Original photo is by Jonny Gios on Unsplash

Can wealthy “impact investors” challenge the very economic system that has generated their wealth?

It may seem unlikely, but Ariel Brooks, Libbie Cohn, and Aaron Tanaka of the Center for Economic Democracy argue that it is not impossible. Their report, titled Social Movement Investing: A guide to capital strategies for community power, however, does not shy away from the question of whether impact investing is even worth the effort. Indeed, they begin with the famous Audre Lorde quote that “The master’s tools will never dismantle the master’s house.” The authors concede that “using ‘finance tools’ to upend the ‘house’ of finance capital may seem like a dubious task” (p. 4).

Impact investing often looks like what has been called the philanthropic paradox. As a report from Rockefeller Philanthropy Advisors notes, this paradox obtains when a donor seeks “to solve problems that may have been caused by the source of a donor’s wealth” (p. 25). Authors Stephen Godeke and Patrick Briaud add that, “Two examples of this paradox include Purdue Pharma and the Sackler family’s philanthropy resulting from the profits of opioids, and the negative effects on the climate coming from the Rockefellers’ oil wealth.”

So, can the master’s tools dismantle the master’s house? Brooks, Cohn, and Tanaka delve into the complexities of this question. Lorde allowed, they observe, that the master tools “may allow us temporarily to beat him at his own game, but they will never enable us to bring about genuine change. And this fact is only threatening to those…who still define the master’s house as their only source of support” (p. 5). The point, the report authors contend, is to pair impact investing with community-owned economic structures, so that the master’s house is not the only source of support. They add: “While we cannot ‘impact invest’ our way out of capitalism, a new form of impact finance that operates in alignment with grassroots social movements could become a much more forceful tool to create the world that we all desperately deserve.”


Developing a Theory of Social Movement Investing

Key to the approach that Brooks, Cohn, and Tanaka develop is to carve out “social movement investing” as a subset of the larger world of impact investing. As NPQ has noted, impact investing can have many definitions. For social movement investing, the desired impact is to grow community power. Drawing on the just transition framework developed by Movement Generation and Nwamaka Agbo’s work on restorative economics, Brooks and her coauthors identify four ways that impact investing can increase community power: 1) oppose negative practices and build positive solutions that are visionary and oppositional; 2) change the rules (e.g., through policy change); 3) divest resources from the extractive economy; and 4) invest resources in community-owned enterprises rooted in practices of a solidarity economy.

Critical throughout is coordination with social movements. It’s not social movement investing unless movements are involved in steering where investment dollars go. As Brooks, Cohn, and Tanaka write, “the primary differentiator between impact investing and Social Movement Investing is a commitment by asset owners and managers to build accountability to the communities and leaders who are on the front lines of social change” (page 29, emphasis in original).


Social Movement Investing Tactics

What might social movement investment look like in practice? Brooks, Cohn, and Tanaka offer a framework of six possible tactics.

  • Exclusion: A prominent example of this is a divestment campaign, such as the current campaign to divest from fossil fuels that has been supported by funds holding nearly $40 trillion in assets worldwide. (Screened investment funds that exclude categories of investment, such as military contracting or tobacco or shorting—betting against—companies are other variants of this tactic).
  • Engagement: These are typically done through the use of stockholder resolutions. The report cites Majority Action, Interfaith Center on Corporate Responsibility, As You Sow, and Corporate Accountability International as prominent examples of movement groups that “have used engagement tactics to cajole or discipline problematic corporate actors” (p. 46).
  • Control: Hostile takeovers in business are relatively common, but for movement investors this category is mostly theoretical for now. Nonetheless, Brooks, Cohn and Tanaka write, conceivably social movement investors could leverage their holdings to “force a hostile sale to more socially responsible owners or install new management for the good of the company and community” (p. 46).
  • Conversion: These are investments to convert existing businesses into employee ownership or other forms of community ownership. As NPQ has covered, the retirement of the Baby Boom generation of business owners provides a potentially enormous opportunity in this area, with annual revenues of US businesses that fit this category exceeding $5 trillion.
  • Seed Investment: As this phrase suggests, this involves investing in “early stage” community-owned businesses. NPQ wrote about a cohort of such funds last fall. This category roughly corresponds to what the nonprofit Transform Finance has called “grassroots community engaged investment.”
  • Growth investment: These are investments that seek to “scale up” community-owned businesses and are rare. A recent NPQ article on the Open Collective, which discusses the concept of “an exit to community ownership,” however, illustrates the core idea of this model, which is to use social movement-oriented impact investing capital to scale up operations, with a vision of selling to community users after a specified period of time.

It is notable that there is a difference between the first three tactics—which are largely resistance-based—from the last three tactics, which seek to build infrastructure for a community-based, solidarity economy. This distinction also has some important investment implications. A longstanding debate in impact investing is whether the investor can have it all—in other words, can the investor both “do well” (earn a maximum financial return) and “do good” (have positive impact)?

Put simply, with resistance strategies, Brooks, Cohn, and Tanaka write that doing good while doing well are largely compatible. But not so with the infrastructure-building tactics, where concessionary (below-market) rates of return are required to have community-building impact. As they point out:

Social Movement Investors cannot ignore the fact that accumulated wealth is generated through undervaluing labor, manipulating markets, and extracting from the earth, and must dispel the illusion that profit maximizing behavior is ultimately compatible with a regenerative economy (p. 47).


Addressing the Obstacles

In their report, Brooks, Cohn, and Tanaka do not shy away from the nascent nature of social movement investment. “Investing in deeper alignment with movements, they observe, will necessitate not only relationship building with social movement partners and experimentation with Resist and Build investment strategies, but also mutual learning among Social Movement Investors, development of structures for coordination, and ultimately sectoral transformation” (p. 67). Over time, they envision that to maximize their impact, movement-motivated investors should shift their assets from resistance strategies to infrastructure-building strategies. Making this shift, however, will require overcoming many obstacles, which the report authors divide into “internal” obstacles (that is, within impact investing) and external obstacles (that is, from the larger capitalist economy).

A leading internal obstacle that the authors identify—no surprise—is the hold of the mantra that you can “do well while doing good.” Others include investor lack of knowledge of their actual holdings—as NPQ has pointed out, many “social investment” funds include mainstream companies like Amazon and Apple within their portfolios; financial and legal constraints (such as pension funds’ legal obligation to seek maximum returns for beneficiaries); and a reluctance to try new approaches to investment (risk aversion). A more complicated obstacle is organizational structure—e.g., are there avenues for foundation program officers to weigh in on investments that might undermine their grantees? Right now, the answer is most often “No.” Relatedly, there are even fewer avenues for social movements to coordinate with impact investors to set common investment goals.

One could list many external obstacles. The report authors focus on three. A critical one is cultural. As Brooks, Cohn, and Tanaka put it, “There is still enormous work to be done to shift the collective belief that whatever is earned is fairly deserved’ to ‘wealth that was stolen should be returned’” (p. 74). Two other external barriers that the authors identify are incentives for financial advisors (i.e., few advisors are rewarded for helping their clients achieve “impact,” but many get bonuses for helping their clients maximize their financial returns) and the gap between the financial return investors demand and the financial terms that start-up community-owned businesses can afford.


Towards a Community Power Investment Screen

The last section of the report from Brooks, Cohn, and Tanaka takes on the task of outlining what community power “due diligence” might look like. They divide this into two scores—one on movement alignment and one on community power and multiply the two to obtain an “expected power rating.”

For movement alignment, they develop a score of zero to six based on scores of three items (each scored as zero low, two high):

  • Relationships: To what extent does the investor have relationships with the impacted community?
  • Leveraging: To what extent does the investor utilize multiple forms of power on behalf of the community?
  • Capital Coordination: To what extent does the investor share decision making with the impacted community?

For community power, the scoring is more complicated, with three sub-categories of community governance (i.e., community control), community ownership, and community action (i.e., how much the investment will help a community group win its campaign?). There are four impact-related items (scale, need, etc.) in each category, each rated on a scale zero to four. These three categories are then averaged to allow for a maximum rating of 16 (four times 12 divided by three) and then multiplied by the movement alignment rating. In theory, this framework would allow investment analysts to create community power investment ratings on a scale of zero to 96 (maximum community investment score of 16 times maximum alignment rating of six).

The scoring system—Brooks, Cohn, and Tanaka concede—might be “overly simplistic” (page 93). But the idea, they explain, to advance the discussion of “movement centered asset allocation models.” If, as the cliché has it, “what gets measured, matters,” then the effort to create the model, flawed though it may be, represents an important advance.


Remaining Questions

As noted above, the report authors mostly concentrate on developing a theory of social movement investment. While the report cites a number of organizations and initiatives, there is no attempt to quantify the current size of the social movement investing universe, nor is there an attempt to identify what scale it would need to achieve to have transformative effect.

Nonetheless—Brooks, Cohn, and Tanaka observe—the implications of a successful buildout of social movement investing infrastructure would be profound. As they point out, if community groups are aligned with movement investors, this would encourage the “integration of capital strategies as a new but essential dimension of campaign planning” (p. 96) and alter the “power map” that community groups use to run their campaigns. Even more critically, they add, “for social justice enterprises and solidarity economy practitioners, the expansion of investors willing to make non-extractive loans could be the difference between succeeding as a ‘high road business’ or failing in a ‘race to the bottom’ economy.”