Malia Lazu
With conference season starting, I have been traveling around the country in recent weeks, talking about equity and the urgent need to put an end to America’s attachment to racism and sexism. Failure to put an end to entrenched inequalities hurts society and the economy.
Particularly interesting have been my conversations with investors. Many want to be “impact investors” – seeking to support social and environmental benefits, while also reaping a financial gain. For too many, though, they have the intention but no idea how to have an actual impact.
This is a conversation that needs to be encouraged across business and investment to further people’s understanding of impact investing. Otherwise, all the good intentions in the world will fail to move the needle in creating the kind of change that people say they want to see and support in the world.
An Idea as Old as the Quakers
The history of social impact investing can be traced as far back as the 1700s with the Quakers, who leveraged their investments to push for social change. They believed that, to invest responsibly, they needed to put their money into activities that supported their values – while also actively shunning any investments, such as the trade of enslaved people, that shattered those values.
In more recent history, the modern Civil Rights Movement identified and pushed against the structural barriers to equity. Consider the Civil Rights Act of 1964 that struck down employment discrimination based on sex, race, color, religion and national origins, and later led to protections for those who are older, have disabilities and pregnant women.
Over the years, values-based investing came to be known by many names: sustainable investing; environmental, social and governance (ESG) investing; and impact investing, which emerged as a term in 2007. Whatever the terminology used, the intention is the same: channeling money into positive change and refusing to invest in activities and business practices that harm people, the environment and society.
Today, shareholders can wield power over business practices and investment policies by pressing companies and organizations to adopt more humane and responsible business practices. This takes more than merely committing money to a fund that purports to invest according to ESG principles. It’s crucial to ascertain companies’ ESG goals and what they are doing to pursue them, just as it’s important to understand the ESG criteria for fund managers deploying capital.
As Aaron Yoon, a professor at Northwestern University’s Kellogg School of Management, wrote in the Wall Street Journal, rather than being “merely a wish list,” ESG metrics and databases of funds need to become more mainstream as more capital flows into sustainable investments.
“The more investor money is committed to ESG, the more scrutiny there will be by regulators to eliminate the chronic lack of transparency, confusion over reporting, and outright greenwashing,” he writes.
Taking on the ‘S’ in ESG
When it comes to ESG initiatives among companies and investment funds, alike, much of the enthusiasm has been for the “E” (environment). In some instances, companies (and the funds that invest in them) also look for evidence of “G” (governance), such as putting more women on boards. The “S” of social change, however, is hard to do.
The good news, here, is that the “S” also represents a “blue ocean” strategy where the first movers can set the standard. This goes beyond philanthropy, to actively partnering with underserved communities to open more opportunities, create more jobs and build wealth among people who have been left behind.
For real estate development, an excellent way to create impact is by bringing in women-owned and minority-owned partners and subcontractors. This isn’t simply a “nice thing to do” – it’s smart and strategic. Minority-owned developers typically have relationships within the communities in which development is occurring. When team members of color interact with local businesses, social organizations and residents, collaboration and cooperation become far more likely.
An impact won’t just happen in business or investment. It takes planning and execution. At every conference and speaking event, I’ve been encouraging people to think about four groups of questions.
First, what do you care about, why do you care, and how can you make an actual impact with your investing?
Second, where do you want to have an impact? Local, regional, or global – the need is everywhere.
Third, what’s your personal mission statement? Write it down to articulate your goals and priorities. Putting it down on paper makes it real.
Fourth, who will hold you accountable for the social aspects of your business strategies and investing?
Having a good intention is a start, but only that – as my grandma always reminded me, the road to hell is paved with good intentions. What matters and what gets measured makes an impact.
Malia Lazu is a lecturer at the MIT Sloan School of Management, CEO of The Lazu Group, former Eastern Massachusetts regional president and chief experience and culture officer at Berkshire Bank and the author of “From Intention to Impact: A Practical Guide to Diversity.”
