Investing With Impact Summary

What if we could use capitalism not as a barrier, but as a tool to solve society's challenges?

1. Capitalism is a neutral tool shaped by human choices

Capitalism isn't inherently harmful or beneficial—it’s a system shaped by those who operate within it. Much like an axe can build shelter or inflict harm, capitalism's outcomes depend on the moral choices of individuals. It provides a framework for free trade and free markets, where individuals have the freedom to innovate, trade, and allocate resources.

Over the past five decades, capitalism has contributed significantly to societal well-being. Free trade and market expansion have improved living standards, lifting millions of people out of poverty. A 2014 World Bank report attributes 80% of poverty reduction globally to economic growth driven by these systems.

Failures occur when actors in the system act selfishly. For example, the 2008 financial crisis wasn’t a flaw in capitalism itself, but in the greed-driven decisions of bankers seeking short-term profits at the expense of broader community well-being. Similarly, Enron’s manipulative practices were the actions of a company prioritizing stock prices over societal interests.

Examples

• The World Bank credits free markets with halving global poverty from 1981 to 2005.
• Pew Research found that 4.5 billion people support capitalism as the ideal economic model.
• Enron's collapse highlighted the risks of prioritizing profits without ethical considerations.

2. Corporations can meet societal needs more efficiently than governments

While governments historically manage public services like healthcare and education, mounting debts frequently hinder their ability to perform effectively. Austerity measures in many countries after the 2008 crisis resulted in reduced services and stunted economic growth instead of recovery.

In contrast, corporations often respond faster and more effectively to societal needs. Companies aren’t bound by legislative red tape, enabling them to implement health, education, and environmental policies directly. Walmart's employee healthcare plan, cheaper and more inclusive than standard U.S. plans, exemplifies this capability.

Additionally, businesses spearhead global change by leveraging their financial and operational networks. The multinational reach of firms like Coca-Cola allows them to execute global educational programs efficiently. Even environmental initiatives, such as Starbucks’ efforts to cut water use by 25% by 2015, showcase corporate flexibility and faster implementation.

Examples

• Walmart healthcare: $70/month for employees versus $352 for typical U.S. plans.
• Starbucks initiated a water reduction goal without bureaucratic hurdles.
• Coca-Cola uses its global presence to promote educational programs worldwide.

3. Millennials are redefining success through societal impact

Millennials, born between 1984 and 2000, are upending traditional values like career stability and individual financial success. Instead, they emphasize purpose-driven careers that contribute to societal improvement. This shift stems partly from their disillusionment with the "American Dream," which failed them during the 2008 financial crisis.

Unlike older generations, millennials prioritize societal benefits over high salaries. Their eagerness to engage in philanthropy and volunteerism signals a deeper commitment to positive change. Additionally, they view business as a means to promote fairness, equity, and sustainability.

By 2020, millennials comprised 75% of the American workforce and 40% of voters, giving them unprecedented influence. As these values infiltrate corporate strategies and leadership, millennials will steer capitalism toward more ethical, socially-oriented practices.

Examples

• Millennials performed more volunteer work than older generations.
• By 2020, millennials made up 75% of the U.S. labor force.
• Disillusionment with the 2008 financial crisis reshaped millennial career priorities.

4. Impact investing bridges profit with social responsibility

Impact investing champions the idea that financial returns and societal benefits aren't mutually exclusive. One innovative tool, the social impact bond, lets governments transfer some social program funding to private investors, who earn returns when programs succeed.

Take Nebraska's literacy gap: 77% of students read proficiently, but only 55% of Black students meet that level. Through social impact bonds, private companies could fund teacher training and school resources. As student performance improves, successful investors receive tax benefits—rewards tied to measurable outcomes.

This approach also ensures long-term societal gains, from better job opportunities to increased tax revenue. However, for impact investing to thrive, companies must draw investors by highlighting both profitability and their commitment to lasting social improvements.

Examples

• Social impact bond funding allows schools to tackle literacy issues.
• Students with strong education create a cycle of higher earning and job growth.
• Investors can benefit from tax breaks while driving positive societal changes.

5. The E6 model evaluates social and financial value

The E6 model—a six-factor framework—helps evaluate a company’s contributions to society alongside financial success. These factors ensure that investment decisions align with broader societal benefits.

First, economics evaluates the stock price and growth potential. Employment assesses job creation. Empowerment measures workforce diversity in age, gender, and ethnicity, as diverse teams often lead to stronger performance. Education gauges professional development opportunities provided by a company. Ethics examines adherence to fair business practices. Lastly, environment reviews a company’s efforts to reduce pollution and tackle global issues.

By scoring high on the E6 model, businesses strike a balance between profitability and genuine community impact.

Examples

• Apple claims to have created 60,000 direct jobs and many more indirectly.
• McKinsey’s research links diverse executive boards to higher profits.
• Starbucks targets sustainability measures like reducing water use.

6. Ethical failures spark crises, not the system itself

The financial crises of recent decades didn’t result from inherent flaws in capitalism but from unethical behaviors by key individuals and companies. These failures serve as warnings about how profit-focused decisions can harm society.

For example, Enron exploited accounting loopholes and falsified profits to attract investors. Bankers before the 2008 crisis prioritized risky short-term gains, disregarding both clients and long-term consequences. Such misconducts signal the need for stronger values guiding the economy rather than abandoning the capitalist framework.

By infusing human-driven systems like capitalism with ethical decision-making, we can harness its potential to create growth while avoiding harm.

Examples

• Enron's fraudulent reporting led to corporate bankruptcy.
• 2008 subprime mortgage crisis originated from short-sighted, self-serving behavior.
• Ethical practices prevent exploitation and self-destructive economic decisions.

7. Private innovation drives environmental change

When corporations treat environmental challenges as priorities, they act faster than governments in developing practical solutions. For example, Starbucks proactively reduced its water consumption goal by one-quarter without waiting on legislative action to mandate such steps.

Tech companies often lead sustainability innovation. Google, for instance, heavily invests in renewable energy. Similarly, Tesla combines profitability and environmental goals by producing electric vehicles and clean energy storage.

Corporate environmentalism serves dual purposes: reducing human impact on the planet while marketing sustainability as part of business strategy, appealing to eco-conscious consumers.

Examples

• Starbucks: Early water-use reduction initiative before 2015.
• Google’s multi-billion dollar investments in renewable energy projects.
• Tesla’s focus on electric vehicles and energy storage innovation.

8. Diversity boosts both ethics and profits

Companies that value diversity outperform less-inclusive peers financially and operate more ethically. According to reports, companies with diverse executive teams offer wider perspectives, better reflecting the communities they serve while driving innovation.

By empowering individuals across demographic groups, firms gain trust from customers and investors alike. This part of the E6 model strengthens credibility and market reach while naturally aligning businesses with inclusivity-focused societal values.

Diverse workforces also reduce cultural blind spots, creating agile companies better prepared for global challenges.

Examples

• McKinsey links executive diversity with stronger business performance.
• Increased trust stems from companies reflecting their customer demographics.
• Global businesses thrive through culturally aware and diverse staff.

9. Profit and positive impact are not trade-offs

Businesses don’t need to choose between good deeds and financial success. Ethical investing prioritizes returns alongside tangible societal benefits. Companies embracing such balance contribute meaningfully to their communities while fostering long-term profits.

Traditional investments often yield unsustainable gains, as seen in historical corporate scandals—Enron being a prime case. In contrast, businesses like Patagonia and Ben & Jerry’s prove profitability can align with corporate responsibility and ethical missions.

By adopting models like E6 and impact investing principles, investors can ensure their portfolios contribute to making the world a better place.

Examples

• Patagonia: Thrives as an eco-conscious outdoor clothing brand.
• Ben & Jerry's: Combines ethical initiatives with product success.
• Ethical frameworks stabilize businesses for sustainable growth.

Takeaways

1. Evaluate investments with both financial and ethical lenses, using tools like the E6 model.
2. Support companies prioritizing societal goals like sustainability and diversity, as they often offer long-term benefits.
3. Advocate for impact investing to encourage policymakers, individuals, and institutions to consider profitable approaches benefiting society as a whole.