Todd Khozein is the Founder and Co-CEO of impact and innovation company SecondMuse.
The Great Chicago Fire of 1871 destroyed 17,500 buildings and left a third of the city’s residents homeless. The Great Rebuilding that followed was, in fact, more of a Great Redesign that changed the way buildings were constructed and residents were protected from disaster. Today, the destruction wrought by the pandemic, related economic and social crises and climate change have presented us with a similar once-in-a-generation opportunity to not just rebuild but also to redesign a more resilient future.
Investors are in a prime position to participate in this change and have, encouragingly, taken notice. The consciousness-raising events of the past year — from social justice protests to extreme weather — have accelerated an ongoing trend in investing in positive social and environmental change. The biggest opportunity, however, is the timing of this trend. The Covid-19 pandemic has caused the worst economic recession in nearly a century, driving up unemployment and food insecurity and exacerbating economic inequality. The pressing need to rebuild the economy amid these converging disasters offers investors a chance to not only put their money toward important causes that will help us rebuild but also to reimagine how the new economy should be designed.
At my impact and innovation company and its capital management arm, my colleagues and I have been seizing this moment to maximize the impact of impact investing. We believe the next frontier is to go beyond simply directing capital toward promising businesses, innovations or causes and to instead play a more active role in creating — or redesigning — the economies that will shape our world over the next 100 years. So, what could this look like in practice?
Maximize impact with a systems approach to investing.
This work begins with the recognition that the problems of the world are complex and interconnected. The pandemic cast a glaring spotlight on the way racial inequality in the U.S., for example, leads to health and economic disparities between white people and people of color, who are more likely to die from Covid-19 and lose their jobs (registration required) amid the crisis. The climate crisis has similarly shown how economically marginalized communities bear the brunt of extreme weather caused by wealthier people’s greenhouse gas emissions.
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Investors looking to maximize their positive impact should therefore think more broadly about their target causes by taking a systems approach to investing. As we see it, a systems approach sees racial and environmental justice interwoven into every sector of interest. It embraces complexity and looks for bold, multifaceted solutions.
Work with “ecosystem development programs.”
Investors typically don’t engage with entrepreneurs until the later stages of the entrepreneurs’ journey. By working closely with ecosystem development programs, which support entrepreneurs at the earliest stages and shape the sort of businesses they build, investors can exert more positive influence on burgeoning economies.
In our case, our funds work closely with programs that mentor founders to build companies that prioritize social and environmental justice. These programs also search for innovators in communities that don’t have access to capital and then train them and their competitors on topics like diversity and inclusion and the integration of environmental, social and governance considerations within their companies.
Invite historically excluded voices to the table.
There are many variations to systems investing. The key is focusing not only on what to invest in but also on how to invest and manage money. To change large systems, it’s important to consider whose voices are being heard, excluded and considered at all levels. Raven Indigenous Capital Partners, which manages Canada’s first Indigenous-led private equity fund for indigenous enterprises, puts these considerations at the heart of its own systems approach. The fund supports indigenous people through a constellation of community-based programming and a commitment to upholding indigenous values and putting indigenous voices first.
One of the silver linings of the past year is that the converging (and overlapping) crises that defined the disastrous period led to a broader embrace of systems solutions. They prompted big institutions like Morgan Stanley to launch an accelerator specifically aimed at supporting innovators who take a systems approach to global sustainability issues and for the topic of “systems thinking” to dominate the Davos agenda.
By now, investors, who play a powerful role in shaping economies, should certainly be thinking in terms of systems. But everyone in the impact investing space — no matter their specific cause — should consider the term “impact” more broadly, too, and think more ambitiously about the role they may play in redesigning (not merely rebuilding) more just and resilient economies.