Before we talk about a “cure”, let us first be clear on the disease. I assume it is the fact that the economy has been run to profit-maximise, without any interest in societal ramifications – financial markets have supported this. The full cost of this narrow-minded approach has been realised through the financial crisis and its aftermath. We can spread the blame about if we wish and include governments, regulators and all of us as shareholders and consumers, but the main blame lies with bankers – it their actions were primarily responsible for the pain and suffering on an enormous scale.
Impact investing is about using these same financial markets, without which modern society cannot function, and take into account risk, financial return, and a third dimension: the social, ethical and environmental impact (we use social impact to mean all three) of investments. At ClearlySo we speak about “3D investing”, where investors make conscious decisions about these three dimensions and how they relate to each other – and this is becoming more popular by the day.
Who can help investors make these decisions, and explain to entrepreneurs how to seek the most attractive capital with which to expand? I am afraid it is the bankers – at least in part. We do not have to forgive them for their role in the crisis, but they do have expertise in the financial markets on which we depend to improve our world. Scientists and politicians built and delivered the atomic bombs that killed tens of thousands of Japanese and have unlimited destructive potential. Should we absent them from disarmament negotiations because of their complicity?
Bankers understand how financial instruments work. They know when debt or equity is appropriate for an entrepreneur, or a combination of the two. They know how to build financial models, how relevant legal documents are structured, or who the likely investors are, and they can advise in negotiations. We find it substantially easier to raise capital for clients when finance professionals (yes, ex-bankers) are involved. Ex-bankers not only possess expertise, but also useful contacts, market awareness and speak the language of finance. To refuse to access these skills because of past misdeeds would be counter-productive and harmful to the entrepreneurs generating impact.
Do bankers deserve the historically outlandish rewards for their skills as intermediaries? Probably not. Should we have deified them as some did before the crash? Certainly not! However, demonising them is not the answer. In my experience, no sector has a monopoly on saints or scallywags. I have encountered highly moral senior bankers and scandalously corrupt leaders of charities.
As a society we believe individuals can redeem themselves. We give prisoners a second chance – why not bankers? (Note: I have a strong personal interest in this being the case, as an ex-banker myself!)
In immunology, it is not uncommon to inject the body with a bit of a disease in order for the body to develop useful antibodies. Too much of the disease would be harmful, but what caused the disease can help foster a cure. I think the same is true in finance.
First Published in Pioneers Post in August 2015.