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How impact investment could counteract the rising tide of populism

José Manuel Barroso points to a solution to preserve capitalism, open economies and free societies. Impact investing is an effective solution to stop the rising populist movements pushing back against capitalism, fueled by the challenges of climate change and social inequalities. This new trend seeks financial return while investing in innovative solutions to social problems.

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“If we want to defend the maintenance of an open economy and free societies, then we have to demonstrate that it is not capitalism that threatens the planet and aggravates inequalities,” argues the chairman of Goldman Sachs International.

The former Prime Minister and President of the European Commission was the main speaker at the conference promoted by PLMJ law firm “Impact Agenda: Next Steps for Business.” He did so because he believes that so-called impact investing is an effective solution to stop the movements against capitalism that are being fueled by the challenges of climate change and rising social inequalities.

“If we want capitalism to remain acceptable, we must change it. You cannot just look at profit. When making investment decisions, not only should the risk and financial return be considered, but also the social and environmental impact of our actions,” he explained.

The new trend in impact investing seeks financial return while investing in innovative solutions to social and environmental problems, crossing with the highest goals that are being set at international level, from the Paris Agreement, to the “Green Deal” of the new European Commission or the new global model of the United Nations to end poverty, promote prosperity and well-being for all, protect the environment and combat climate change.

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Millennials are more interested in environmental issues

“The new generations are postmaterialist. They go beyond economic and financial security. They have environmental concerns, they are looking for a mission,” says Barroso. And the impact investment seeks to respond to these generations, such as the millennials, who will have access to about half of the wealth and already represent about a third of the workforce. In this context, it’s no wonder that even large investment funds from oil-producing countries are reviewing their portfolios and are no longer betting on fossil fuels.

“Consumer pressure will take this change in consumption patterns and investment patterns much further. We are only at the beginning of what is a revolution,” says Barroso. For the president of Goldman Sachs International, the change must be made as soon as possible – “action to stop climate change must be taken now – and involve more than Europe – “it must be coordinated at a global level and involve the biggest polluters.”

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This picture show some coins representing investment decisions.
The new trend in impact investing seeks financial return while investing in innovative solutions to social and environmental problems. (Source)

Green sells better than social

Filipe Santos, former president of Portugal Inovação Social and current director of the Católica Lisbon School of Business & Economics, was one of the speakers who addressed this ongoing revolution among more than a dozen impact investment experts gathered at this conference.

“What is happening is extraordinary, because it is going to the essence of what capitalism should be,” says Filipe Santos, pointing out how the market is allocating resources more efficiently to solve social and environmental problems. Filipe Santos notes a real interest in impact investing since 2017/2018, but regrets that social investment is more difficult to sell than green investment.

“It’s important to also focus on the social and not let the green completely dominate the agenda.” Even to avoid more catastrophic scenarios driven by growing social inequalities. Hence the urgency of this revolution: “In the social area, populism is already increasing. We have no more than 10 to 15 years to rebalance capitalism.”

The source of the problems

Luís Jerónimo is director of the Gulbenkian Sustainability Program of the Calouste Gulbenkian Foundation and director of Maze Impact, which works with impact startups and investors to scale effective solutions to solve social and environmental challenges.

He argues that traditional philanthropy must “go further”, from generosity to justice. “It must not only mitigate inequality, but go to the very causes of inequality.”

In this context, the questions that are important to accelerate this revolution are: what problems do we want to solve? What resource gaps exist? And what funding instruments can we develop?

In the Portuguese case, the country is actually a pioneer in the use of European funds to encourage this ecosystem that brings together investors and social organizations. The existence of the first venture capital fund for impact investing in Portugal was also highlighted by the CEO of Maze Impact.

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António Miguel considers that “the creation of social and environmental impact is one of the greatest opportunities of our time” and that Portugal has the potential to attract foreign capital as a country at the forefront of this impact investment. Instead of profiting from the maintenance of environmental and social problems, for this expert, it is important to embrace the new impact economy that is based on profitable solutions that solve social problems.

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(Featured image by Artem Beliaikin via Unsplash)

First published in ECONOMIA, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Michael Jermaine Cards is a business executive and a financial journalist, with a focus on IT, innovation and transportation, as well as crypto and AI. He writes about robotics, automation, deep learning, multimodal transit, among others. He updates his readers on the latest market developments, tech and CBD stocks, and even the commodities industry. He does management consulting parallel to his writing, and has been based in Singapore for the past 15 years.

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