I’m not a financial advisor; nothing I write in Superpowers for Good should be considered investment advice. You should seek appropriate counsel before making investment decisions.
As an active impact investor, albeit a small one, I circulate among lots of impact investors, some of whom have strong opinions about what impact to have and how to invest. I don’t always agree with everything I hear, but I value the perspectives they offer. This past week, I tripped across an opinion that genuinely offended me. I won’t name names, but I will share the thesis of the argument and my rebuttal.
The thesis I read suggested that anyone with any retirement savings is part of the upper class and should, therefore, be willing to invest without any hope of financial profit above the return of capital.
Muhammad Yunus argued similarly about what he calls a “social business.” He argues that a genuine social business should provide no more than a return of capital to investors. Thereafter, profits should be modest and reinvested in the business. In his mind, the capital would come from corporations that could afford to invest some of their resources without a profit motive. (That said, in his favorite case study, the corporation (Danone) that invested demanded a 1 percent yield on the investment.)
Yunus did not suggest that a union employee at Danone making a fair living with good retirement benefits should be required to invest alongside the corporation they work for without any hope for financial profits.
The idea that ordinary investors scraping by to put money aside for retirement should commit all of their savings and investments to zero-profit investments is not just stupid, it offends me.
About 90 percent of US households are not accredited investors. Most, however, have some retirement savings. That does not enable them to retire early or well. By definition, if you are not an accredited investor household, you don’t have $1 million in savings and investments. If you retire in 2023 without $1 million in savings and investments, you’ll be carefully managing your resources from the moment you retire.
I’ll go one step further. Many people who meet traditional definitions of accreditation of investors—those who do have over $1 million in savings and investments—aren’t especially wealthy and may reasonably feel they can’t afford to invest without the hope of financial profits.
In many parts of the country, the cost of housing and living are such that if the household doesn’t own a home free and clear, $1 million plus may provide relatively modest housing and scant security—even with Social Security benefits and Medicare.
I’ll leave it up to you to decide if you are wealthy enough to devote some of your retirement savings or other capital to zero-profit impact investments—and if so, how much.
There was a corollary argument in the paper I read that so offended me. It was that investing in a social enterprise led by a diverse founder with a market-rate return on investment would be extractive and wrong. I think that argument is wrong.
They don’t argue that making a market-rate investment in a business with no social mission and a white cisgender male founder is extractive; to the contrary, they say that such an investment supports a system in which diverse founders and social entrepreneurs are disadvantaged.
If investing in a white-owned business with no social mission at a market rate is a form of support for that enterprise, I fail to see how investing in a minority or woman-led social enterprise at market rates would be extractive.
During the early part of this century, some large financial institutions set up extractive loan programs targeting low-income African Americans by literally marketing through Black churches. Extractive finance is a problem, but I reject the hypothesis that it includes genuine market-rate financing.
Many social enterprises, women-led and minority-led companies, raise capital at below-market rates. There is nothing wrong with that. It is wonderful! It is a powerful form of capitalism that provides an extra boost to enterprises that offer social impacts that others don’t. I’m glad some folks have the resources and willingness to do that. I’m glad that I’m able to do that—sometimes.
For the millions upon millions of people in this country who work hard to buy a home, save for retirement and raise families, there are opportunities to invest impactfully at market rates.
The Regulation Crowdfunding marketplace is full of debt and equity offerings that attract savvy investors, many of whom prioritize financial considerations ahead of or without any regard for social impact. You and I can choose to invest in these opportunities with an impact priority—supporting social enterprises, local and community businesses and diverse founders—without being required to invest at a discount.
When you choose to invest part or all of your money for impact and lower returns—because you can—kudos. I honor, respect and thank you. But you know what, if you invest for impact with market rate returns in mind, let me say, “More power to you!”