GreenMoney Interviews: Morgan Simon, author of Real Impact

GMJ: Why did you write this book?

Morgan: Impact investment—the practice of investing not just for profit, but also for social benefit—is the trillion-dollar trend most people have never heard of. There’s the opportunity for it to do a tremendous amount of good in the world if we all pay attention and help it achieve its highest potential. But we also need to learn to become “conscious consumers” of impact investment—and not just assume that an investment is social because a financial institution tells us so, but because it’s actually making verifiable systemic change and holding true to social justice values. I recognized that with 17 years of experience in the field influencing over $150 billion, I had unique experience to share not only with investors, but with anyone inspired to leverage society’s resources towards social change. So, while my experience moving large portfolios into impact is directly applicable for any number of investors, from individuals to endowments and foundations, it also raises many larger questions about the role of money in society, which deserve to be a topic of conversation amongst global citizens looking to build a more just economy.

GMJ: You have been a social justice activist nearly all your life. How did you come to dedicate your career to impact investing?

Morgan: Strategic activists think a lot about the influencing power in society—whether it be political power, cultural power or economic power. We also think a lot about systems—the policies, practices and social norms that lead towards better or worse outcomes for people and the environment. Economics is at the heart of so many societal systems, and thus I think it’s essential for activists to pay deep attention to what happens in the economy. Impact investment provides in-roads for social justice advocates to be able to influence economic systems in new and exciting ways—this has kept me in the field, as it’s where I feel I can have the greatest impact.

GMJ: What do you say to activists who are skeptical of finance?

Morgan: Such skepticism is completely warranted, given that finance has largely been hijacked from its roots as a means of exchange and empowerment, to become an extractive tool. Ideally, social investment provides a pathway to leverage money for its original purpose—we just need to put the proper guardrails around capital to make sure it’s used as a tool that serves people, and not the other way around.

Personally, I believe that poverty is rooted in a lack of autonomy—people’s ability to make choices for themselves about how they want to live. Economic autonomy can be a huge enabler of other forms of cultural, social and political autonomy—and social finance is a great tool to help create economic autonomy, correcting many of the flaws of traditional charity. So, I think it’s absolutely possible to retain reasonable skepticism of how finance gets used to harm others—and to try and wrestle it back to serve a greater purpose.

GMJ: In your book, you caution that impact investing is at a turning point – what makes you believe that?

Morgan: Impact investment is preparing for rapid scale—it’s now offered by the majority of major financial institutions, and most savvy investors such as pension funds, high net worth individuals, corporations, and foundations are taking environmental, social and governance factors into account in their decision-making. But if only financial institutions are involved in decisions around what is socially responsible, we will drown out the voices that have the most to gain or lose from the conversation—those whose communities are most directly affected by investments that are made.Keep in mind that the Merriam-Webster definition of impact is “to impinge upon, especially forcefully”—whether or not that impact is ultimately positive is the domain of humans, as imperfect as we are, and we need to therefore, as investors and entrepreneurs, make sure we are great listeners when it comes to what grassroots communities truly need. And given that anyone with a bank account is an investor (whether they see themselves that way or not!) it’s essential for all of us to take part in this deep listening to make sure the places where our money spends the night truly reflect our values. It’s not enough to just check the “social” choice box, but requires real vigilance.

GMJ: You point out that not all impact investing projects are inherently good. Can you share an example of a project that went awry?

Morgan: In Southern Mexico, a development bank alongside the government and several corporations and social investors sought to build the country’s largest wind farm. This seemed like an impact investor’s dream – the opportunity to support the country’s transition away from fossil fuels, while providing jobs and economic benefit to the surrounding indigenous community.But these investors failed to take their impact diligence as seriously as their financial diligence—and wound up not only hurting people, but losing hundreds of millions in development dollars with no result to show for it because the projects were ultimately withdrawn. The wind company offered so little participation and benefit to local people that the community began to protest the project, putting up roadblocks, which led to serious conflict with security forces. This led to people holding up signs at protests saying “Stop the intimidation, hostility and violence caused by the wind project.” These are of course three terrible words to have connected to an “impact” investment! And it reflects the fact that investors ignore community needs at their own peril. The happier ending to this story is that the indigenous community came together to work on an alternative wind project—which is profiled in Chapter 6 of Real Impact.

GMJ: What’s your favorite impact investing story – a project that fulfilled its potential and made the kind of positive social impact the investors hoped for?

Morgan: There are so many—and that’s why Real Impact is predominately focused on telling the stories of fantastic communities and entrepreneurs that have found creative ways to leverage finance for social justice. One in particular, featured in Chapter 7, is The Working World—a fund that has financed over 1,000 worker-owned cooperatives in Argentina, Nicaragua and the US with a 99% repayment rate. Not only are worker-owned cooperatives critical sources of wealth for low-income communities, but The Working World also uses a non-extractive financing model to re-envision the way finance can work in society.

GMJ: What do investors need to keep in mind to make sure their projects achieve real impact?

Morgan: In 2014, we launched the Transform Finance Investor Network at the White House, which now includes holders of over $1.2 billion in capital who embrace the following principles, which we recommend to all investors who are concerned with real impact:

• Engage communities in design, governance and ownership.

Grassroots activists sometimes say “nothing about us, without us”—the same rule applies to social businesses, who simply can’t know if they are doing the right thing without taking leadership from affected communities.

• Add more value than you extract.

Just because something is better for people doesn’t mean that it’s fair. For instance—microfinance banks charging 200% interest might have provided a more affordable product to women used to being charged 1,000% by extractive local lenders, but were still fundamentally exploitative. If we want to be social investors, we need to make sure we enrich communities more than we enrich ourselves. That doesn’t mean we can’t make a financial return—but it needs to be a fair return to all involved.

• Balance risk and return between investors, entrepreneurs and communities.

Too often, communities take serious risk in accepting a social enterprise into their community, and yet are locked out of any financial return. If we don’t look carefully at who has access to ownership, and to participating in entrepreneurship, we will not be able to shift societal power. Everyone contributes to a successful enterprise—and needs to be rewarded for it.

GMJ: What can everyday investors do to participate in impact investing?

Morgan: We often forget that anyone with a bank account is indeed an investor. Whether you have $100 or $1 million, you can place your money in a community bank that is investing its assets in positive projects like low-income housing and solar energy, and you can talk to your employer about having a social choice retirement plan. And just as you learned to know the difference between a cage-free and a free-range egg—make sure to be a conscious consumer of impact investment. Take care that products are indeed non-extractive and have some level of community accountability built-in.

For more about Real Impact and to order a copy of the book – www.realimpactthebook.com