Decoding Tomorrow:
Futurism and Foresights Today

It’s a bit too easy to think that investing is about making money.

It is. But, broadly speaking, investing is an act of optimism. It’s a bet on progress, on growth, on technologies and advancement that will improve our lives at mass scale. To expect that the money you invest will be worth more in the future is to say that our prospects (and our children's prospects) will be better than they are today. To invest is to trust in the future.

But recently, the concept of endless growth and trusting that the future can be predicted seems, well, a little shaky. It feels as though the limits of capitalism are becoming more apparent even from deep within this system and there are certainly aspects of it that seem ill-prepared for our potential future.

So we toy with ideas like whether a universal basic income helps to protect our societies in the face of disasters, like a pandemic, or the mass automation of jobs. We’re witnessing the gap between the wealthiest and poorest widen, for the benefit of far fewer people. We’re reckoning with the ways that perpetual growth and consumption is destroying the planet. Even the outrage and disbelief which was the theme song for Donald Trump’s presidency — a crude symbol of money, power and the free market — suggests that we are (at least unconsciously) uncomfortable with the characteristics of our economic system.

All of these concerns suggest a troubled relationship with the way the free market functions. So is our optimism running out? For impact investors, the answer is, “No, definitely not.”

What has made capitalism such a potent force is its ability to adapt and generate new solutions quickly. And in a way impact investing is a new solution to the system it upholds.

So what is Impact Investing?

It attempts to alter the paradigm of investing by broadening our definition of returns. Rather than the sole intention to turn a profit, impact investing demands a positive social or environmental return too. It has optimism for more than a balance sheet. At a minimum, an impact investor would expect a return on capital but with a great positive impact. 

It’s worth pointing out that philanthropy has some commonalities with impact investing. Philanthropists turn their private money into public good in order to raise quality of life, often in under-served or niche areas. However, for philanthropists there’s no expectation of a return (apart from, perhaps, some social goodwill).

But impact investors stipulate that ‘soft’ returns are quantified and measured with the rigour that an annual report would use to inform investors of revenue and sales. It converts 'good' into measurable goals. 

And unlike environmental, social and governance (ESG) investing — which includes these non-financial aspects as risks in an investment analysis — impact investors can aim for clear destinations, rather than rough directions or risk mitigation. 

And these ‘soft’ returns don’t necessarily have to be far reaching. They can be selective but deep, truly emphasising impact over investment. And because there is an altogether different intention (compared to traditional investing), impact investors also take a different view of exits and horizons. Unlike a typical investment, impact investors can be satisfied by incremental, long-term returns as well as rapid ones. Impact investors understand that immediate, mass change is not always sustainable or credible when seeking to improve the world.

Just take a look at Atlassian co-founder, Mike Cannon-Brookes, and his investments in “lighthouse projects” — investments that won’t necessarily turn over huge profits, but can light the way for other ventures by proving that the concept is viable. These projects include: a major solar farm in remote Queensland able to export its energy to Singapore via cable, a fintech that funds energy-efficient home improvements for typical households and vertical gardens in multi-level buildings to make farming more sustainable in a smaller footprint and within major cities.

Plenty of private firms are centred on impact investing and manage billions of dollars of assets in areas like renewable energy, land management or disenfranchised communities across both developing and developed nations. The Global Impact Investor Network 2020 Annual Survey shows that of these firms, some aim for below-market returns to align with strategic objectives, others aim to beat the market, while 67% aim to stay competitive with market rates. 

By contrast, in the same survey, 78% of respondents said that their portfolios met or exceeded investor expectations. That’s positive returns, positive changes and a positive feeling. Not all portfolios can boast the same.

Impact investing won’t fix all of capitalism’s flaws, but it goes some way to updating our economic operating system. With a core belief that human prosperity cannot be reduced to money alone, we could see radical returns beyond the value of any profit margin. 

And isn’t that worth a bit of optimism?