Can Financial Markets Be Good?
Tuesday, July 16, 2013
By Steve Wright
In the Impact Investing industry we have been agreeing-to-disagree for a while now. The debate tends to take the form of investment priorities: financial-first vs. impact-first. Do you prioritize financial impact or do you prioritize social impact? I will argue that this debate is irrelevant and is an example of what Jed Emerson calls bifurcated thinking.
“I coined the term Blended Value (in 2000) to reflect what I felt was the reality that value was whole and that what all of us were bumping up against was a bifurcated world which asked us to accept that one had to be either for-profit or non-profit; an investor or a philanthropist. In contrast, I felt what we should really be focused upon was maximizing the total value of our companies, communities and capital.”
-Jed Emerson, BlendedValue.org
So what are the implications of a shift in perspective away from bifurcated thinking (financial vs. social) towards total value? To answer this we must understand the resultant value we seek and how maximizing total value differs from maximizing profit. A good place to start is the language we have used to make our social impact peg fit into a financial impact hole.
“Do Well by Doing Good”
…is the moral equivalent of “have your cake and eat it too”. The suggestion is that we don’t have to make any sacrifice, that there doesn’t need to be any trade-offs, that we can focus on profit (do well) and ‘good’ will just happen. Except, there are trade-offs. Doing good means creating ‘good’ and creating ‘good’ has cost and therefore cuts into profits. Anyone who has run a business of any sort understands this. Examples of these trade-offs are reducing a focus on the lowest-income level customers because reaching them costs too much or, in the other direction, ignoring the degraded water quality in streams around your production center so the negative externalities don’t appear as cost on the balance sheet. In both cases the idea of cost and profit drives the decision making. Of course, not considering cost and profit in decision making would be stupid. But so is this idea that you must first ensure that you are profitable; that you must first keep-the-lights-on. Instead, we must first create a better world. In order to create a better world, we must keep the lights on. The slogan we need to evolve to is: “Do good over time.”