The Next Step in Impact Investing: Breaking the Shackles of Extractive Thinking

An increasing number of investors—individuals and institutions alike—are deploying capital in more socially and environmentally conscious ways. Under the present economic system, which endlessly extracts natural and capital resources, and leads to ever greater wealth concentration, that’s a shift worth celebrating. Yet even impact investments rarely stray from the conventional investment approach that prioritizes capital preservation and profits. As impact investing matures, it’s worth asking: Can we finance mission-driven enterprises in a way that shifts the core emphasis to regenerative environmental and social benefits?

Fixing the system means breaking out of it

Martin Luther King Jr. once said, “Philanthropy is commendable, but it must not cause the philanthropist to overlook the circumstances of economic injustice which make philanthropy necessary.” One could say the same of impact investing and social finance; it is incumbent upon those of us who steward and invest capital to both evaluate how we came into such a privileged position and consider the ways in which carrying out this role may perpetuate systems of resource extraction and inequity.

When capitalism is successful, money begets more money. And today’s vast wealth gap isn’t a sign that our system is broken; it’s a sign that the system is working as designed. Impact investors, unquestionably well-intentioned, have been eager to demonstrate that social value and competitive financial returns are not mutually exclusive. It is reasonable to wonder, however, if capitalist approaches can meaningfully address challenges created by capitalism.

Read full article on Stanford Social Innovation Review.