Impact Investors, Philanthropists, Social Entrepreneurs And Nonprofits Need To Stop Taking Sides
This post was originally produced for Forbes.
The world is full of problems. One of the problems is not that there are too many people trying to solve them using different innovative strategies and approaches. Far too much energy is spent—wasted in my view—arguing over who’s doing it wrong.
From my desk, I see four primary groups of actors: impact investors, philanthropists, social entrepreneurs and nonprofits. Too often, I hear voices in one camp suggest that players in one of the others are doing it wrong. Less often, they even criticize people in their own clique for doing good the wrong way.
While this dynamic applies to any sphere, I’m going to use climate change as context for making the point: a global solution to climate change will require all four groups to participate—we can’t get there otherwise.
In the past, I’ve written about climate change from the perspective of Jonathan Foley of Project Drawdown, who described climate change as “maybe the single biggest business opportunity in human history.”
It is. Trillions of dollars need to be invested and trillions of dollars of profits will be generated. That said, not every investment will pay-off equally. Some will lose money.
Investors are accustomed to taking risks, but it is not the role of investors, generally speaking, to fund projects with a clear, identifiable negative financial return. That is the role of philanthropists.
22 October 2019, Brandenburg, Sieversdorf: Wind turbines DPA/PICTURE ALLIANCE VIA GETTY IMAGES
Building utility-scale solar, wind, tidal and geothermal energy sources in many places now makes great economic sense as doing so costs less when reasonably amortized than continuing to operate coal-fired power plants—forget building new ones.
On the other hand, helping the hundreds of millions of people who are still cooking their food over three-stone open fires in their homes burning wood or charcoal to adopt clean cookstoves that produce less smoke and use less fuel may simply not be profitable business. At least with some communities where income opportunities are few and far between, allocating scarce resources to a stove may not make economic sense for a family without a subsidy.
A traditional cookstove in Nepal burns wood inefficiently and without venting to the outside puts the health of the family at risk. DEVIN THORPE
Some investments will provide market rate financial returns and social impact. Others, however, will not be able to provide an appropriate risk-adjusted financial return but may offer greater social rewards. Those who are making investments in one sphere are sometimes critical of those who make investments in the other.
Both types of investments are important. The closer to market rate that investments get the greater their appeal to mainstream investors and the greater capital flows will be. On the other hand, if no one were willing to make concessionary financing available, some high impact projects wouldn’t happen at all.
The United Nation’s 17 Sustainable Development Goals or SDGs will all require support from a range of actors working toward solutions. As we see in markets, some of these solutions will be in competition from time to time. Ultimately, the best solutions will generally win.
Over the past eight years, I’ve written about over 1,200 different solutions to problems. Most appear to me to do more good than harm. I’m optimistic that in the long run, the most impactful solutions will generally be adopted the most broadly and less effective ones will be abandoned. People are smart that way.