EDMONTON, ALTA. — A new era is dawning in the investment world. It is being termed 'impact investing' and, according to a column in the New York Times, "Impact investors seek out companies that are intentionally designed both to make a profit and provide a measurable and accountable social good. Impact funds are frequently willing to accept lower financial returns for the sake of doing good - say a 7 per cent annual return compared with an 11 per cent return."
There are an increasing number of investors, like myself, who are interested in investing their after-tax dollars in investments that will generate a reasonable financial return while also contributing to a net positive impact on the well-being on the community in which a business operates and on the environment.
This form of 'Well-being Impact Investing', however, will require new tools for measuring what I call the Well-being ROI (return on investment).
Investors seeking a well-being return on their investments will need to identify companies and investment opportunities that are contributing to a genuine well-being impact. Verifying that these investments are in fact delivering a well-being ROI will require a new generation of financial analysts, accountants and economists.
This shift will also require a change in the legal DNA of corporations: the onus will now be on companies to demonstrate a net positive financial return in harmony with their contribution to the company's human capital assets (employee well-being), to the communities they impact (measured in terms of trust and relationships) and to the natural environment (measured in terms of their environmental footprint).
The Flourishing Enterprise (a book co-authored by Paul Werder and other business authors, including Peter Senge) is becoming the new model for business. These authors argue that the flourishing enterprise - the aspiration that humans and life in general will thrive on the planet forever - should be a key goal for every business today. This is a bold concept, like sustainability was a decade ago. Just as sustainability has become a matter of course, so too will flourishing become a cornerstone of business tomorrow.
Unfortunately, impact investing and impact funds are relatively new in the financial world, only coming on to the scene seven or so years ago. According to the New York Times, a 2010 report by the Rockefeller Foundation and JPMorgan projected that impact investing could see new capital inflows of up to $1 trillion by 2020. That lofty goal, however, is unlikely to be reached with only $40 billion invested through these funds to date. Fortunately, new impact funds and social impact bonds are being born.
And new investment banks, such as Winnipeg-based Usand Group, are also being born. Usand is leveraging low-interest debt to help finance a new era in First Nations economic well-being, empowering First Nations to develop their own flourishing enterprises and economies of well-being.
But one of the biggest challenges in this new frontier of well-being impact investment will be measuring and verifying companies which are actually contributing to the well-being and common good of society. We will need to develop more robust analytic and due-diligence tools to help us determine whether or not companies are actually contributing to the net positive well-being of their employees, their customers, the communities they serve and the relationship they have with the natural environment.
This path, however, is not as difficult to achieve as first appears, although it will require that we return to the original spirit and intentions of accounting, when Luca Pacioli (a Franciscan priest and mathematician) and Leonardo da Vinci, the fathers of accounting system we use today, argued that a wise business person measured what mattered most to the flourishing well-being of the business enterprise, the family associated with the enterprise and the community.
I believe a new accounting system - which I call Genuine Wealth - that measures the well-being returns on the human, social, natural and built assets of an enterprise or community is possible and will become the new bottom line for businesses, the financial world and economies. Corporations, banks and investment funds that can demonstrate a well-being impact will gain the competitive advantage in the 21th Century.
Mark Anielski is a well-being economist, author of the best-selling book The Economics of Happiness: Building Genuine Wealth, taught Corporate Social Responsibility for 10 years at the School of Business (University of Alberta), and is the co-founder of the Genuine Wealth Institute.
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