In the pursuit of a regenerative economy, it is imperative that we recognize the limitations of our current economic system and actively seek solutions to overcome them. At the recent BforGoodLeaders summit, we discussed several fascinating and hopeful developments that are paving the way for a more sustainable and equitable future. Let's explore some of these key insights together.
1. Enhancing Liquidity in Impact Investing:Investing in direct impact ventures and impact funds has often been seen as risky due to the lack of liquidity for extended periods, typically more than ten years. This has hindered the growth of impact investing in private equityand impact funds. However, promisingly, organizations are actively working on creating guarantees or buy back options to generate more liquidity in impact investing opportunities.
2. Changing Capital Markets: Family offices and institutional investors, such as pension funds, are increasingly expressing interest inimpact investing. Nonetheless, we still have a long way to go to transform capital markets as a whole. We are witnessing a shift in the capital deployment strategies of pension funds, leveraging their inherently long-term horizons toplay a pivotal role in building a patient capital market. Encouraging developments are emerging in this domain.
3. Tokenization for Democratization: Tokenization holds the potentialto democratize the economic system and facilitate the trading of impactinvestments or their fractional ownership. This approach would significantly broadenaccess to the impact investing market, benefiting organizations seeking capitaland fostering the development of a new financial system with increased partialownership and trading opportunities. Tokenization could prove particularlyinstrumental in securing the capital needed for nature conservation.
4. Harnessing Artificial Intelligence: Artificial intelligence (AI) canplay a vital role in developing improved platforms that match startups andimpact funds with the right investors. Additionally, investors can more easily screen their portfolios and discover better options to create a greater impact. While we must remain cautious of the dangers associated with AI, we also recognize its potential to accelerate impact matchmaking in the realm of impact investing.
5. Balancing Reporting andAccountability: Inthe future, it will become essential for all entities to report their impact,both positive and negative. Currently, smaller impact funds, ventures, andphilanthropic organizations bear a disproportionate burden in showcasing their positive impact, while traditional corporates, banks, and funders are not obligated to highlight their negative impact. Achieving a more balanced approach requires the adoption of externalities and true cost pricing as the norm. As the EU introduces new legislation, we acknowledge the need to simplify reporting and framework thinking for smaller ventures and funds, particularly those outside the EU.
6. Navigating Growth and Degrowth: To build a regenerative economy,we must address the question of growth versus degrowth. Advocating degrowth for companies with high negative externalities and growth for companies with highpositive societal impact strikes a balance between economic prosperity and overall well-being. Different countries will need to find innovative ways to harmonize planetary, societal, and economic welfare, potentially embracing degrowth in certain industries. A growing group of individuals is actively working on concepts like degrowth, green growth, well-being metrics, and rethinking our current economic growth framework.
7. From Separate Asset Class to the NewNormal: The marketfor impact funds, investors, and impact ventures is steadily expanding. We anticipate a shift from impact investing being perceived as a separate assetclass to it becoming the norm in all investment portfolios. Portfolios with negative impact will face financial consequences, as negative impact will increasingly factor into the valuation of organizations.
8. Embracing Patient Capital and New FinancialInstruments: Aregenerative economy necessitates an infusion of patient capital and thedevelopment of new financial instruments. We are encouraged by the emergence ofvarious tools, such as tokens, blended options, grants, impact subsidies, newimpact bonds, green loans, and evergreens. These innovations are designed toenhance accessibility, distribute resources more equitably, and facilitate theavailability of patient capital in capital markets. The convergence ofphilanthropy, impact investing, and private and institutional capital isimminent.
9. Investing in the Real Economy: Education, infrastructure work, nature conservation, transitioning farms, and renewable energy grids require asset-heavy investments. It is time to shift away from the prevalent "asset-light" thinking and channel resources into the real economy.The vast gap between the financial economy and the real economy must be rebalanced. We expect a recalibration of investment logic, combining both asset-heavy and asset-light approaches within impact investing.
10. A Growing Movement for Change: Despite the challenges we face,there is hope for averted societal and planetary collapse. The movement advocating for impact encompasses a diverse range of individuals, including activists, impact investors, social enterprises, policy-makers, commons initiatives, and B Corp companies. These passionate change-makers are building bridges and fostering collaboration to address shared goals. Silos are dissolving, giving way to a collaborative and interconnected approach. We welcome all generations—both seasoned and emerging—who understand the urgency, acknowledge the anxiety, and take tangible actions with their work and resources.
11. Exploring Root Causes: Amidst our quest to transformfinancial systems, it is essential to question the root causes that have led tothe current economic system's shortcomings. Emotional drivers, such as grief,power dynamics, anxiety, lack of empathy, and limited critical thinking, havecontributed to a system that fails to consider externalities and perpetuatesvast disparities. We embrace the inner development movement, which seeks todeepen our understanding of the possibilities for healing our economy.
12. Addressing Inequality through ImpactInvesting: In our journey towards a regenerative economy, we must confront the issue of inequality. Impact investing can serve as a powerful tool to address this challenge by directing investments towards marginalized communities and creating opportunities for economic empowerment. It requires us to think beyond traditional investment models and focus on fostering a more just and equitable society. Currently, many people lack sufficient access to networks and capital,and that needs to change.
13. The Power of Collaboration: Transitioning towards aregenerative economy necessitates collaboration among investors, entrepreneurs, policymakers, and communities. Sustainable solutions that benefit everyone can only be achieved by looking beyond individual interests and working collectively. While environmental sustainability remains a focal point, it is crucial to scale up social impact investing. Addressing poverty, healthcare and education access, economic inequality, and diversity are paramount in building a truly regenerative economy.
14. Urgent Support for Impact Start-ups: Impact-driven start-ups cannot afford to wait for systemic change or patient capital readiness. It is crucial for us to build trust and recognize their immediate need for capital. By providing timely support, we can empower these promising ventures to create positive change now.
15. The Power of Impact Investing: Impact investing is not a silver bullet, but it remains a powerful tool in our transition towards a regenerative economy. As we move forward, we must continue to innovate and experiment with new models and approaches. By doing so, we can create a more sustainable, equitable, and prosperous future for all.
As I reflect on the insights shared at the BeforGoodLeaders summit, I feel a surge of optimism. The journey towards a regenerative economy requires collective effort, collaboration, and the willingness to challenge the status quo. Together, we can reshape our financial systems, address inequality, and createa future that thrives on sustainability and inclusivity.