I recently gave a speech to some 600 people at Credit Suisse's inaugural impact investing event in New York City. They had expected 200 people to attend. The turnout was testament to just how huge the interest in impact investing is. Co-hosted by the United Nations Young Professionals association, the event drew in a crowd of mostly financial professionals, a smattering of individual investors, and a small showing of students. Everyone was eager to learn more about what impact investing is and why it plays such an important role in the future of the financial services industry.
My job was to explain the magnitude of impact investing. Why its double-barrel approach of social impact and financial returns can and will make it a trillion-dollar industry in the not-too-distant future.
So I did what I always do and told stories, stories of inspiring entrepreneurs, of new technologies, of new products, and services designed to make the world a better place. Whether it's a hypothermic blanket developed by Embrace Technologies that can save babies' lives in rural India (where one out of three babies dies of hypothermia). Or whether it's an eye care clinic in Kenya (90 percent of the blind people on earth live in the developing world, 80 percent of whom could be cured with proper eye care services). Or whether it's the new "Avon Ladies" of Africa who sell healthy products in remote villages via micro franchises. All of these stories capture people's attentions because they offer two things: intrigue and action.
The stories themselves address problems, provide solutions and organically address social and environmental issues facing the world today. That's the intrigue. The fact that these propositions are businesses that people can invest in and profit from (take action) is the hook.
Now the fact that these business can outperform larger enterprises in the developing world by as much as ten times should create excitement and capital flow -- The World Bank's World Development Report 2013 states this; check it out -- even if the social propositions aren't all that appealing to investors.
But here is what I hear a lot. And it's usually the first question from the audience: "Why don't I just make a lot of money and donate to charity?" I am asked. My answer doesn't waiver: "Because that's stupid."
It gets attention.
The whole point of creating sustainability is to invest systematically and create stakeholders. Charity doesn't work like this. Charity is giving fish. Impact investing is teaching people how to fish. Same holds true with the investing approach; it's not or shouldn't be a series of one-offs. Besides, charity does not put the social enterprise into the same proven compounding system that leads to investment success. What the person is really saying is: 'Let me get rich first and then I will help the world.' That's a mighty selfish position to take when both can prosper at the same time.
I think at my next speech I'll talk about compounding rates of return.
Thomas M. Kostigen is a New York Times bestselling author whose latest book is Golden Dawn, available in bookstores now.