Nearly 20 years ago, I gave a speech at an event to celebrate the thirtieth anniversary of Apax Partners, the venture capital and private equity firm I co-founded and led for so many years. I warned then that if we did not tackle the needs of those left behind more effectively, a “curtain of fire” would soon separate the rich from the poor in our cities, countries and continents. We have recently seen this curtain rise in countries such as France, Lebanon and Chile, which have suffered violent protests, while in the UK, rising inequality was a factor in the decision taken in the referendum of June 2016 to leave the EU.
Today, the gap between rich and poor has widened massively. Inequality is causing huge migration from poorer countries, especially in Africa, to richer countries in Europe, with people risking their lives to cross the sea in flimsy rubber boats in search of better lives. The challenges arising from absorbing these immigrants are exacerbating the inequalities that already exist in the host countries.
And now the Covid-19 crisis is escalating our challenges. Our economies are in lockdown because of the coronavirus. Huge sectors of our economies have come to a sudden stop, unemployment is rising to levels unseen since the Great Depression and stock markets have crashed. The strains on our economic and financial systems are likely to be orders of magnitude greater than those we experienced during the crash of 2008.
Across the world, the people worst hit, once again, will be the most vulnerable in our societies.
I hope our governments will direct their massive economic measures in such a way that it creates the maximum positive social impact. Social justice must dictate our economic response to this grave crisis, so that we do not emerge from it with even greater pain, inequality and violent rebellion against the inequity of our system.
AI can see that a solution is within our grasp; I call it the “Impact Revolution.” Fueled by impact investment, it will allow us to address the dangerous inequality and degradation of our planet and lead us to a new and better world.
The journey that led me to write my latest book, IMPACT began in 1998, when I decided that seven years later, at the age of 60, I would leave Apax to tackle social issues and try to help resolve the conflict in the Middle East. I did not want my epitaph to read, “He delivered a 30 percent annual return on investment.” I’d always known that life should have a greater purpose.
Giving back is an important aspect of my values. Just as I was helped when I was in need, I want to help others. Part of the reason I became a venture capitalist was that I knew it would enable me to help create jobs at a time of high unemployment. As I saw social problems spreading during the 1980s and 1990s, I remained motivated to make a difference. I hoped that by leaving Apax at the age of 60, I could devote 20 years to these issues and have a chance to make a real difference.
Things Cannot Continue as They Are
As inequality surges in developed and developing countries alike, social tensions rise, and those who have been left behind feel that they will be permanently stuck there. Our system does not seem fair to them, and so they rebel against it.
At the same time, environmental challenges threaten the quality of life on the planet and possibly its very existence. Our current economic system cannot correct this threat: governments do not have the means to cope with our human-made social and environmental problems, nor are they well-placed to develop innovative approaches to tackling them, a process that inevitably involves risky investment, experimentation and occasional failure.
There is, therefore, an obvious need for a new system, a need that has been publicly recognized by leading figures in finance and business. However, until now, we have spent a great deal of time diagnosing our system’s problems and precious little time proposing real alternatives to capitalism, leaving us feeling stuck, with no way forward.
Humankind has made enormous progress.
We are capable of finding the right answer, of shifting to a new system that distributes opportunity and outcomes more fairly and proposes effective solutions to our significant challenges. We need a new system, for both moral and prudential reasons, where…
a sense of mission reins in self-interest.
contribution confers greater status than conspicuous consumption.
firms that demonstrate social and environmental integrity are more successful than those that are merely self-interested.
individuals and organizations are encouraged to find fulfillment in being part of something bigger than themselves, rather than in striving just to make money.
Impact Capitalism—the New System
This new system is impact capitalism. It aligns the private sector with government, so that the two work in harmony rather than opposition, harnessing capital and innovation to solve social and environmental issues.
It attracts capital from investment markets, in much the same way as private capital has funded entrepreneurs to help bring about a revolution in technology over the last four decades.
It marries social and environmental impact with profit, overthrowing the tyranny of profit and placing impact firmly by its side to keep it in check. It is already evident in our changed preferences:
We are increasingly choosing to buy products from companies that share our values.
We are investing in companies that do not pollute the environment or use child labor.
We are working in greater numbers for companies that have inspiring social or environmental goals.
The fuel of the capitalist system is capital, so it is not surprising that impact investing is a manifestation of the new system. Just as venture capital was the response to the investment needs of tech entrepreneurs, so impact investment is the response to the needs of impact entrepreneurs and businesses that want to improve lives and help the planet.
Impact investing is about creating a chain reaction.
One that brings innovation and changes the mindset and behavior of investors, philanthropists, entrepreneurs, social organizations, big business, governments and the general public, and places impact at the center of our decision-making.
The Impact Revolution is already transforming the way we think about social responsibility, business models and investment. It is beginning to change our economies, turning them into powerful engines that drive capital to achieve impact alongside profit. We can already see it marking the twenty-first century as much as the Tech Revolution marked the twentieth.
Join me next time as I continue to share more about the Impact Revolution. In the meantime, if you want to learn more, then I invite you to check out my latest book, IMPACT ! It introduces a new theory about how the Impact Revolution will enable us to achieve systemic social and environmental improvement and puts its progress in perspective. It examines the trends affecting different groups in our society and how these groups influence one another, creating momentum for change across our whole system. Whether you are an employee, an entrepreneur, a consumer, a business leader or government official, we all have a role to play. Read IMPACT to discover your role.
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