Tomorrow morning, I present at the Univesidad Iberoamericana in Mexico City. It’s part of their Masters program in the “Creation and Development of Social and Solidarity Economy Businesses” – as part of the International Center for Research on the Social and Solidarity Economy -or CIIESS. I’m humbled to have gotten to know Alberto Irezabal the director — and former director at Yomo A’tel, a leading solidarity economy cooperative in Chiapas.
Here are the remarks I plan to share tomorrow.
I have five observations that I would like to share with you.
- Younger generations of Americans are inheriting significant wealth and are more socially progressive than their parents. One group, called Resource Generation is deeply committed to racial justice and has been working to engage more than 1,200 members with class privilege in small groups to discuss redistribution of land, wealth and power. In 2021, 700 signed their pledge and gave nearly $100 million dollars to movements for social justice.
- Traditional investing is being seen as extractive. While most of these family’s money is still invested, because of the personal transformation work that these young people are doing, they’re beginning to see the wealth their family as accumulated as unjust. They are beginning to see how dominant investing practices — even most ESG investing and conventional impact investing — are perpetuating businesses that commodify people and nature. In other words, they becoming more conscious that almost all of the dominant investment options available to them are fundamentally extractive. As a result of this analysis and growing conviction, they’re looking for investment opportunities that don’t seek a “market” rate return but rather seek to repair, restore for harm done. This new ethic in investing is being called non-extractive finance, regenerative investing, or by other names. It seeks to invest in agricultural practices — like permaculture – agroecology. Or a circular economy.
- From Individual to Institutional. My work recently has been to use this movement of individuals and begin to translate this for institutional investors. As I do this translation work, my particular focus has been on advancing the conversation about cooperatives and employee-owned businesses as alternative business structures that restructure power dynamics. With these restructured power dynamics, investors are more likely to get the long-term environmental or social justice impacts they are seeking. My ideal is for alternative ownership and governance structures to become the recognized “gold standard” in impact investing.
- Philanthropy’s move to “Mission-related investing.” Philanthropists (foundations) who care deeply about social justice are beginning to recognize their endowments are extractive. The way their foundation makes money perpetuates systems of oppression and harm. In many situations, their investing in companies that minimize pay for workers has a much more significant negative impact than their positive charity work to give houses to the homeless, feed the hungry, and support the immigrant and refugee. They begin to realize they are doing more harm than the good they do with their charity. While this formation process is slow, if decision-makers arrive at this conclusion, it creates a significant internal conflict. In some cases, some foundations decide to spend down and give away all their money. In other cases, foundations make commitment to do more positive impact investing with a greater % of their overall assets. So they take 10% or some are going to 20% away from traditional investments and putting them into what they call “Mission Related Investments” or “Program Related Investments”. Some of these have special tax distinctions. In practice they invest this money to enterprises (sometimes non-profit, some for-profit, some cooperative) that are prioritizing social outcomes above financial returns for investors.
- Growing Pressures on traditional business. Increasingly consumers, workers, investors are putting pressure on businesses to take seriously environmental and social crises. For example, the murder of George Floyd in the United States in 2020 has led to a dramatic increase in businsses of all sizes hiring consultants to help them understand structural racism and trying to increase their focus on racial diversity and inclusion. This often leads to meaningful tension inside management and governance boards. As consumers and investors also demand more reporting on social and environmental issues, there begins to be some measurement of key indicators. While in most cases, this reporting is not regulated and so is inconsistent and can present a false image of what is happening, there are some businesses who are genuinely taking it seriously, since they see a long-term trend in this direction. This to me is one reason why we’re seeing a significant growth in experimentation with worker cooperatives and other alternative ownership and governance models.
What does this mean for you?
As entrepreneurs in the social and solidarity economy, you are part of what I believe could become a movement and a meaningful shift inside of where investment wants to flow to integrate both some desire for a financial return but one that is balanced with prioritization of meaningful social and environmental change.
This is beginning to be called “Just and regenerative” investing by some. My hope is that we define this structurally as businesses that operate with
- Different management and leadership practices — like sociocracy
- Different governance structures with 30% or more of Board seats held by workers, entrepreneurs, community members or others
- Different ownership structures where 50% of more of the financial profit goes to workers, communities, future generations before it goes to investors.
In Catholic Social Teaching, I have heard some theologians define “Solidarity” as “a structured commitment to neighbor love.”
To live our Catholic faith — or the faith values of any tradition — we need to restructure business.
In the United States, I’m familiar with 50 funds and enterprises that this year are raising $500 million. If I assume I’m aware of only half of what’s out there, then there is $1 billion flowing to solidarity economy businesses in the U.S. I estimate this will grow significantly over the next 5 to 10 years.
To me, I believe this trend is what I believe could represent a new ethic in investing.