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In the Age of Terror, What About Impact?

Words by 3p Contributor
Investment & Markets
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By Dr. Maximilian Martin

“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”
Marie Curie
No more safe locations. Temporary or permanent?

The financial crisis took away the notion of safe assets. The recent terrorist attacks in France, Germany, Saudi Arabia and the United States have done away with the notion of safe locations. The world has experienced a negative-step change. The question that looms now: Is this dangerous trend a temporary or permanent one?

Be it on the investment side or on the philanthropy side, for anyone engaged in the world of impact, this invites a series of questions that we had better not dodge. Perhaps most importantly is to consider how one can play a productive role in containing these violent challenges.

Security touches everyone. The dark side of the Age of the Citizen has arrived.

The Age of Terror is the dark side of the Age of the Citizen. Individuals have a greater power to create change than ever before in human history. Alas this holds true for negative change as well. In Bangladesh, a terror attack on a restaurant in Dhaka resulted in the tragic deaths of 20 hostages on July 1, many of them expatriates. The independent, a local newspaper in Dhaka, wrote last week that the “masterminds [had been] identified.”

The worst terrorist incident in the country’s history to date is hardly a development that makes bringing foreign investment capital to the country easier. Expatriates are resigning from their jobs, and hotels are empty. Yet the country needs money and specialist expertise to keep modernizing, and offer the poor majority a stake in society. For this reason my firm, Impact Economy, is working to render garment supply chains investable for impact in the country.

How can we avoid being the tail that wags the dog? No moving around deck chairs on the Titanic.

The enthusiasm about the emergence of new concepts that marry markets and social impact has been contagious. It is now time to seriously ask ourselves what we can do so this adds up to what’s needed to be done.

In 2003, I developed the first university course on social entrepreneurship in Europe. I am amazed how much the idea of social entrepreneurship has taken off since then. A whole social entrepreneurship “tribe” has come into being around the world.

The many are still a small minority in the big scheme of things. The Impact Tribe ought to amount to more than a tail relentlessly trying to wag the dog. Or worse, end up as great action on the deck of the Titanic when what needs fixing is the hull.

How can philanthropy step it up? Align with the realities of financial markets.

Even advanced economy governments are struggling to uphold cherished basics such as the monopoly of violence. The strong state that properly takes care of all its citizens’ needs is a fantasy. Markets are not a panacea to all problems either. This is not the moment to write off the importance of philanthropy, however old-fashioned it may seem to some. The idea of a “personal impact” keeps gaining ground. With their actions, more and more people are consciously trying to make a positive difference to the greater good. The question is how we can expect all of this to add up.

Today something fascinating is going on in the world of philanthropy. Patterns of wealth creation are turning out more and more people with the financial degrees of freedom to fund their philanthropic aspirations. The World Wealth Report 2016 expects high net worth individuals’ (HNWIs) financial wealth to almost double from $56.7 trillion last year to $106 trillion in 2025. The question is: What kind of world we will live in then?

(Endowed) institutionalized philanthropy is under very serious pressure on the other hand. The impact revolution has raised expectations about what a philanthropic effort needs to deliver over the short and medium term. The edifice of relationship-driven philanthropy is creaking. At the same time, the persistent zero interest rate environment undermines bond strategies. It leads to a reduction of sustainable revenues other than fresh donations. This is a problem for all established endowed foundations, which do not own a profitable company asset. They need to invest on capital markets, and still expect to pay out 2 to 5 percent of their endowment per year.

At the level of the individual institution, the only logical way forward will be a serious trimming of the fat on the grant administration side. This by leveraging information technology to deliver a similar or better philanthropic experience, at a lower cost. And without destroying the magic of creativity and relationships in philanthropy. Structurally, this challenge does not look so dissimilar compared to non-philanthropic (aka commercial) banks. Consider the triple whammy: over-regulation and dwindling margins have put their business models under real pressure. Technology lowers barriers to cannibalizing their offerings.

What about impact investing now? Put the foot on the accelerator.

Excluding illiquid assets and cash, the World Wealth Report 2016 calculated that 31 percent of high net worth investment portfolios around the world are based on the concept of social gain. Almost half of HNWIs said they expected to increase their impact investments over the next two years. This idea is gradually going mainstream.

In 2013, I wrote the baseline report circulated to all participants to the then G8’s first conference on impact investing. It was hosted by then British Prime Minister David Cameron. Now Brexit is under way. Impact investing is still looking for the amount of deal flow needed to graduate from a satellite to a core investment strategy. It is obvious that it would be too early to congratulate ourselves.

Rather than despair, we now need to put the foot on the accelerator. This includes acknowledging what works and what does not. In the end, fundamentals have the power of gravity. For example, deal size matters to absorb management costs. In an impact investing space where much still needs building, the sub-tribes of venture philanthropists and impact investors need to find ways to routinely work with each other, as part of an ecosystem. That is more productive than pointing fingers at the other’s supposed not getting what matters or how the world works. (For readers who want to unpack what this point is getting at, have a look at my recent book “Building the Impact Economy: Our Future Yea or Nay.”)

So what’s the job for Generation Impact? The time for 'small small' is over.

It is obvious that our post-Second World War way of life is under threat as never before in recent history. We had better make sure that the threats remain temporary, rather than becoming permanent.

Now is the time to ask ourselves hard questions about how we can plan to rein in the threats. Or better, how to put them back into Pandora’s Box. How can the “Impact Tribe” rise to the challenge? For sure, when it comes to bringing about a new order of things, passionate, talented people have a lot to bring to the table. Just think about the amazing amount of energy that has gone into formulating solutions to climate change and mobilizing people. COP21 would not have gone the way it did otherwise.

The bottom line is this: We need to carry on. The time for small small is over though. We need to develop a compelling vision for a resilient, prosperous world -- and we need to make it happen quickly. Formulating answers that work may require going outside one’s comfort zone. It will involve large-scale decisions shaped by the electoral process. This in addition to entrepreneurial and philanthropic action. Let us get started before the space for private initiative based on the love of humankind, and creativity, has been damaged irreversibly.

Image credit: Flickr/UCI UC Irvine

Maximilian Martin is the Founder and CEO of Impact Economy. Dr. Martin has been privileged to witness the impact revolution for almost twenty years from a variety of vantage points, including working for a strategy consultancy, a foundation, a bank, and running a startup. Having built knowledge and infrastructure which others have found useful, and having gotten his hands dirty implementing projects on the ground, he wants our generation to succeed at mastering the challenges that now lie before us.

3p Contributor

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