Can we develop a realistic theory of impact investing?

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** Economy Remix: Investment and Impact, Where Do They Meet?
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Welcome to the Remix, as we take our latest spin around the economy. This Remix column ([link removed]) looks at impact investing, a perennial focus area for this column.

Why is impact investing such a popular topic these days? It comes down to economic inequality. As we know, capital concentration has increased dramatically in the past few decades. That means that investors have more power than ever. What if that power could be used, jujutsu like, to reduce the power of capital and increase the power of ordinary people? It’s a seductive notion—and one can understand why so many people have explored ways to make impact investment…well, impactful.

This column focuses on a recent report from Transform Finance, titled Alternative Ownership Enterprises: An Introduction for Mission-Oriented Investors. The report provides a near-encyclopedic examination of different forms of mission-oriented enterprises—everything from worker co-ops to foundation-owned businesses.

The authors create a typology of mission-oriented businesses, organized into three categories: one centered on worker empowerment and bettering worker wellbeing (such as worker co-ops), a second focused that favors community stakeholders (such as consumer co-ops), and a third that aims to pursue “purpose”—such as companies organized as trusts for the benefit of future generations. And, the authors add, a business could have aspects of two or all three of these categories.

As its title suggests, the report offers a menu of options for mission-oriented investors. But what is wrong with this picture? Well, if investment decisions are made by the small number of people who are investors, then who decides is very constrained.

The impact investing theory of change, in short, comes down to investors willfully acting to reduce their power by seeking to shift ownership of capital to workers and communities. Some impact investors will do this, but many will not. The majority are, instead, looking to do good and do well—that is, have a positive social impact and generate a solid financial return for themselves.

Can an impact investing theory of change be developed on less heroic assumptions? My hope is this column will help spur people in the field to develop a non-heroic roadmap for how impact investors can support social movements without exaggerating their role.

As you read this article ([link removed]) , I encourage you to reflect on the state of the impact investing field and how impact investors might coordinate with social movements to advance a just and sustainable economy. Until the next Remix column, I remain,

Your Remix Man:

Steve Dubb
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