The LRE Platform (Pt. 3)

Listen, I’m Christian Bale on these tracks, Denzel with these facts. – Monsters Are Everywhere, The Seige

In my last article, you will find the academic definition of Impact investment. Yet, when it comes to any topic or definition, life has taught me there is more than one definition to a new term.

These definitions are:

1.      The definition by scholars is what you will find in dictionaries or in a Google search – academic definition – which you have in my last article.

2.      The definition from skeptics, which I refer to as the ‘washing’ definition, because industry practitioners overuse a term to describe their practice, to look responsible to the public without adhering to the business standards as defined by scholars.

3.      The practice before the definition of the term refers to the historic evolution of the word or term before scholars decided to define the term.

Here, the term is ‘Impact Investment’, where the definition of Impact Investment by scholars can be found in my last article, which is an investment where the investor has a primary focus or preference that the invested capital is used to improve society or the environment, and making a financial return or profit on the invested capital is a secondary focus or preference.

In this article, I will focus on definitions 2, and 3 above.

“The essence of the independent mind lies not in what it thinks, but in how it thinks.”―Christopher Hitchens

The Definition from Skeptics or the ‘Washing’ Definition

For me, this definition arises when the practitioners in an industry overuse a term to describe their practice, because of the responsible appeal it elicits in the perception of the public. The result of the proliferation of the new term by industry practitioners causes a blur between those who use the term genuinely and those who use the term to gain public appeal or mislead the public.

Let’s explore what I mean by the ‘washing’ definition, from history.

Towels birth greenwashing

History has it that in 1986, Jay Westerveld, coined the term greenwashing when he read a hotel sign that instructed its guest to reuse towels because doing so helps to reduce ecological damage. Struck by the disingenuity of the hotel, because during the period he read the sign, the hotel was expanding. Later that year, he wrote an essay in a magazine, which has a wide readership in New York, and in this essay, he used the word greenwashing.

This article was released during that period of the multinational oil giant, Chevron’s 'People Do campaign', where it portrayed Chevron’s staff to be protecting bears, butterflies, and sea turtles. These ads allowed Chevron to be recognized with an Effie award for effectiveness in marketing, from the American Marketing Association. However, this campaign was tagged the gold standard of greenwashing by Greenpeace.

However, before Westervelt, coined the term greenwashing and Chevron became the gold standard of greenwashing, history has it that Westinghouse Electric Corporation, ran an ad campaign 20 years earlier, where it asserted that nuclear power plants are safe for neighborhoods because they are odorless, neat, and safe, compared to the existing coal plants, since it was an open secret that nuclear energy plants were far from safe.

A few bad apples is no reason not to visit the orchard. - Lauren Weisberger

Effects of Impact Investment Washing

This practice by industry experts to wash their practice with terms or themes to appear responsible to the public tends to attract young professionals with the wrong motives to an industry.

I remember, not long ago, I had a phone conversation with the CEO, of an Impact Investment firm, who asked about my view about Impact investment. I aired the skeptic's view and said, “Impact Investment is a fad since every business in operation will directly or indirectly create a positive impact on the society, even if the investors of a business don’t place a priority on the social impact of a business.”

Well, I needn’t wonder why the CEO never responded to my messages after that phone conversation.

Beyond me reflecting out loud, I have observed that while Impact Investment is the lens investors need to view their investments in Low Income and Medium Income countries, the newness of the term in the investment industry attracts professionals who lack the impact first mindset required in the impact investment space.

If you do not tell the truth about yourself you cannot tell it about other people. Virginia Woolf

Are Impact Investment Professional Impact First Focused?

As a young professional in the impact investment space, I have found from my conversations with other millennial professionals in the industry, about their ‘why’ in the impact investment space that they are more motivated by the newness of the career path the industry provides than the impact first mindset promise the industry hopes to achieve in on a global scale, which I find disturbing.

Though, extensive research has been conducted to gauge the impact of investments made in impact investments, which has resulted in several measurement methodologies like the IRIS. Little research has been conducted to gauge the motives of new entrants in the impact investment industry.

Make no error, I do not propose that an exam or an online test be created for new professionals interested in the impact investment industry.

However, my team and I, are building the LRE Platform, to create a solution that aligns the interests of all parties in the impact investment and entrepreneurial ecosystem, to ensure that the impact first mindset, the promise of impact investment comes first in the minds of all parties before financial profit.

The practice before the definition of the term

History has it that in 2005, Amit Bouri defined Impact Investment, which to me, is simply a redefinition of Venture Capital firms – VC – where VC firms are more focused on achieving social or environmental impact, rather than financial gain alone.

I believe it is important I define what a VC is. A VC is a financial institution that provides risk capital to a business in exchange for an agreed percentage of ownership in the business, where the VC profits from the increase of value in the business.

So, if Impact Investment is a redefinition of VCs with a focus on achieving social or environmental impact, then it is only appropriate that we take a quick peek behind the history of VCs, which I believe will help you to better understand the above sub-heading.

For historians ought to be precise, truthful, and quite unprejudiced, and neither interest nor fear, hatred nor affection, should cause them to swerve from the path of truth, whose mother is history, the rival of time, the depository of great actions, the witness of what is past, the example and instruction of the present, the monitor of the future." - Cervantes

Brief History of VCs

History has it that VC practices existed even in the times of the Roman Empire. While some European historians recorded that Christopher Columbus’ discovery was funded by venture capital because Queen Isabella had to sell some of her jewelry to finance Columbus’ adventure to the New World. This claim is attributed to the fact that the risk of his adventure was high, and its potential success was relatively high.

Yet, the twentieth century birthed the present-day VC industry, as the wealthy families in that era like the DuPonts and Rockefellers provided risk capital to small ventures. And the first renowned public VC firm was founded in Boston, by a Harvard Professor, George Doriot, in the United States, in 1946, which led to the rapid increase of VC firms, which funded some of today’s modern world global firms like Apple, Federal Express and Home Depot.

Conclusion

From the above two subheadings, I’m sure you will understand why some are skeptical about the term Impact Investment since the venture capital industry was created to advance the success of small ventures and small businesses.

While skeptics are right to exercise their right of skepticism, these skeptics will not deny the capitalistic leaning of the global economy for the past five decades, which increases the gap between the rich and the poor, causing economic inequalities to blanket most nations. Thus, Amit Bouri is right to give a new definition of VCs.

It will be disingenuous of me to claim that the Le Relief (LRE) Platform will mend all the faults currently in the Impact Investment industry.

Yet, it is the hope of the LRE team, which includes my mentors, and LRE’s board of directors, that the LRE platform will improve the transparency in the entrepreneurial ecosystem, and foster global collaboration between entrepreneurs in Low and Medium Income Countries and investors, and industry experts in High-Income Countries.

While this part of this article series can be likened to the academic or theoretical side of Impact Investment, the next part and the last part of this article series will focus on why the LRE platform is required, and briefly describe how the LRE will achieve its desired goal, as outlined in its patent.