Our Financial Future Needs More Than Financial Ends

By Claire Chauvel
Social Connectedness Fellow 2017

The guiding rule of an enterprise is to add value. Yet, somewhere along the way, much of the world narrowed its pursuit to earning profit and growing GDP (the total dollar value of all goods and services a country produces). Despite holding immense value, community and the environment are often, at best, secondary considerations and, at worst, insignificant, implying a faulty belief that these forces all operate in isolation and not in unison. As the late American economist Milton Friedman stated, “The business of business is business.”[i]

This reasoning has dominated business doctrine for decades, seemingly justified as the last century bore witness to some of the greatest socio-political and economic advancements in human history. Arsenals of services and developments blossomed, innovations were funded, and many achieved social mobility. However, in countless cases, the drivers of this development operated with a profit-now-deal-with-that-later mentality, and we can only kick the can down the road for so long. To quote former World Bank chief economist Joseph Stiglitz, we have created:

“A society in which materialism dominates moral commitment, in which the rapid growth that we have achieved is not sustainable environmentally or socially, in which we do not act together as a community to address our common needs, partly because rugged individualism and market fundamentalism have eroded any sense of community and have led to rampant exploitation of unwary and unprotected individuals and to an increasing social divide… In a world of rugged individualism, there is little need for community and no need for trust.” [ii]

The 2008 Global Financial Crisis, environmental degradation, and the reality that billions of people have been marginalized all demonstrate that our current economic and developmental system is limited. Meanwhile, there is outstanding potential for impact investing, which aims to generate positive social and environmental impact along with financial returns for investors. This is why it’s time to change our definition of value-added by placing social inclusion at the heart of the 21st century global economy.[iii]

Our financial decisions and where we invest our money matters, for it drives what prospers and molds macro realities, in turn influencing approaches, attitudes, and institutions. Further, we have a moral obligation to create an era of greater citizenship, involvement, and accountability. Thus, we must be sure to fuse this obligation with finance.

Evolution towards an economic system of interdependence, inclusive growth, and collaboration guided by a holistic definition of value-added is the way forward. As His Royal Highness The Prince of Wales cautions, “[We cannot] operate an entire conventional system… without recognizing that there are severe negative externalities that are not being accounted for.”[iv] If this does not strike a cord, one must simply turn to business magnate Richard Branson. In his aptly titled 2011 book, Screw Business as Usual, Branson convincingly argues that, considering our global predicament, businesses committed to “do good instead of merely concentrating on the bottom line” will rescue the world and be profitable doing so.[v]

Rather than measuring value-added and investment decisions through the narrow lens of economic gains and losses, society ought to embrace measures like impact investing and the IRIS metric. The IRIS measures “performance metrics that leading impact investors use to measure social, environmental, and financial success, evaluate deals, and grow the sector’s credibility.”[vi] Corporations should also strive to meet B Corp standards, a certification process that assesses and confirms whether participating companies meet rigorous criteria of social and environmental performance.

From smaller investment firms, such as LeapFrog and Acumen, to industry behemoths like Morgan Stanley, RBC, Patagonia, and Ben & Jerry’s, many companies today are investing responsibly and inclusively. However, more should follow their promising lead, and we should all strive to hold companies accountable for their promises.

Ideally, these initiatives, along with individual choices, will spur systemic change. As Robert F. Kennedy put it, “Tiny ripples can become a powerful current that sweeps aside the established order when they are multiplied and brought together.”[vii] The signs are encouraging. It is estimated that US$1 trillion will be devoted to impact investment by 2020, and a multitude of actors, including the United Nations, are advocating for circular economic norms as well as inclusive growth.[viii]

We can realize social change and achieve profit through smarter, conscientious investing. Here’s hoping we stay this course and continue re-thinking our understanding of value-added.

_________________________________________

[i] O’Donohoe, Nick. “What is the true business of business?” World Economic Forum. February 25, 2016.

[ii] “Joseph Stiglitz: Why we have to change capitalism.” The Telegraph. January 23, 2010.

[iii] Petruno, Tom. “Beyond profits: Millennials embrace investing for social good.” Los Angeles Times. December 7, 2014; Chaparro, Frank.”Morgan Stanley raised $125 million for a new fund — and it highlights one of the hottest trends in investing.” Business Insider. May 17, 2017.

[iv] “Interview: The Prince of Wales, the crown planner.” The Financial Times. June 27, 2014.

[v] Lean, Geoffrey. “Sir Richard Branson: We must learn that doing good is good for business.” The Telegraph. November 19, 2011.

[vi] https://iris.thegiin.org/about/faq#what-is-iris

[vii] Bugg-Levine, Antony, and Jed Emerson. ” Impact investing: transforming how we make money while making a difference. ” San Francisco: Jossey-Bass, 2011.

[viii] “1.2 Motivation. Mainstream Impact Investing. ” World Economic Forum. http://reports.weforum.org/impact-investment/1-introduction-to-the-mainstreaming-impact-investing-initiative/1-2-motivation/.