Impact Investing

A “New” Paradigm in Finding Global Value

Sustainable Development and the Caribbean

 

 

 

“God never intended for one group of people to live in superfluous inordinate wealth, while others live in abject deadening poverty.”  Dr. Martin Luther King Jr.

 

Perry C. Douglas                                                                                                     February 23, 2021

I recently took a look at my former firm’s website, UBS Wealth Management, amongst the top 3 wealth managers in the world, relative to assets under administration or AUM.  UBS has been embracing for a while now, the global trends in Impact Investing:  Sustainable Investing, Socially Responsible Investing, ESG, Alternative Investments, Sustainable Finance, Climate Mitigation Investment Strategies, Green Bonds, etc.  All trending themes that institutions and wealthy families are increasingly looking at—using their wealth to invest in more socially responsible, impactful ways.  UBS’s definition of ‘Impact Investing’ is relatively straightforward: “Investment in companies and projects with positive social and environmental impacts.”  So, you have to give them credit for understanding the shifting or evolving investment dynamics, and themes of the global investor.  Nevertheless, the question remains: is the UBS Impact or Sustainable investment platform credible?  Does it address the “positive social and environmental” needs of vulnerable communities?  Is the UBS product authentic?  Or just a good business adjustment—the simple realization that clients’ investing motivations are evolving, and they must evolve along with it.

 

2020 was a pivotal year for humanity.  After the George Floyd murder at the hands of four white police officers…Black, White, Brown, Christian, Jew, Muslim, all took to the streets calling for racial justice, and wealthy white millennials were also a part of this broad and diverse coalition. The Millennial generation is the dominant influencer in our global society.  They are influencing what we consume, what technology we use…how we digitally transact, social media norms, environmental and climate change objectives, corporate responsibility, human rights, social responsibility—and they’re ever-increasingly influencing their family’s wealth management decisions, too.

 

“The inclusion of sustainability data provides a more holistic investment analysis that enhances the possibilities for value-added returns.  We build tailored strategies to meet your investment goals while focusing on the impact to society and the environment” (UBS Impact and Sustainable Investing).   

 

Above, reveals what the UBS product truly is—a portfolio governance overlay “for value-added returns” …feel-good marketing sold as “Impact Investing.”  Furthermore, the evidence is not conclusive nor demonstrates that sustainable governance pressures applied to portfolio management “enhances or adds value to a company’s returns,” as UBS claims.  However, we do know that today the stock market is driven primarily by quantitative analysis and computer-programmed trading.  I doubt very much that the algorithms have a “do-good” bonus function. 

 

Although UBS boasts an Impact Investing platform, it’s not authentic, not a true grassroots impact investing offering.  Therefore, what is needed to truly reflect the genuine objectives of impact investing, is actual actions relative to investment and the impacting of people's lives—private equity, venture, start-up investing, not stock market investing, or contrived government projects from the likes of United Nations type agencies.  We need to move past feel-good PR investment rhetoric, away from self-serving benefits large corporations like UBS put forward, and work towards real investments in people and communities, with mutual benefits, for investors and entrepreneurs.

 

However, those developing countries that need impact investment most, have been stuck in the neoliberalism ideology trap of “development discourse.”  The conventional development wisdom is for developing countries in the Caribbean, for example; World Bank and similar multinational agencies are the ones who are ‘intellectually best suited’ to lead development. Best suited to address inequality, racial equity, sustainably, for developing economies is what they tell us.  For the Caribbean Region, this paternalistic, charity-tinted development paradigm has not worked.  Organizations like the World Bank, USAID, EIB, have essentially advanced the interests of their Western capitalist nations, and their enterprises in those developing countries too, Mosley et al. (1991). 

 

Instead of transforming economies and changing lives, authoritarian development structures just power-over developing counties, imposing their ‘intellectual’ brand of development.  Aid and power create a realm of corrupt relationships between donors and local governments, money is squandered, and the people never benefit. 

 

“It’s very difficult to overcome the simplistic view that if you’re poor and I’m rich and I give you money, that’ll make you better off, it doesn’t work.” Sir Angus S. Deaton, Nobel Laureate.

 

Therefore, giving money to governments instead of the people — the entrepreneurs, business owners, those who are fully vested in transforming and expanding their universe, is the intelligent path to solving the development problem.  However, organizations like USAID, World Bank, continue along with their failed top-down/trickle-down failed socioeconomic ideology. Effectively making Caribbean governments more responsive to aid donors instead of the real engines of economic growth and prosperity—entrepreneurship, human capital, knowledge, technology and investment capital.

 

The opening chapter of David Mosse’s book, ‘Global governance and the ethnography of international aid’ characterises international development aid as a convergence of ideas of neoliberal reform, democratisation and poverty reduction within a framework of ‘‘global governance.”  In short, Western ideology and power over poor countries are embedded in white supremacy culture, attitudes, processes, actions, that say ‘white is right.’  

 

“…racism is not simply a function of individual attitudes, and it can’t be eradicated by changing hearts and minds. Racism is the social, legal, political and economic distinctions that mark and maintain unequal access and entry points to privacy, property, protection, prosperity and personhood. It is embedded in structures, institutions and ideas, especially those about work, deservedness, representation, redistribution and even the proper role of government.”  Dr. Debra Thompson, McGill University, Research Chair in Racial Inequality in Democratic Societies

 

Dr. Thompson captures the enduring legacy of colonialism and racism; this underlying dynamic remains steadfast in relations between donor and aid-receiving countries.  The complicity in the development aid ecosystem reinforces colonial attitudes and practices, it continues to manifest stale and flawed ideologies, relationships, corrupt regimes, that ultimately come to reflect the goals of the ‘foreign-creditors.’

 

A prime example is the European Investment Bank (EIB) which has offices all over the Caribbean and are funders of climate change mitigation projects in the region.  EIB comes up with the ideas, sets all the project objectives, terms, and the authorization and decisioning processes, that often take over a full year to complete. It's run by bureaucrats, technocrats, out of EIB headquarters in Luxemburg.  These officials know nothing about entrepreneurship, have no experience in private equity, venture, start-up investing in the region, or how to create enterprise value in any practical or experienced way.  They come across as arrogant, disrespectful, not understanding or willing to learn about local cultures, stresses, and are not respective to listening or taking ideas from local professionals, engineers, educators, entrepreneurs etc.  

 

These projects are nothing more than the EU CO² emissions mitigation projects disguised as “development projects.”  These projects have nothing to do with the growth agendas, dreams and aspirations of the Caribbean people.

 

Would it not be more in the Region’s favour for the EIB to invest in real businesses, real entrepreneurs, real communities?  And promote working towards a zero-emissions-based green-economy, that can have broad strategic and socio-economic impacts on people’s lives?  

 

New technologies—digital transformation, increased productivity, outputs, profits, that contribute to long-term multigenerational wealth outcomes, is the critical path these economies need to take.  Not ineffective dependency structures and neoliberal ideology narratives, these bodies continue to dump on populations of African descent.

 

Entrepreneurship and capital connections have always been at the centre of civilization’s best growth stories, throughout time; so, why are these proven approaches not applied to Black societies?

 

Development aid networks only contribute to the creation and perpetuation of global inequalities, so the entire aid discourse becomes ineffective, useless, an exhaustive talk-shop of rhetoric.  World Bank, USAID, the NGO’s, academics—this domain has created more problems than it has solved…not serving the fundamental economic growth needs of the local Black populations.  Instead, what has developed is paternalistic, neocolonial public policy, putting equally inept government and donor agency advisors at the forefront of a fast-moving digitally transforming universe. 

 

This ecosystem inherently aligns with the ideologies of the aid agencies.  All the power rests with these agencies. Local populations, professional people, educators and other stakeholders, have no power in directing their own lives and influencing outcomes.  

 

A cursory reading of Adam Smith’s “The Wealth of Nations” makes the point, that the true measure of a nation’s wealth is not the size of the holdings of an affluent few but rather the prosperity of the people. Smith declares that it is a matter of simple “equity” and fairness that the people should have equal access to opportunity.  So, when we think about the pursuit of impact investing, we first must confront the barriers to economic growth and prosperity, social mobility, global political and institutional power, and some standard for establishing a level playing field of opportunity.  

 

Therefore, we must shift towards what has been primarily responsible for significant growth outcomes in the history of civilization — entrepreneurship, venture, knowledge-based ecosystems, research and evidence-based insight, technology-led economic growth, critical-juncture transitioning, and authentic access to motivated investment capital.

 

“World inequality today exists because during the 19th and 20th centuries some nations were able to take advantage of the Industrial Revolution and technologies and methods of organisation that it brought while others are unable to do so. Technological change is only one of the engines of prosperity, but it is perhaps the most critical one” (Why Nations Fail)

 

A “new” paradigm that leverages technology ecosystems, applied intelligence, that can effectively be applied to entrepreneurship and enterprise growth, for sustainable long-term economic development; is the pivot.  Leave ideology at the door.  Data science technologies, particularly Artificial Intelligence and Machine Learning, are revolutionizing the world and ratcheting up the efficiency and prosperity curve.  Impact investing must leverage that!

 

Impact Investing: Foreign Direct Investment (FDI), not aid, is what will make things happen!  When one invests, they are risking hard-earned capital in the hopes of meaningful future returns, similarly, if the entrepreneur risks everything on a business idea, the term “full-invested” becomes an understatement.  Accordingly, symbiotic, interdependent relationships naturally develop and seamlessly align, both investor and investee.

 

The Caribbean Leapfrog Fund (CLF) is a bold, transformative, technology-led strategy.  Accelerating entrepreneurship growth, challenging and changing dynamic power structures towards shattering barriers of inequality.  By directly creating highly competitive, transparent, and accessible investment opportunities for FDI’s to consider, CLF advances the region towards getting its firm economic footing to leapfrog onto the global wealth value curve.  By connecting local entrepreneurs and business owners alike, with genuine, motivated and experienced foreign investors, looking for opportunity and returns.  And the clearly expressed criteria that their investments must be geared towards impacting peoples’ lives is a solid catalyst and new paradigm for effective change!  

 

There is a meaningfully developing and growing segment of global investors who believe it is time to begin to look across their world’s, for good ideas and return elsewhere.  Good ideas are universal and have always been the driving force of entrepreneurship and enterprise.  These good ideas must be given the chance to succeed.  Many of these impact investors also believe that the time is now to create a sustainable and innovative impact investing vehicle, one that provides the necessary resources and pathway to authentic sustainable investing in the Caribbean. 

 

Digital Transformation is fundamental to CARICOM’s long-term plan to successfully pivot the Caribbean into the 21st century and beyond.  Entrepreneur-led and focused to act upon repositioning existing businesses to enterprise technology-based ecosystems, improving early-stage entrepreneurial ventures for success that can change people’s lives, while producing oversized returns for investors.  

 

Black entrepreneurs within this region lack the financial ability, contacts and the where-with-all to take their ‘embryonic’ ideas to the next stage of due diligence, validation and proof of concept.  FDI can respond to these needs by providing the critical components required to nurture and seed growth, and being astute, analytical and thorough, in determining paths to viability.  The Fund will partner and provide the very first seed capital to participants allowing the unleashing of the human spirit of success.  

 

We will approach each opportunity indefatigably, meaning that we will be untiring and unwavering in our efforts to leverage our own experiences for the betterment of others.  No one should lack the opportunity to succeed or face unfair pressures or burdens of obstacles that can be smashed.  The new modern impact investor will strive to serve their neighbours best by learning to understand their experiences.  Treat all as equals, with both fairness and honesty, identifying optimal path’s forward with empathy but not charity, with shared commitment but not lack of bold action.  In the end, a firm commitment to conduct the investment process and ourselves with the highest levels of integrity, and responsibility, adhering to those core stated principles.  Breaking through the enduring legacy of colonialism and the one-way street of opportunity and wealth creation it has created, must be broken.  The shifting new paradigm must be towards a symbiotic relationship of inclusion, mutual respect, fairness, mutually beneficial profitability with social and environmental responsibility attached; economic growth relationships conducted with honesty, dignity towards the investee and communities, and all stakeholders alike.