The Simplicity And Complexity Of Impact Investing And Capitalism

One of the most frequently asked questions around Sustainable & Impact Investing (S&II) is: “Where do I start?” The question behind the question is: “What is the right place to start?” The complex answer to this open-ended question is quite simple: anywhere is the right place to start, the key is to start — which is why it is so difficult. 

Those familiar with the United Nations’ Sustainable Goals (SDGs) may often pick one area of focus. The logic is to narrow down the field of options to specific areas, or perhaps it is the subject of highest personal interest. That the one goal is actually a wide network of many issues that compound into a complex field of dynamic opposing forces. Some may be tempted to go straight to the “partnerships” goal (#17) to keep options open, and the cycle only comes back to an open-ended question, begging to be solved. And all must be solved quickly, and at once.

At an investment and asset management level, initially they may struggle to follow the above by choice, but the growing regulatory frameworks such as the EU taxonomy are quickly “pulling” them to make growing commitments and take action imminently. 

One thing for sure, the challenge is real and urgent, so what considerations one must have in order to start?

The Approach to Impact Investing

The problem with compartmentalizing sustainable & impact investing is because impact itself is a dynamic force. The key is to get on alignment as it will get you focused and will accelerate the process. Whether for good or for bad, any investment will propel a momentum and produce a chain of events that will have an effect on the economy, people & planet. If chasing investment opportunities solely for perceived or projected impact leads nowhere, the problem is not the market, but rather the approach. Perhaps there was no defined theory of change to begin with, or an unscalable concept, or policies that are restrictive to the markets and cannot support transfer of management or ownership, or to a top-down methodology transferred from another business, project or region - which many believe are proven unsuccessful.

There are some good examples of private investors at one side of the spectrum of capital that are working, but this is not sufficient to scale the required transition of capital.

True impact investment must also focus on creating new systems and reinforcing systems that work. For many, part of the disconnect to solve the problems we are facing is that they are brought to our attention by academics and scientists, versus a situation where so far capitalism is focused on maximizing a short term prosperity profit. On the other hand, true impact investment is linked to a long term and patient approach, focused on legacy and planetary boundaries. The more distance we create between the problems, the solutions and the investment, the slower and more difficult it is to transition capital. So how does one create a sustainable financial proposition that can be impactful?

The Undervalued Role of Stakeholders

Many preventable problems that balloon into unsolvable problems come from ignoring the lessons that could be learnt from other peoples’ mistakes. Mistakes can be costly, and not valuing them as potential guardrails against future obstacles is like intentionally making a bad investment. Stakeholders all have something to gain (and lose), and so this team sport becomes a complex exercise in engagement and valuation. 

The Founder of the world famous EDEN Project in Cornwall - United Kingdom, Sir Tim Smit, believes he was “the luckiest man in the world” when he visited the last Garden Festival of its kind in Wales back in 1996 and they shared their biggest mistakes with him: if they had known, they would have started planning two years earlier, so all of these small businesses could have benefited the Festival. As it was, they came so late to the table, that only six months before they started ordering the uniforms and many other resources, which meant that almost all the money that was meant to be invested in Wales through the endeavour haemorrhaged to big companies outside Wales. 

This is what really made him think about Eden. So when they began building the Eden Project, before the foundation's went in, they had started to talk to companies that were going to supply them with all they needed. They started talking to the colleges and other local stakeholders. It was revolutionary, because it meant that they were able to take them on the journey. 

The big lesson was the value of involving stakeholders early in the project: if you really want to create environmental, and economic advantages in your local community, you must understand the processes of contract and supply chain and procurement and deliver those for the people you want to be long term partners for you.

Sir Tim and the team seem to understand the lesson very well and make sure to engage stakeholders at every level, having hosted His Royal Highness (HRH) The Prince of Wales and his Sustainable Markets Initiative’ reception for the leaders of the G7 meeting that took place at Eden in Cornwall, which also included the honourable presence of HRH Queen Elizabeth II, the Duchess of Cornwall, and The Duke & Duchess of Cambridge.

Success Leaves Clues

The key to being sustainable is to create pathways from the beginning that will naturally result in sustainability. 

This applies to investment firms, but most importantly to companies and assets we invest in. If they are not sustainable, the profit will eventually disappear - sooner rather than later - together with the company, the return and the investment.

So if we can learn from the mistakes of others, can we learn from their success too? There is a famous quote by the late Jim Rohn, which you may have recently hear from the wonderful Tony Robbins and now through me: “Success Leaves Clues”

Translated to what we are trying to do here: learn what sustainable and impact businesses do and use it as a role model.

It is estimated that Eden has created over £2.2 billion of extra wealth for the county of Cornwall. Although the Eden Project is a charitable trust, it is run by companies of whom the shareholders are the charity. So what they are doing is trying to make profits or surpluses with a purpose. Their group of companies currently generates some surplus from over £30 million in revenues.

They have even created a methodology for land regeneration which they are now exporting globally as part of Eden International services, very much in line with the fact that services are one of the largest exports from the United Kingdom, with the financial services industry being one of the highest in the rankings. 

By using capitalist processes, commercial processes, they are able to have a large environmental impact and business impact. They are creating a system that is mutually beneficial and this is why they are now building in many countries of the world, because the citizens who are in those countries want the towns and cities to benefit.

Furthermore, they are now building a geothermal energy plant, but that alone may be enough material for another article.

Maybe we are just in front of a good example of good capitalism, or maybe a great example of “Sustainalism”.

The obvious conclusion are more questions: do we continue to grow and consume with no restrictions on some “developed” countries, trying to live up to a life standard imposed and brainwashed by a consumerist environment, while children still die of hunger in other regions? Or do we find a more equitable world we want and can create at last? 

This Is Not New, We Just Need To Evolve

The message seems clear, the collective community is the one and only way in which we will rise above the most pressing challenges we are facing, or will we continue - as ecclesiastes tells us - chasing after the wind?

Buckminster Fuller is famous for his greatest contribution to architecture: the geodesic dome. It is the heart, or framework, of the Eden Project, after all. However, Buckminster Fuller’s greatest legacy is his philosophy of “The Final Exam”. In the 1960s, he calculated that all the technology already existed to solve the world’s biggest problems. The problem was not the technology, but rather the lack of human consciousness. Now more than a half-century later, technology has evolved even further, and many of those same world problems continue to exist. Will human consciousness rise to a level where we consistently learn from past failures and successfully work together towards an ideal future? Can we pass this Final Exam and collectively steer Spaceship Earth?

Finally, if you find this article helpful, please share it to create further understanding and immediate change of our behaviours. We only need to START and take ONE ACTION at a time and create compounding marginal gains. We can only control our most immediate actions!

You can enjoy the full interview with Sir Tim Smit on my Impact Leaders podcast here.

Important: this article is for information purposes only and does not constitute a request, offer, recommendation or solicitation of any kind to buy, subscribe, sell or redeem any investment instruments or to perform other such transactions of any kind.