October 19

James Militzer

Deciphering Emerson’s Tears – Is it Time for Impact Investing to Lower its Expectations?

At last year’s SOCAP, impact investing pioneer Jed Emerson gave a heartfelt speech from the main plenary stage, in which he cautioned the industry not to let its efforts to build the market distract from its higher goals. It was entertaining and well-received, but not terribly memorable.

This year, he gave a speech from the same stage, on the same topic – but it was impossible to forget.

“Our understanding of the purpose of capital has atrophied to the point where rusting millionaire rock stars feel they may lecture us on impact investing, because apparently the investments they have made haven’t made them wealthy enough before they fade away,” he said. “That historic, financial understanding of the purpose of capital must first be resisted and then rejected.” Yet even the SOCAP crowd has avoided a “real, profound critique of current practices within financial capitalism,” he continued – one that would “require real change in our own behavior aside from adding a few funds to our portfolios here or augmenting a reporting process there.”

Then, as he began articulating a higher vision of impact investing (at around the 12:50 mark of the video), he started to choke up. “The purpose of capital,” he began, fighting back tears, “is to advance a more progressively free and just experience of life for all … to negate, resist and challenge the present economic, social, environmental and political realities within which we now find ourselves … to serve as a fuel for freedom and the attainment of the greatest potential for each person, in every community.” Gathering his composure, he made it through the speech, leaving the stage to a standing ovation. It was one of the most affecting moments I’ve seen at SOCAP.

But it raised an interesting question: The debate over idealism vs. pragmatism in impact investing isn’t a new one, and Emerson and others have trod similar ground in previous discussions. So what accounts for the increased emotion the topic inspired this year?

There’s an easy explanation, and a hard one. The easy one boils down to the backdrop of Emerson’s speech and the word on his t-shirt: RESIST – referring to President Trump and the resurgence of the racial tensions and social and economic injustice he represents to many in impact investing. These developments have clearly lit a fire under the community, adding urgency – and not a little fear – to many of the discussions at events like SOCAP.  

The harder explanation requires more introspection: It’s not difficult to imagine that an impact investing leader like Emerson might look at the sector he helped create with mixed feelings – plenty of justifiable pride, but perhaps some dismay. On the one hand, it’s hurtling toward the mainstream and gaining momentum and money each day. But it may be making a devil’s bargain in the process: Big capital expects big returns, leading to big promises – and big compromises – from people who should probably know better. And as a result, as a growing chorus of critical voices is pointing out, “achieving predefined financial returns has become the primary goal, with the needs of investors taking priority over the interests of the communities their funding seeks to benefit.”

Thanks to that dynamic, the higher purpose articulated by Emerson seems increasingly remote. At this point, who really expects impact investing to trigger a global reassessment of the true meaning of capitalism, a shift away from a money-centric mentality toward one focused on equality and social responsibility? Between capital and social impact, how much of the excitement that has animated the sector in recent years involves the latter?

Even true believers like Emerson aren’t always immune: During his cautionary SOCAP16 plenary talk, he made sure to call out an unnamed investment banker who had uttered the heresy that investors need to sacrifice financial return in exchange for impact. And he participated in a revealing panel that year, in which the moderator tried in vain to come up with a scenario in which Emerson and his fellow investors would countenance lower returns.

If even impact investing’s most dedicated practitioners fall so readily into these old patterns of thinking, what are the chances they’ll transform a broader system that already tends to view non-financial goals with a mixture of amusement and suspicion? If I were a founding father of impact investing, I might be crying, too. To pull an apt metaphor from Emerson’s speech, the industry he helped establish may be building “a house that, once completed, we will not want to occupy.”

Is it too late to change that trajectory, and does the sector even want to? Can impact investing achieve its highest goals of social transformation, or were these goals unrealistic to begin with? Perhaps it’s enough to tinker around the edges of capitalism, contenting ourselves with more modest change – while being secretly relieved that we didn’t have to make the kinds of financial sacrifices that a true transformation would likely require. It may not make for an inspiring slogan or a stirring conference speech, but incremental, moderate progress is still better than the status quo. Meanwhile, it’s great to see idealists like Emerson preaching the true faith. But it seems fair to wonder how many of his colleagues share it.


James Militzer is an editor at NextBillion.




ESG, impact investing, social enterprise