We seek to make Transformative Finance the primary logic of the financial system. To do this, we cause investors to question the role of finance in society, and help them adopt wholesale changes to how they approach impact.
Finance and the actors behind it often drive inequity and harm in marginalized communities. This is well documented in all sectors of the economy, across different financial industries and types of investments. Capital is used to maximize profit for those who control it, which entails seeking that value in investments over other considerations: workers, environment, communities. Because decisions are made by those who control the capital, as capital becomes more and more concentrated among institutions and people who already have it, the people calling the shots in the economy become fewer and more powerful.
Mission driven investment, which includes impact and ESG (Environmental, Social, and Governance) investing, seeks to counter this logic of the financial system by creating a positive impact in addition to profit. But many of these efforts find themselves trapped in many of the same harmful patterns. Few mission driven investors question control, agency, and the fundamental role of finance in building a better world, only adding risk to their portfolios to the extent they feel comfortable doing so.
Our vision of Transformative Finance serves as an alternative to both conventional finance and business-as-usual mission driven investment. It’s based on the Transformative Finance principles: 1) Those affected have the chance to design outcomes, govern processes, and share in ownership; 2) Investors add more value than they extract as returns; 3) Risk and returns are fairly allocated across all stakeholders.
Adopting Transformative Finance as an approach requires a change in mindset. It becomes necessary to shed existing assumptions and ask new questions: What type of financial activity is socially acceptable? Who loses on a financial transaction and why? To whom do investors owe a duty? How does equity and fairness show up at all stages of an investment?
We are not all that close to Transformative Finance being the norm in the investment world, let alone within mission driven investment. But there are many explorers, innovators, and activists who are demonstrating what Transformative Finance looks like in practice. To go further, we learn from emerging models and practices, tell their stories, and applying their experience to the broader financial system.
We’ve developed an impact assessment tool that can be applied to portfolio construction, deal diligencing, and impact measurement. Underlying the tool is the centering of structural elements of an investment, such as the availability of additional capital, innovativeness of the structuring, and overall distribution of wealth and decision making being created. The tool was piloted with Acumen for their investments in Post-Conflict Colombia, and we're now working to apply it to other investors.
We've always had fruitful conversations with investors at a high level, asking: "how should we approach impact across the entire portfolio?" In addition to our advisory services on specific issue areas, tools, and place based projects, we work with investor partners to develop these holistic investment strategies. Currently, we're working with the Mastercard Foundation on a fund of funds strategy.
While all of our materials aim to shift narratives of how we think about finance, we've labeled several resources Foundations of Impact on our Learn page. These represent a growing collection of resources that help us move from a traditional, extractive logic of finance into one that is Transformative.Check out our Foundation of Impact resources