In this opening Practitioners Institute panel, four experienced values-aligned investment professionals unpacked the last decade: the surprises, the disappointments, the successes and the confirmations. And they explored current developments that have the potential to shape not only the coming, decisive decade, but also to shift the direction of capitalism into the distant future.
The discussants included Matthew Weatherley-White, Managing Director, The Caprock Group, as moderator; and Patricia Farrar Rivas, CEO, Veris Wealth Partners, Jeff Scheer, Director, Pathstone, Jason Scott, Partner, RRG, Encourage Capital.
Ten years ago, Confluence members gathered at Cavallo Point. Focusing on the idea that investors could do more than screen public equity portfolios to address the Great Challenges we faced —climate change, opportunity inequality, and social injustice, among others — we collectively developed a central thesis that has sustained the impact investing movement for the past decade:
That intentionally deploying investment capital within the framework of a market economy, paired with a clearly-articulated theory of change, could deliver solutions at scale to the challenges that surround us, eventually leading to a more resilient, more sustainable, more just version of capitalism.
This panel discussion interrogated that now decade-old central thesis, primarily to question its efficacy, but also to grapple with what we’ve learned, where we’ve failed, how we’ve succeeded and what remains to be done.
To do so, we framed three core questions that served as the substructure for the discussion:
1) What feature of the industry 10 years ago is most memorable to you now, and how has that feature shifted/evolved?
2) What has happened that has surprised, disappointed or scared you?
3) What is the most important dynamic happening right now, under the hood, that will shape the coming decade?
Four principle themes emerged during the conversation, each of which nest underneath a core observation: “Incredible professional success undermined by broad systemic failure.” What do I mean by this?
The progress we have made over the last decade has been astonishing. Billions of dollars have pivoted towards impact. Trillions of dollars are now values-aligned in some way. A daily drumbeat of high-profile announcements about ESG commitments reverberates through the world’s media. Yet there remain skeptics, even within our own communities, that this progress reflects meaningful change. One could even argue that the challenges we identified a decade ago — environmental and social, not to mention political —are more acute now than they were.
In other words, despite our clear success in the goal to reorient capital allocation decisions, we have (so far) failed to shift what most of us see as an exploitative, extractive capitalist system. Does this represent a failure of approach? A flaw in our central thesis? Or must we be patient as the lag between uptake and outcome plays out? In other words, what needs to happen going forward? Is it as simple as “more money?" Are we doing enough? Are we confident enough to drive to scale? Or is there a fundamental shift in the way we think about what we are doing?
Capital
One of the risks we identified a decade ago was that massive inflows of capital might reflect market share capture dynamics rather than a deeper commitment to systemic change. The acceleration of mainstream players has both excited and unnerved us. Where there was some debate about “how” these players are appearing, there was no argument about the signaling: impact and ESG are not simply a trend or niche strategy. Massive financial institutions are currently trying to figure out how to integrate ESG into their core operations. And yet… concern remains. Standards are likely to be diluted. Green-washing is a threat to the entire discipline. Motives can be opaque, or even at cross-purposes to the ethical underpinnings of the movement.
But the facts are clear: we need every single investment dollar deployed towards solutions. Today. Quibbling over motives is tribalism at its worst. Debates over definitions accomplishes nothing in the grand scale. The mantra that emerged to mitigate this risk: “embrace and inspire.” Embrace absolutely every single entrant into this movement, and inspire them to learn from, and build upon, the incredible work that has been done over the past 30+ years.
Clients
Perhaps the most salient insight regarding client behavior is regarding motivation. While a decade ago the overall advisor experience might best be described as “collaborative exploration,” client relationships are now grounded in motivation . . . and occasionally in impatience. Years ago, it would require a pride-swallowing siege for an impact-facing asset manager to raise $30 million for a fund. Now, hundreds of millions are flowing into impact funds, and ESG public equity funds control trillions.
Undergirding this acceleration of client-driven product response is a combination of commitment, wealth transition, confidence and maturation. Yet it was instructive that each of us also flagged how much more capital must be harnessed. And that underneath this recognition was a clear sense of urgency, a sense that was echoed in many of the questions posed to the panel.
I’d like to offer an equation-derived acronym that came to me during the panel: US3
Urgency x (Scope x Scale x Sequence) = Transformation
Constraints
Each of the panelists mentioned, at different times, some notion of resource constraints. Scale of operations, the challenge (and cost!) of diligence and ongoing monitoring, and amount of deployable capital, among others, all combine to limit our collective ability to shift the markets. We all see viable businesses and funds go unfunded. We all wish we had billions of dollars to deploy, and more colleagues to do so. We all wish that our favorite funds were able to raise more money. We all wish that successful social enterprises had a larger footprint, and that innovative entrepreneurs had more capital with which to innovate.
Yet we also recognize the structural barriers to this step-function in deployable capital. Innovation tolerance can be low at most institutions. First funds can be unnerving. Large pools of capital are unlikely to hire small advisory firms. Racial and gender biases continue. In other words, some of the characteristics that define impact investing are precisely the characteristics that many large pools of capital will not fund.
Congruence
The most consistently positive thread was what I’ll call “congruence.” There is a powerful sense that structural forces are aligning to support the continued expansion — and possible implications of system change — of values-aligned investing. Investor demand for product has driven surprising conversions to the discipline. Climate science has become undeniable. The long-predicted wealth transfer to women and younger adults has begun, catalyzing an unmistakable shift in consumer demand.
This alignment / harmonization / congruence is the factor that supports the panel’s confidence in the future of the discipline, but it does not mitigate our collective anxiety around urgency.
In other words, the future clearly belongs to what we have called impact investing . . . but it may be too late.
I’d like to make one closing observation: the best way to get the attention of capital at scale is to threaten the revenues associated with that capital, or prove business models that accelerate as the culture around money evolves.
If you are a wealth holder who has your money at a big money center that is not committed to impact: move your money.
If you are an advisor who is trying to decide whether or not to build an ESG practice: build it and they will come.
If you are an RIA wondering if now is the time to step in and build some expertise: just take the leap.
There is precisely zero downside to any one of these actions. Yet there is enormous potential upside. The very definition of an attractive risk / reward relationship . . . something that we, as investors, perfectly understand. And while the best time to start would have been a decade ago that first Confluence Gathering, the second best time is today.
- Matthew Weatherly White, Managing Director, The CAPROCK Group
