Weekly notes – Week 39: notes from SOCAP14

Earlier in September, Mika Pyykkö (who leads Sitra’s Impact Investment Focus Area) and I attended the 8th annual Social Capital Markets (SOCAP) conference in San Francisco. This year’s theme was “igniting vibrant communities”, but as with all previous SOCAPs, the principal area of debate and sharing was how to better create social and environmental benefit from investment and enterprise.

One of the most striking features of SOCAP continues to be its scale and reach.  The type of organisations present and geographic location of attendees is as extensive as any conference I have attended on much better-known topics. It is clear that the desire to produce social and environmental good is a global interest and impact investing is the preferred instrument.  

In attendance was Sir Ronald Cohen, who always adds a grounding voice to any discussion on social finance. His diagnosis of the current state is that in most countries, social entrepreneurs cannot access capital in the way a business entrepreneur can. But there has been evolutions in thinking across the financial sector that brings us to a tipping point in 2014:

• 19th-century investing: capital return
• 20th-century investing: risk return
• 21st-century investing: risk and impact return

Sir Ronald insists that paying for success (i.e. social and environmental impact) will help us build a world where people that want to solve problems and be paid for it can access capital and build enterprises.

Some other random highlights from the overwhelming number of sessions.

• The investment world is very conservative because investors are trying to predict the future, which no one can do very well.
• Finance is the most powerful sector in the world. If we abandon it to darkness, then we are responsible for that. We should build a finance sector that can do good.
• Impact Investing is 8 to 14-years-old now depending on how you count. The field is reaching a stage where practitioners need to be honest about what is hype and what is real. It is time to ask: “are we going to be regulated or are we going to regulate ourselves?”
• There is a bias toward output of investments vs. intent of investments. The focus in terms of field development is naturally output (measurable impacts) right now. It is time to be more sophisticated about intent.
• Investors should always be looking for the deepness and richness of impact over quantitative impact. Look for investment opportunities that will have transformative impacts on peoples’ lives, not just marginal improvements.
• The key aspects of investment readiness are (ATTENTION SOCIAL ENTREPRENEURS!): integrity, passion, track record (doesn’t have to be in enterprise they are in), domain knowledge (across the sector), appropriate skills, vision (can see the distant islands), commitment (full time), coachable (able to adapt to a complex environment), financially savvy.
• Prof. Robert Ricigliano reminded us that systems are inherently resilient; there are systems that produce things we like and systems that produce things we don’t like. Understanding that is the first step to figuring out how to reorient systems toward more beneficial ends.
• Identity + Resilience: research is now around people and how we interact together. If you build a coalition of the moderates, you help people in conflict leave behind one identity and take on a new one. Find individuals that you can rewire so that over time the broader community’s identity can change. This helps leads to a phase shift.
• How do we normalise emotional well-being into all of our actions? Here is a diagnosis of our contemporary condition: we as people are addicted to fixes instead of engagement, which requires a lot of time and work. You have to attend to tasks AND also the health of the system.

Finally, Brendan Martin, founder of the alternative financial institution The Working World that supplies capital to worker co-ops, offered these Transformative Finance Principles that could help define a non-extractive approach to investing:

• Engaging communities in design, governance and ownership of projects that affect them.
• Create more value for the community than is extracted by the investors.
• Ensure that value is fairly distributed, rewarding investors, entrepreneurs and communities.

Looking forward to SOCAP15!