sort of impact P&L statement and offer a more holistic assessment of corporate performance.

“The day we can truly value impact, we will have changed capitalism 1.0 for good,” Bhatia said.

Weighting accounts for impact

That is more likely if top-down is met by a powerful movement from the bottom up. As we suggested last month, the youthful climate strikers may be more “pro-business” than recalcitrant heads of state intent on slow-walking climate action. By catalyzing a powerful political constituency for urgent climate action, protesters may accelerate the low-carbon transition, soften climate shock and, by the way, produce better returns for almost all investors. By forestalling action, climate skeptics make more likely a harder landing that, not incidentally, tanks investment portfolios.

Likewise, the protestors in the street are not anti-business. They have already had “impact” in the form of commitments from Chilean President Sebastián Piñera to raise the minimum wage and pensions, roll back increases in electricity prices, hike taxes on the wealthy and invest more in health care. Such reforms may indeed be pro-business as well if they succeed in ushering in an economy in which the poor get richer, expanding prosperity, improving resiliency and driving growth.

“What is the one weapon the poor have to defend themselves? It’s their vote,” Bhatia said. “Unless we can communicate with them how they might use that power to bring on this whole impact movement, we are going to still have distance between where we’d like to be and where we are.”