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Reflections on the Death of My Dear Friend, Mentor and First Boss: Jack Rivkin

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I learned just a few hours ago that a dear old friend of mine, Jack L. Rivkin, passed away two days ago—on Election Day in the USA.  Each of us grieves in a different way—as an ex-analyst, the way I tend to come to terms with things is by writing about them.  I only ever became an analyst because of two people who, against all evidence, had faith in me—and one of them was Jack.  The other was a woman, who I do not think would be at all offended if I said that no single person has had as much impact on my professional career as Jack—I will miss him immensely.

I read the brief statement announcing his death put out by his recent employer.  It seemed so limited that I felt especially driven to write something which brings to life this extraordinary character and human being.  Much of what I could say about him is personal—of great interest to me—but of no interest to most readers.  I also feel especially compelled to write about something positive—particularly in these gloomy times.  So, permit me to indulge myself with a few paragraphs about this exceptional man and offer, from his life, some bright spots amidst the all the darkness.

Jack was “intellectually curious”.  In truth, I rarely used the expression until I met him, but have probably overused it ever since.  He had that childlike wonder about so many things.  Those of us around him, found his curiosity infectious.  It helped make him a top-flight investment professional, of course, but describing him as such misses the unique point of the man.  That he rose to senior levels at several firms is true, but is a one-dimensional view of someone with many facets, driven always by the passion to listen, to learn, to question, to challenge, to understand and to go beyond.  Meetings with him would always start late and run way over—he could sit and chat endlessly about a topic and was unperturbed by the consequences.  In these anti-intellectual times when complexity is avoided, discussion and enquiry replaced by soundbites and facts rendered irrelevant, Jack’s passion for knowledge, truth and understanding help me to remember much better days.

Jack was gender-blind.  At a time when Wall Street had hardly any women, Jack hired them in abundance.  In fact, as I recall, well over 1/3 of the Research Department for which I worked was female.  And this department became top-ranked on Wall Street, winning many awards.  Jack had taken a team which was barely in the top ten and turned it into the best by far, eclipsing larger and better-funded teams at such Wall Street heavyweights like Merrill Lynch and Goldman Sachs.   This was the subject of one of Harvard Business School’s most popular case studies, “Lehman Brothers: Rise of the Equity Research Department” in 2006.  Inspiring management was a factor, but I always felt his “secret sauce” was that he valued people on their merit—other factors were not of concern.  This was felt not only by the women in the department, but by everyone.  And he was indifferent to the puerile and predictable attempts to undermine what he had built.  Given the recent election and the attitudes revealed, Jack’s humanity and respect for all provides a striking contrast.

Jack possessed courage, as is partly evidenced by how he built his department.  He also was able and willing to speak truth to power—and did so, often suffering the consequences.  Had he played the game at Lehman, where I worked, I think he could have come to run it. I am also of the opinion that had this happened, the firm would not have gone under.  This is particularly significant given that the collapse of that firm nearly brought the global financial system down with it.  But my impression was that those running the firm feared his intelligence, his competence, his integrity and his increasingly well-regarded success across the firm.  He simply had to go.  Jack not only stuck to his principles but was also principled in his work.  This was much less rare in finance in those days but it was definitely uncommon.  I hardly need to draw the comparison again with modern times.

Finally, Jack was a real person.  He had an engaging smile, played very competitive tennis, loved green pens, co-authored a book, could admit when he was wrong, was genuinely liked and admired by those who worked for him, enjoyed young people (always a good sign), wrestled at university, enjoyed life, was true to himself–intellectually honest as well as curious.

I shall miss him greatly and will remain forever in his debt

Impact Investing

Does profit with purpose offer something unique?

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I have been involved in the area of impact investment since 1999, and during that time there have always been passionate debates about philosophy, politics and money. One of the most recent of these is the debate over the “profit-with-purpose” business and its growing relevance.

For the uninitiated, PWP companies operate like normal businesses, except, crucially, they are values driven. This can be a function of a “mission-lock”, statements a company’s constitutional document, or its more informal mission statement – something that means the business is not just about profit-maximisation. Various bodies have differing views regarding how firm and explicit such statements need to be, but they are distinct from the regulated “social enterprises” which, for example, receive favourable tax treatment under Social Investment Tax Relief.

I am not sure exactly why PWP businesses are suddenly in fashion, but I have several theories. First, I think the pool of capital available for investing in organisations which are destined to deliver sub-market returns is limited. This constrains the growth of impact investment overall. In the US far more deals are transacted and these are in the PWP space. There is also the growth of BCorps – private companies that meet social, transparency and accountability standards – globally, which is very American in its origins and this mentality is spreading. Big Society Capital’s investment criteria are partly set by its founding Act of Parliament, which restricts its capacity to back intermediaries that support PWP businesses. I sense BSC straining against these limitations, which threaten to hamper one of its key goals: the overall growth of impact investment in the UK.

In the interest of transparency, I should note that ClearlySo and its predecessor, Catalyst, have supported PWP businesses since 1999 and have never seen much point in arbitrary restrictions – for example, a maximum permitted dividend pay-out ratio – as the arbiter of what is and is not impact investment.

But opposition to the drift into PWP businesses has some sound philosophical bases. There is a deep-seated fear that the “values of the market” will encroach on the more values-driven impact investment world and change its nature. This view has been well-articulated by commentators such as Dan Gregory and David Floyd. The three-dimensional investment world that ClearlySo regularly advocates – where investors consider risk, return and impact – is still different from the existing mainstream where only risk and return matter. If we lose that difference, the movement for values-driven investing has lost.

I think the debate is also about money. Traditional third sector organisations, especially charities and the more tightly-controlled social enterprises, fear that PWP businesses will crowd them out in terms of investment. This is especially true with regard to the £600m which is under the control of BSC. The third sector sees that money as very much theirs – seeing any encroachment by PWP firms as a threat. I see their point – to see this BSC pot seep away into what are perceived as more mainstream businesses feels threatening.

While I can understand their position, on balance I support the expansion of PWPs. Despite some market values creeping in to impact investing, I believe that the only way to address the scale of social problems we confront is by encouraging mainstream capital into impact investing; seeing the investment world from the 3D perspective mentioned above. Many new innovative models will be supported and tremendous social, ethical and environmental impact will be generated. Traditional charities may indeed lose some of the BSC-backed investment that would have been headed their way, but the £600m, even when combined with matched funding, was never going to be enough to offset the effect of austerity.

This blog was first posted on Third Sector on 28/10/16.

Impact Investing

The next step in payment by results

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Whatever one thinks about social impact bonds, the payment-by-results mechanisms they have helped to facilitate have massively transformed our approach to public service commissioning. There is still much potential ahead for utilising these tools. They are almost impossible to find fault with, if done properly, as it is outcomes, rather than inputs, that matter to voters.

Public debate centres on spending in priority areas, such as health and education, because we believe that spending and outcomes are positively correlated. If we could have exactly the same outcomes in a way that is cheaper, thereby requiring less taxation, who could possibly object? In the ridiculous case that root beer was found to cure dementia, few would suggest we find a costlier route to demonstrate the seriousness with how we feel about dementia. The money saved could be spent on other priorities or permit lower taxation or debt repayment.

The beauty of such schemes is that everyone seems to win. Society is better off, by virtue of the societal intervention, but the taxpayer also wins because money is saved by the public purse, as only effective interventions are rewarded. In this way, ineffective methodologies are weeded out and those with better ideas, skills, or both, will replace incompetent, expensive and inefficient providers. Politicians also win because scarce resources are diverted towards achieving outcomes citizens desire, which in theory should lead to happier voters—a good thing for vote-seeking politicians.

Bureaucrats and politicians in all parties, in my opinion, have been far too cautious, perhaps irresponsibly so, in the pace with which such PbR schemes have been implemented. They tend, for example, in many of the SIB structures, to cap investor returns or share out only a portion of the savings. Why not be more generous and encourage far greater investment? There is also bureaucratic resistance to the new and a preoccupation with precise monitoring, which can be very costly to implement—on many occasions, this undermines the process and creates deadweight loss. Might there not be opportunities for considering less costly and maybe somewhat less rigorous oversight? I sometimes feel our search for the perfect is undermining the good.

The area that worries me the most is where measurement is hard or even impossible and where there is no direct spending that is reduced, but societal need is great. HCT, for example, is involved in projects that assist disabled young people to use public transport. There can be cost savings in that local authorities are thereby freed of the responsibility to have these young people driven, but what if there were no cost savings to be achieved? Would not the sense of self-actualisation and independence these youngsters achieve because of this training be worth the investment? Would not society be better off, even if there were no financial savings to the Treasury?

I am certainly not arguing that programmes, which save the Exchequer funding, should not continue. Far from it, they should be accelerated. In these cases, society’s improvement is bettered directly, through the impact and outcome, and indirectly through cost savings, which can presumably achieve impact elsewhere. However, the focus on such areas alone is suboptimal. I recognise that our national accounts mind-set makes this a challenge, but many have developed more all-encompassing metrics and some countries, such as Bhutan or Costa Rica, already use them in policy implementation. Also, just because something is hard to measure, does not mean we should not try to do so, especially where the welfare of the nation is at stake.

The article first appeared in Third Sector on 28/09/16.

Impact Investing

How to Define Social: Or, the Best Little Whorehouse in Amsterdam

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Amsterdam

One of the questions I am most frequently asked is how ClearlySo defines what is socially impactful, or not. This is not a question of measuring impact but simply what does and does not count as an organisation which generates social or ethical or environmental impact. I have answered by saying that we define it as other people do.

I do not believe it is our role to define this for others. We are a “taker” in the decision-making process. Our definition of what counts and what does not is heavily determined by the opinions of others (especially investors) and these views are highly subjective.

ClearlySo’s first ever fundraising client is a firm called Belu Water. At the time they marketed themselves as the “carbon neutral bottled water company”. The founding entrepreneur and investors behind it (these included Gordon Roddick and The Big Issue) convinced us that the company generated important social impact and we took on the mandate— this was about 10 years ago.

To some observers the very notion of an ethical bottled water company seems absurd. If you really want what’s best for the environment, they would argue, why not just drink tap water? Belu would respond, and it was a response we agreed with, “that people are going to drink bottled water anyway, so is it not better that they drink our water instead of somebody else’s?” We thought and continue to think there is a lot of merit in this point of view (although others disagree) Belu Water continues to be a respectable firm in the field of ethical consumerism. However, this story underscores the point that what is social or ethical and environmentally impactful to one individual may not apply to another.

We found this also with a Thailand-based enterprise we work with many years ago called Cabbages and Condoms. This was an organisation focused on reducing the spread of sexually transmitted diseases in Thailand. It raised funds through a host of activities and from a campaigning standpoint sought to make condom use and sex funny and thereby more widely accepted in the Thai market. Many more conservative Thais were outraged by this sort of activity whilst others applauded its successful penetration of the market and its clever use of humour. The enterprise won many awards.

The range of enterprises we work with at ClearlySo pretty much spans the entire scope of economic activity in Britain. We work with companies in health, education, transportation, property, technology, consumer goods and many other fields. I used to say that defence is probably the only sector where we were unlikely to have any clients but some years ago wrote a blog piece speculating on what a “social enterprise army” might look like (does anybody know where this piece is—I cannot find it). It was meant as a thought piece, and in that regard felt a very useful exercise. I think the answer to the question of what is and is not social is also heavily determined by the culture in which organisations operate.

For all these reasons I was particularly interested to read about a new fund in the Netherlands which has invested into what is effectively a cooperatively owned prostitution business in the red light district of Amsterdam. DutchNews.nl reported that the Start Foundation, an organisation operating out of the Netherlands, has taken a stake in four buildings in Amsterdam’s red light district and will rent these out to a new business called My Red Light, which describes itself as “the first sex company in Netherlands and Europe in which sex workers have control”. Some will be appalled by this use of impact investment, whereas others will take the view that this sort of thing happens anyway and better that sex workers are able to look after themselves, have control of their destinies and reap the benefits of their labour instead of those who would exploit them. Certainly within the Dutch context such a business idea seems perfectly reasonable and an appropriate impact investment. Less controversially the Start Foundation has also invested in a shrimp processing plant for workers with mental disabilities and an IT company focused on employing people with autism.

There is no getting around the fact that what is social to one person might be “the root of all evil” to another. Consider, for example, what different groups will think of an investment in a locally owned organic producer of whiskey. We come across such companies all the time and the debates are challenging but also entertaining. This is the tricky domain you enter in impact investment.

The title of this blog is a play on the title of the
hit musical “The Best Little Whorehouse in Texas” that opened on Broadway in 1978.

 

3D Investing, Government Policy, Impact Investing

Are the goalposts starting to shift on corporate tax?

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At the end of August, we learned that the EU ordered Apple to pay a record EU13 billion in back taxes, as it determined that deals with the Irish Government allowing the US company to avoid taxes were illegal. This follows on from EU decisions in October to charge both Starbucks and Fiat EU30 million each, which it claimed was payable to the Governments of the Netherlands and Luxembourg, respectively, utilising similar arguments.  Both Apple (unsurprisingly) and the Irish Government were expected to challenge the decision, but it raised the stakes in an ongoing battle over fair taxation.

Interestingly I have not found that anyone is claiming that any of these firms engaged in criminal activity.  It seems to be accepted that all three operated within the law, but the law has been judged to have been unfair, or unfairly applied.  I am certainly no expert on such technical issues, but this struck me as an interesting development—especially given the amounts involved and the high profile nature of these companies.  The EU was stepping in and exercising its authority over national governments to strike deals.  One wonders about the January 2016 deal struck between Google and the UK’s HMRC, wherein Google agreed to a settlement of £130m for past tax liabilities.

In any event, a related news item caught my attention yesterday.  On the front page of yesterday’s Fund Management section of the Financial Times it was reported that Legal & General Investment Management, the Local Authority Pension Fund Forum (representing 71 public pension funds), Royal London Asset Management and Sarasin Partners signed a letter to Eric Schmidt, (the Chairman of Alphabet, Google’s parent company) which raised concerns about the company’s tax arrangements.  What was interesting was that the letter did not challenge the legality of such arrangements or ask if avoidance (which is legal, as opposed to evasion, which is not) was being practised, but if the Chair had “…properly considered the implications for brand value and your license to operate in society”.

This seemed eye-opening to me.  A group of investors was questioning the wisdom of arrangements which, though perfectly legal, might put the company’s “license to operate” at risk.  With a market capitalisation of well over $500 billion, these investors see a great deal at stake in any challenge to this license, and have calculated (without too much sweat, I imagine) that what is at risk greatly exceeds the few billions of taxes that might need to be paid.

Companies involved may see this as an unfair “shifting of the goal posts”, and in one sense it very much is.  What has shifted is the willingness of society to allow large and successful companies to avoid paying the taxes societies deem to be fair.  Where national governments have been reluctant to act, often beholden to powerful international firms, supranational organisations (like the EU) or groups of shareholders are beginning to take action.  They are doing so implicitly at the behest of outraged citizens, perhaps even in part to avoid circumstances where these same citizens wind up taking direct action to vent their rage, for example, by possibly boycotting of the products of companies whose tax policies are deemed overly aggressive.  This would constitute an effective termination of such a firm’s “license to operate”, but one that would be enforced by the power of the marketplace and not via governmental regulation, as is normally the case.

Up until this point we have argued that the increasingly important third dimension to investing (impact, instead of just financial return and risk), which underpinned the development of impact investing, was predominantly a reflection of externalities, where hidden costs or benefits to society bubble up to the surface.   Where companies use completely legal means to avoid paying taxes but free-ride on the economy available to all has not been something we considered as part of this equation previously, and it certainly did not seem on the agenda of investors, whom it was felt implicitly encouraged minimising taxes paid.  It now seems we should, and will.  Times are most definitely changing………

Government Policy, Impact Investing

Is the government downgrading impact investment?

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On face value, the decision to move the Office for Civil Society from the Cabinet Office and into the Department for Culture, Media and Sport is a bit puzzling. Which bit includes us? Are we part of culture, media, or sport? It is hard to say but, in this regard, government is similar to the corporate sector. Things and people have to report to somebody, somewhere and cannot expect what they do to be in the title of the division. Secondly, Karen Bradley, the new Culture Secretary, might turn out to be terrific. At this point, one simply has no way to judge.

From what I have read, the charity and social enterprise sectors are in uproar. about the move. I suppose some of the consternation stems from the fact that we were very much the darling of government, and now feel, well, a bit jilted. Three successive governments (Labour, the coalition and the Conservatives under David Cameron) devoted a great deal of attention to the third sector and impact investment.

For Cameron, this was one of the centrepieces of his big society programme and seen as a critical path in delivering positive social outcomes in fiscally constrained times. Our sector has been subsequently subsidised, championed and the subject of unrelenting ministerial love. This was capped off in making our area a centrepiece of the recent G8 summit in London a few years ago. The global social impact investment task force sprung out of this and its work continues.

But this highlights the risk of too close an alignment to any political party or individual. When they are replaced, as is inevitable, the factors that brought the sector into favour will work in reverse. What is clear is that the new Prime Minister, Theresa May, is establishing her own legacy and those programmes that are seen as ideologically close to her predecessor might be in jeopardy.

What many fear is that the largesse that has been lavished upon the sector will cease. I do not speak here of the charitable sector, which is potentially facing a serious crisis and in which I have very limited expertise, but the impact investment sector.

For the impact investment sector, I have some reservations, which I have expressed publicly, about the extent of subsidy we receive and its distortive implications. In a number of programmes, I observed it driving behaviour and not facilitating it — an important difference. I have also been a long-standing critic of tax credits for impact investment, believing them inappropriate at a time of severe fiscal constraint, especially as they predominantly benefit the wealthy.

I do, however, see a silver lining for the sector; one which stems from my deep-seated belief that impact investment and the values-driven enterprises it supports stand on their own merits. High-impact enterprises can benefit from lower cost of labour and capital, higher prices for their products and high visibility. They generate substantial positive externalities which governments, one way or the other, are going to need to pay for, and increasingly will pay for as commissioning shifts to outcomes-based systems. Investors, corporations, and consumers value the positive impacts these enterprises generate and this is increasingly being incorporated into their investment and purchasing decisions. Maybe now impact investment and social innovation will flourish, not as a pampered child but as a great idea whose time has come.

First published in Third Sector on Tuesday 23rd August 2016.

Impact Investing, Social Entrepreneurship

Russia, Rio 2016 and the Danger of Exclusion

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The Olympics officially open today in Rio de Janiero.  Whilst political and economic turmoil in Brazil and the outbreak of the Zika virus have overshadowed and at times even threatened these games, the first ever in Latin America, a more recent cloud has been the Russian athletes and the reactions of various authorities to apparently proven allegations of state-sponsored doping.  In the UK, many have clamoured for the banning of the entire Russian team, as a means of “getting tough”, “cracking down” and in varying terms, acting in a way which will discourage others.  Banning is the ultimate sanction we use in such circumstances – short of violence.

When I had the privilege of attending the Lisbon meeting of the Global Social Impact Investment Steering Group (GSG) a few weeks ago, I was reminded of the meeting I also attended of the G8 Social Investment Task Force Plenary (G8 SITF) in London in July 2015.  On both occasions I found myself asking, “Where is Russia?”  As they are a member of the G8, I was always bemused by the fact that somehow Russia was out and Australia was in.  Nothing against Australia, mind you, but the G8 is the G8!  Now I have no idea why Russia was not there – asked a few people who seemed not to know.  It is quite possible they were invited and did not attend of their own accord.

What was impressive was that many new countries were involved in the 2016 meeting in Lisbon – Mexico, Portugal (the host), Israel, Portugal and India.  The world of impact investment, and in general, is enriched by the inclusion of many differing voices, and these five added a great deal to the meeting.  Russia’s absence disturbed me, whatever the explanation.  A world where pariah states come to exist, even if their behaviour brings it on themselves, is less appealing to me than one in which all countries continue to meet and we endeavour to improve behaviour through engagement.

Another absence from the two meetings was any country with a predominantly Muslim population.  I myself would have particularly welcomed hearing an insight into how such countries are approaching impact investment.  In particular, I would be keen to see how Sharia Law impacts on the funding and enterprise models.  Again, I do not know how many were invited to join and what efforts were undertaken in this direction.  But, in a world where western anti-Muslim feelings are increasing, in part as a reaction to atrocities linked to those claiming religious inspiration, I feel it is important to work doubly hard to engage.  A positive force, such as impact investment, could become a key bridge between communities, acting in a useful way to counter-balance the forces of exclusion, anger and hostility.

This is why I am delighted that 70% of Russian athletes (over 270 according to the BBC) have been allowed to compete in the Brazil Olympics, despite state-sponsored doping.  It might even be the case that some crooked athletes compete and win.  But against that, it also means that innocent Russian athletes are not penalised so the “international community” can make a point at their expense.  And overriding all of this is my strong desire to act against what I see as global entropy – where all around the world nations seem to be pulling apart, vigorously acting against each other in pursuit of their narrow interests.  Having a first Latin American Olympics is, by contrast, a positive act against entropy – by bringing a unifying global event to a new stage.

I think that impact investment can and must play a role in counteracting this worrying trend.  As the leading forum in the global movement I am hopeful that the GSG moves to engage, broaden and further diversify its membership base.  The stakes are high.

Government Policy

Reflections on the Brexit Vote by a Remain Supporter

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I voted “Remain” and felt absolutely right to have done so.  I felt it was right for Britain and that British membership would help ensure the EU survived—this is now threatened and I am concerned about the consequences of the political entropy, which has begun.

Had roughly 650,000 voters shifted, the result would have been different, a swing of 1.9%.  That 51.9% voted to leave is hardly an overwhelming mandate.  What if there had not been so much rain on the day?  What if Jeremy Corbyn had actually tried?  What if EU citizens living (for a long time) in the UK had been allowed to vote?  What if it did not coincide with Glastonbury?  On such small matters often hang the fate of nations—never has this been more true.

Nevertheless, the nation has voted, the rules were clear, the date was known (oddly right in the middle of Euro 2016) for a long time.  What if the home nations had not fared so well?  What if England were thrown out because its fans behaved idiotically?  We can conjecture all we want.  What is done is done.

To those petitioning for a second referendum I say the following:

  • The first was unnecessary—how can we possibly justify a second?
  • How would we feel if Remain won the referendum and the Leave supporters signed the same petition?
  • If we cared so much to ensure an emphatic majority, why did we not argue for this in advance, when we seemed to be massively in the lead?
  • What if we re-run the campaign and Leave wins? What if the result again is close?  Do we keep doing this until we get the “right” result?  What disdain would this not show for the democratic processes we hold so dear?

I do not think we should have held the first referendum, I certainly do not think we should have another.  We lost and the turnout was over 72%.  It is time to face the future and make of it what we can.

The Campaign

The run-up to the vote was appalling, with insincerity, cynicism and negativity in abundance.  However, let us be fair—our campaign was worse.  Having scared Scotland into backing union, and frightened voters out of voting Labour (remember claims that the Labour Party would be “in hock” to Nicola Sturgeon) Cameron felt he should again deploy his fear tactics—this time he failed miserably.  Cameron and Osborne not only lost a vote we should never have had, but they lost it in a bad way.  Had they run a principled, positive campaign they might have actually won—many voters I know voted Leave BECAUSE of the Remain campaign.  So Cameron’s legacy is rightly discredited.  He made a selfish and cowardly decision to call the vote in the first place, he ran a cynical and negative campaign and he lost—that most unforgivable triumvirate of political sins.  Good riddance.

The Leave campaign did also appeal to our basest instincts, with Farage’s poster only the best known of the worst examples of this.  There were racist undertones to much of the Leave campaign, but this was not the entire summary of the Leave argument and accusations of widespread racism are completely out of hand.  Furthermore, to advocate a case for measured immigration or controls on refugees allowed into the UK is a perfectly respectable position.  In the same way that not all critics of Israel are anti-Semites, not all those concerned about immigration are crude xenophobic bigots.

At least, politicians who were genuine and longstanding Euro-sceptics fronted the Leave campaign.  Apart from the more Europhilic and opportunistic ex-mayor, one absolutely cannot accuse Farage, Gove or IDS of inconsistency—at least on Europe.  That Osborne and Cameron (and Corbyn) led the argument to Remain was simply not credible.  Their position lacked passion because frankly, there was none—the electorate saw easily through this paper-thin curtain.  One never felt that those on the Remain side cared quite as much.

The Vote

To anyone who stayed up until the wee hours, the result and its message was clear.  One could describe it as Hartlepool vs. Islington, or Boston vs. Barnes, or any other combination pitting the losers and winners of globalisation and its effects against one another.  That the likely recession will likely inflict more hardship on the less well off than those comfortably enjoying a leafy, liberal London existence was ignored as the less economically fortunate voted in overwhelming numbers to leave.  It’s true that Scotland (overwhelmingly) and Northern Ireland (marginally) also voted to remain, but these are particular cases.  It was wealthy, multi-cultural London against the more fearful and increasingly hopeless elsewhere.

Those who voted to Leave may suffer negative economic consequences, but the sense was that they felt they were going to suffer anyway.  Governments of all stripes have largely ignored them, and the promises of the current Government, which led the Remain campaign, rang hollow with those who have been suffering from this Government’s policies.  This was their only chance to express their anger and they took it.  They are not all racists, xenophobes, ignoramuses or vindictive old people – they are afraid, and perhaps rightly so.  Even if we do not agree with their point of view, we must come to understand it.

We would not have lost confidence in this Government and its predecessor if it had not sought to balance the books on the backs of those least able to afford it and alternatively extracted sacrifices from those best able to afford it.  Instead, it cut marginal tax rates.  The Coalition Government spent billions bailing out the banks due to their mortgage losses – they could have bailed out homeowners.  I could go on.  The indifference was palpable and has been worsening under this Tory majority Government, whose legislative agenda was becoming increasingly right wing and doctrinaire.

In addition, let me not let Europe’s leaders off the hook.  Across the continent, citizens of all EU member states have been restless regarding the EU’s performance and critical of its flaws.  If its leaders had demonstrated courage instead of political calculation and engagement instead of being aloof, they would not today be confronting their own potential extinction, which the UK Brexit vote has made far more likely.  I understand their (EU officials) resentment, anger and fear, but unlike the unemployed in Athens, Madrid and Hartlepool, their inaction and callous indifference has brought it upon themselves.

The Future

I am really sad that the Remain campaign has lost the Brexit vote.  I have argued that Britain should stay in the EU and have been a longstanding supporter of the European model.  That does not mean I have been an uncritical supporter.  For example, I have always opposed a single European currency as well as Britain’s participation in it – this even as a Lib Dem Parliamentary candidate in the 1997 General Election.  It was, at best, premature, at worst, a stupid idea and yet another example of the conceit of politicians (Kohl and Mitterand, as I recall, in this case) over-shadowing the sensible interests of citizens.  I always felt, and still feel, it would destroy the European Union.

Anyway, my side lost the Brexit battle and now we all need to move on.   What is apparent to me is that this vote will be a powerful catalyst for change.  Even though I would have preferred it, a vote to Remain would have encouraged politicians to do nothing.  Safely embedded in the status quo they would have congratulated themselves on their accomplishments, welcomed the good sense of the country in supporting their point of view and carried on much as before.  Nothing will have changed – this is no longer an option.

I am curious indeed, how a UK Government led by Johnson (or maybe May), Gove, Redwood, David Davies, and the like will deliver to those in Hartlepool who supported their position.  The idea that the farthest right wing of the Conservative Party becomes the champion of the downtrodden feels unlikely, but I have seen stranger twists of fate, and if they can deliver, I will cheer.

I take comfort in the fact that in Britain, our far right consists of people like Gove, Davies and even Farage, and are not Norbert Hofer (who nearly became President of Austria) or Marine Le Pen in France.  This is something to be very thankful for.

On the other hand, in the highly probable scenario that these Conservatives fail to deliver for the disenfranchised, we need to find a new leader on the left – someone who can speak to the fears of the fearful and address the aspirations of our nation’s youth, who are despondent at the outcome of Thursday’s vote.

It is encouraging that Jeremy Corbyn looks set to be deposed.  He seems a decent principled man, but he strikes me as an incompetent leader.  By definition, and despite his democratic mandate, if he cannot carry his colleagues in a Parliamentary system of Government he just has to go.  I expect a safe and unimaginative choice but I am hopeful for the best (I am an eternal optimist).

Caroline Lucas is the UK politician I most admire and is the single person with the most credibility to galvanise our country.  However, she is a member of a disorganised party, and, much as I hate to admit it, politics, to be effective, requires a certain ruthlessness that the UK seem unable to muster.  I am not proposing Blairish deviousness, but would welcome, at least, some Clintonesque pragmatism (that of the Bill variety, not Hillary!)

So what can we do in the meantime?

I rarely want to wait for politicians to lead.  My experience has taught me that this can be very disappointing.  In a democracy, which sits alongside a capitalist economic system, we have seen how policy is dramatically tilted in favour of the better off, and are coming to feel some of the consequences of this (e.g. the financial crash, Greece, Brexit).  This will continue until we address the systemic problems).  What shall we do in the meantime?

A friend of mine rang me on Saturday morning and said — “I just woke up this morning and felt like I want to/have to do something.”  She was utterly distressed, like many others, about the outcome and felt she needed to undertake positive action – for herself and for the greater good of the nation.

I think she will.  All across the country, people are waking up this weekend with a sense of, ”oh shit, this really happened—it was not just a bad dream.”  Some will retreat into themselves.  Some will argue about the results and challenge them – with petitions or other blocking actions.  Some will escape, if they are able, to Canada, Norway, wherever.  However, some like my friend realise that this is the time for real action.  The days of kicking problems into the long grass have ended.

The vote has robbed us all of the ability to keep smiling and pretend things are OK.  Things are not OK and the Brexit vote is forcing us to deal with thorny issues like immigration, inequality, the bankruptcy of Greece, serious strains in the Euro-financial system (in Italy, France and Portugal, just for example), weak financial institutions, an agitated and mischievous Russia and much, much more.

As ever, the only question any of us can answer is, “what am I going to do about it?”

So what are you going to do now?

Government Policy, Impact Investing, Innovation, Institutional Investors, Social Economy

Problems for impact investment in Sweden

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Over the last few years at ClearlySo we have been travelling regularly to continental Europe as part of what we do. We have done business on the continent, and have also used these trips to learn about new innovations in impact investment (such as SIINCs from Germany and “90/10 funds” from France) and to identify financial institutions with a developing interest in impact investment. We believe that accessing new pools of capital is of great benefit to our entrepreneurial and impact fund clients looking for investment.

Sweden as a country seemed promising. It is liberal (small “L”), progressive and open to new ways of thinking. In addition, the positive and non-adversarial relationships between business, finance and the government have made Sweden a role model to which other countries aspire. One recent development in this regard is the introduction of a six-hour workday throughout Sweden. This is intended to make Swedes happier, but in a particularly Swedish twist, experts there also believe it will make Sweden more productive. It is already one of the most productive in Europe:  in 2014, per capita GDP was $45,143, significantly higher than the UK ($39,136). This is despite the fact that people in the UK worked 4% more hours each year.

Given such an open-minded, progressive approach, I felt confident that impact investment would be surging in Sweden. Sadly this appears not to be the case, based upon conversations I’ve had with experts. There seem to be few high impact entrepreneurs, at best one or two impact investment funds, very little government involvement and near zero involvement from the mainstream financial sector (although this is true of the UK mainstream as well).

This surprised me. However according to the experts I met, while Swedes are intellectually open to new ideas, they are actually relatively conservative (small “C”) in terms of implementing them. Swedish society already works rather well, and there is a reluctance to tamper. People earn high incomes, income disparity is well below UK/US levels, and taxes are higher, but the public expects and receives much higher quality social services than other European countries. This is in fact part of the problem for impact investment in Sweden: although Swedes cite all sorts of social problems, in fact, the Swedish social compact operates relatively well.

There are also two deep-seated beliefs I encountered which act against impact investing or even philanthropy. First, there is genuine suspicion of mixing the profit motive with social outcomes. I would not describe it as closed-mindedness, but just a wariness of this very Anglo-Saxon idea. This is then amplified by a particularly Swedish aversion to charitable giving. According to the Charities Aid Foundation (2012) Swedes gave 0.16% of GDP to charity. This compares with 0.54% in the UK and 1.44% in the USA. It is in Sweden where we see the clearest distinction between the Anglo-Saxon model of earning/giving and its model of using taxation to fund social welfare expenditure.

Such an environment is not particularly fertile soil for high-impact enterprises or impact investment in general. In fact, along my European journeys, I found that troubled economies were more hospitable to the necessary innovations (maybe out of desperation). In 2007 I journeyed to 10 Balkan countries and found flourishing innovations in places like Serbia and Bosnia as individuals grappled with deeply troubled societies in the aftermath of a brutal civil war.

I know very few Europeans who would trade places with Sweden as a successful economic model. On a recent trip to Stockholm, any slight disappointment I felt in Sweden’s current approach to impact investing was overwhelmed by the beautiful weather, celebrations of Walpurgis Night, May Day and the 70th birthday of King Carl Gustav. Stockholm is very close to paradise on earth. Nevertheless, this is not to say that Sweden is a lost cause from an impact investment perspective – the banks do, for example, raise money for overseas projects (most notably through microfinance). Once Sweden has considered the model and made it relevant to their domestic needs, I have no doubt that impact investment will eventually flourish in Sweden.

Government Policy, Impact Investing, Innovation

Impact investment and the environment….strange bedfellows, why?

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Recently ClearlySo has seen a flurry of environmentally related deals. A couple of weeks ago we helped the firm Upside Energy to close an investment round of £545k. Upside Energy creates a Virtual Energy Store™ by aggregating unused energy from devices owned by households and small business sites that inherently store energy, to sell balancing services to grid operators which helps reduce the need to turn on the older, most polluting and expensive power stations during peak demand times More recently we supported the fundraising of a company called Switchee.  Switchee’s product reduces energy usage which saves tenants in affordable housing money on their utility bills, and the data helps social landlords better manage damp, maintenance and repairs in their properties, thereby fighting fuel poverty. These two transactions, previous deals closed and several in the pipeline have coincided with Earth Day, which took place on 22 April. Earth Day is often credited for launching the modern environmental movement. My ClearlySo colleague Lindsay Smart has written an extensive blog piece in honour of Earth Day.

This juxtaposition of events comes at a very interesting time in the UK impact investment space. For reasons that are hard to explain, and even if I could would lie well beyond the word limit of this column, the “mainstream” UK impact investment community and environmental investment community has always remained separate and aloof from one another. For us at ClearlySo this is rather bizarre. Many of our investor clients seem to care a great deal about environmental matters. These include water pollution, air pollution, global warming, sustainable fishing and forestry and a host of other related issues, which impact all of us. Also, matters environmental have always had a disproportionately negative social impact on the world’s poorest—so the social and environmental impact spheres are closely linked. To say this isn’t really part of the impact investment movement is not only odd but self-defeating, particularly as this represents a considerable portion of available investment opportunities. Moreover, the metrics for understanding environmental impacts are more highly developed, better understood and more widely utilised at the present time. It seems rather arbitrary to push the environment to the impact investment side-lines. Our view has been that if investors value particular impacts, so do we.

Some of this may be institutional in nature. Environmentally conscious investing came onto the scene prior to what we now describe as impact investing and perhaps there was little interest in embracing this new movement. Similarly the Green Investment Bank was launched well before Big Society Capital, which was the impact investment sector’s broadly equivalent institution.  Thus a central government initiated split of sorts may have been created. The apparent assault by this Conservative Government on many aspects of renewable energy funding, in contrast to its persistent praise of impact investment has also furthered this divide.

Nevertheless, we will continue to argue that these two activities are part of a much bigger single picture. It is reminiscent of what we always saw as flawed thinking, that impact investment is an asset class, perhaps cleantech investment is another and maybe micro-finance and social housing are a third and fourth. In our view those are merely different facets of a world where impact is becoming important in all investing.  We see the world shifting from investing in a two-dimensional way, where only risk and return are measured and considered, to a world we have long advocated of 3-D or three-dimensional investment. It is bringing impact to all investment that is our true mission.