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In a report published last year for Just Futures, an investment advisory firm that seeks to encourage “values-based investing,” Anand Jahi indicates that the amount of money invested on Wall Street totals $71.4 trillion (4)—nearly three times the value of the annual gross domestic product of the United States.

By comparison, the $75 million (33) that Jahi indicates is invested in social justice is roughly one millionth as much. Scale, in short, is a long way off. But the potential for scale is there. One sign of this is the rapid growth of what is variably called “socially responsible investment” or “impact investment.” In other words, hunger for investments that generate social benefit is widespread, even if many of the investment vehicles for getting there are flawed. In his report, Jahi aims to sets forth a clear definition of what a social justice investment ecosystem could look like and challenges nonprofits and philanthropy to shift their investment strategy.

But first: what is meant by “impact investing” anyway?


Impact Investing’s Muddled Definitions

As NPQ has covered, impact investing has many definitions. For his part, Jahi focuses on private-market investment—that is, investments that occur outside of the Wall Street system—and which have an explicit social benefit purpose. Because these investments are often done firm by firm, there is greater opportunity to hone in on a specific desired impact (such as supporting worker ownership and/or businesses owned by people of color). On the other hand, plenty of “public equity” (stock-based) funds also have “impact” in their name.

It is worth noting that, at the most basic level, every investment has impact, be it for better or worse—it does not matter if the only goal is to make money. But the phrase, “impact investing,” implies pursuing some positive social benefit.

The US SIF (Forum for Sustainable and Responsible Investment) has been tracking the socially responsible-investing field since 1995, a long time—and a dozen years before the term, impact investing, was invented. Every two years, US SIF releases their Trends report, most recently in December 2022 (reflecting 2021 figures).

ESG is, at best, a very weak form of impact investment: it is most often focused on avoiding the worst, rather than truly pursuing a positive social good.

When US SIF published their 2020 report (based on 2019 figures), they reported that $17.1 trillion of the then-$51.4 trillion in total assets managed by US investment firms were invested with some sort of impact criteria in mind, or as US SIF phrased it, with “sustainable investing strategies.” This is, to state the obvious, far greater than Jahi’s $75 million figure—and it speaks to the demand for socially beneficially investments, if not necessarily the reality of them. At the heart of the difference is that Jahi’s criteria demand direct community control of investment for socially beneficial purposes; by contrast, US SIF’s figure loosely measures so-called “sustainable investing strategies.”

Specially, US SIF counted in its $17.1-trillion figure any investment by firms that analyzed “ESG” factors when deciding where to invest funds and/or advocated for shareholder resolutions that seek some non-economic social benefit. The E of ESG stands for attention to the environment (that is, care in limiting resource use, pollution, carbon emissions, and so on). The S is for social (fair treatment for workers and related practices), and the G is for governance (this includes things like gender and racial diversity on company boards).

ESG is, at best, a weak form of impact investment: it is most often focused on avoiding the worst, rather than truly pursuing a positive social good. In part, this is because ESG funds are predicated on the notion that nothing will be sacrificed in terms of expected investment return.

In fact, it is easy to find investment bank articles, like this one from JP Morgan, which argue that ESG investing generates equal or greater profits than not taking ESG factors into account. This makes ESG investment easy to do—no need to sacrifice financial return. You can get rich and feel good at the same time! It also limits the impact your investment is likely to have because sometimes tradeoffs between social impact and financial return do exist. For example, unions often improve firms by increasing productivity and ensuring workers receive fair treatment on the job (something the “S” in ESG is supposed to value), but the higher wages workers earn at unionized firms frequently means lower profits and therefore lower earnings per shareholder. To be charitable, ESG lenses do an imperfect job of capturing such tradeoffs. For example, Apple Computer ranks high on ESG (low risk), even though iPhone production relies on low worker wages, which are enforced by Chinese police authorities.

Another example: as Jahi writes, “As it has come to be practiced by major firms like BlackRock and Morgan Stanley, ESG integration focuses on considering the impacts of the environmental, social, and governance practices of a given company on its long-term profitability” (21) Thus, if a firm routinely damages the environment (say, by drilling oil and increasing carbon emissions), but does marginally better than others in the sector, it might be considered environmentally acceptable. As Tom Lyon, a business professor at the University of Michigan explains, this is why a sustainability impact investing fund can include Exxon in its portfolio.

Indeed, if you dig even an inch, you will quickly see just how limited a tool ESG investment often is. It can be fun—or depressing, depending on your mood—to look at your favorite “impact” stock investment fund and see what stocks are included.

To pick one example, as of early 2023, the top 10 holdings of Domini’s “Equity impact Fund” are Apple, Microsoft, Google (Alphabet), Amazon, NVDIA, Tesla, Visa, Procter & Gamble, Home Depot, and Mastercard. A similar fund at Green Century shares much of the same lineup of companies, although sans Apple and Amazon. If you’re skeptical that buying stock in Google, Microsoft, and Tesla is going to change the world—well, you’re not wrong. To quote Jahi’s report again, “In practice, it is very difficult to both be rigorous about values-based screens and look for market-rate returns” (22).



Even so, the figure reported by US SIF in 2020—that is, one out of every three dollars invested on the stock market employed at least a weak form of ESG screening— represented an astonishing number. At the time, somewhat incredulously, I titled my analysis of their report, “Impact Investing Is Ubiquitous, But Where’s the Impact?”

So, what do the most recent numbers say? In their 2022 report, the US SIF estimate of the size of the impact-investment field fell by more than 50 percent—from $17.1 trillion to $8.4 trillion, even as total invested assets increased by nearly 30 percent—from $51.4 trillion to $66.6 trillion.

Is ESG investing collapsing? Not at all. Rather, US SIF recognized that its earlier numbers were grossly overstated. As US SIF puts it, “the US SIF Foundation decided to modify its methodology for the 2022 report. In a departure from previous editions, this report does not include the AUM [assets under management] of investors who stated that they practice firmwide ESG integration but did not provide information on any specific ESG criteria they used.”

There can be a danger in letting people believe that their investments are more socially beneficial than they are.

US SIF adds that their “modified methodology distinguishes between a firmwide reference to ESG integration and a fund-level ESG strategy.” Translation: before, if an investment firm mentioned “ESG,” the assets of all its funds, including those that did not use ESG factors to place capital, might be included. Now, only the assets of funds that mention a specific ESG strategy in their fund description are included. The result: the new number is not one in three dollars, but one in eight.

Of course, that is still real money: $8.4 trillion is equivalent to about one third of annual US gross domestic product. That is an impressive amount of investment capital that at least claims to be screened at some level to avoid environmental harm, support fair working conditions, and ensure good governance (including gender and racial diversity at the corporate boardroom table).

But there can be a danger in letting people believe that their investments are more socially beneficial than they are. Jahi cites a recent business survey that indicates that 63 percent of “Generation X” investors and 80 percent of millennial investors ask their investment advisors about ESG strategies (22).

Asset managers, Jahi reports, charge higher fees (an estimated 67 percent higher) for ESG products (22). Perhaps the ESG push does move corporations to be modestly more willing to accept government policies that promote action to address the climate crisis. Surely, some good does come of all this. Yet, at the same time, as Jahi puts it, investors are paying for investment products that often are “looking to maximize profit by appearing values-aligned” rather than being values aligned.

How many of these Generation X and millennial investors would be willing to accept real trade-offs in return for greater social impact? Surely, the numbers would not be as high as the large majorities cited above. But some likely would.

The reality is that we just don’t know because while some social justice funds accept investments, options to invest in such funds are very limited (particularly for so-called retail investors—this is, investors who are “unaccredited”—a phrase that, to simplify, refers to people whose non-real estate net worth is less than $1 million). Of course, there are exceptions, where investment by people of modest means is legally permissible, such as crowdfunding, direct public offerings, and co-ops. But help developing a social impact investment strategy that uses such instruments, be it by a nonprofit or individual, is hard to find.


Creating a Social Justice Investment Chain  

Though Jahi’s paper is written for a specific investment advisory firm, the principles behind it have broader application. Jahi’s paper builds on the concept of “social movement investing” as developed in a paper published by the Center for Economic Democracy a year ago, but he is less theoretical and more empirical in his focus.

If US SIF’s criteria for impact are very loose, Jahi’s are very strict. Jahi writes that a social impact fund must (32):

  • Be deeply aligned with and led by social justice movements
  • Invest in and build power with marginalized communities
  • Support community-controlled enterprise
  • Offer non-extractive terms (that is, below-market interest rates)
  • Be accessible to ordinary people (that is, accept investments from retail investors)

In a social justice investment chain, individuals would invest in social movement-led intermediaries [who] place capital in community-owned firms.

Jahi identifies just 10 funds that meet these criteria—seven which are already funded and three in formation. By far, the largest of these is Seed Commons, a network of funds that support worker-cooperative development across the United States and which manages about $45 million in assets. The total value of assets managed by the seven funds that are up and running is just shy of $75 million. This number surely understates the extent of social justice investing, but at least no one would accuse Jahi of inflating the numbers.

According to Jahi, in a social justice investment chain, individuals would invest in social movement-led intermediaries. These intermediaries, in turn, would assess investment opportunities and place capital in community-owned firms that meet the criteria listed above. The Just Futures platform that is being developed—and which has gained the backing of Common Future and a half-dozen foundations (Kataly, Nathan Cummings, Jessie Smith Noyes, the San Francisco Foundation, the General Service Foundation of Aspen (CO), and the Fund for the City of New York)—is seeking to test a retirement investment product that would tap into the over $1 trillion (5) in nonprofit 403b accounts that is currently invested on Wall Street to radically increase the amount of capital available for solidarity-economy investing.

Jahi adds that to ensure community ownership and movement control, “Just Futures’ Investment Committee and Board of Directors will include direct representation from movement groups as part of the governance involved in Just Future’s commitment to at least 30 percent community and movement ownership” (43). Additional goals are envisioned. They include creating a “Social Justice Investment Note” product, which would allow investors to reduce risk by diversifying their holdings across the different investments held by the fund.

Will efforts such as Just Futures pan out? Jahi, in his report, identifies many risks, including federal laws and regulations that strictly limit how retirement assets may be invested and which may interfere with some of the firm’s goals. Nonetheless, the experiment—which speaks to a broad hunger for impact investment—will be interesting to watch.

In the meantime, if you work for a nonprofit and your nonprofit’s 403b includes a “social impact” fund investment option, it might be worthwhile to take a quick look under the hood and see where your money is invested.