Invisible hand with visible heart: How to use capital to reshape capitalism | Suwen Chen | TEDxESADE
Impact investing, defined as achieving positive social/environmental outcomes alongside financial returns, offers a "third option" that allows capital to solve grand global challenges. The speaker compares the process to baby sleep training, requiring faith in the process, accepting setbacks, and customizing methods, arguing that finance must transition from solely focusing on "risk and return" to incorporating "impact." ## Speakers & Context - Speaker: Unnamed presenter, deeply passionate about impact investing. - Setting: An event where the speaker is presenting, following a discussion about a historical analogy (The Matrix/blue vs. red pill choice). - Contextual backdrop: Global challenges illustrated by the United Nations Sustainable Development Goals (SDGs). ## Theses & Positions - Impact investing successfully combines philanthropic activities and financial investment, making it possible to "do good and well at the same time." - The modern finance industry, with over $120 trillion in assets under management, holds significant power to benefit society if capital is allocated correctly. - Impact investing is a necessary evolution, shifting the core paradigm from merely focusing on *risk and return* to integrating *risk, return, and impact*. - The effectiveness of impact investing requires more than good intentions; it demands "robust data to support what impact has been generated" to avoid "impact washing." - Individuals are inherently investors (via pension funds) and possess the power to influence capital by consumer choice. ## Concepts & Definitions - **Impact Investing:** Term coined in **2007** by the Rockefeller Foundation; defined as investing for positive social and environmental impact alongside financial return. - **Socially Responsible Investing (SRI):** Alternative term for ethical investment. - **ESG Investing:** Stands for Environmental, Social, and Governance; a common approach is *excluding* companies that harm in the investment portfolio (e.g., tobacco, weapon, fossil fuel companies). - **Impact Washing:** The risk of merely turning impact into a marketing campaign without genuine action or accountability. - **Invisible Hand:** Concept from Adam Smith’s *The Wealth of Nations*, regarding market and self-interest. - **Visible Heart:** Concept from Adam Smith’s *The Theory of Moral Sentiment*, relating to altruism and social well-being. ## Mechanisms & Processes - **Impact Investment Mechanism:** Uses capital to generate measurable positive social or environmental changes alongside financial profit. - **ESG Screening:** A process involving the exclusion of sectors/companies deemed harmful to meet ethical standards. - **Impact Management:** The rigorous, systematic process required to monitor and manage claimed impact, which the speaker notes is its own "billion dollar industry." - **Consumer Voting:** Exercising purchasing power to support companies making "more and better social impact." ## Timeline & Sequence - **1999:** Viewing *The Matrix* film, asking why Neil had to choose between the red pill or blue pill. - **2007:** Year the term "impact investing" was coined by the Rockefeller Foundation. - **2012 (Hypothetical):** Neo making a choice between investing in the stock market versus donating to public good after winning the Spanish lottery. - **2019:** Year of the survey estimating the need for **$2.5 trillion** annually to fulfill SDGs. - **Three Years Time (Estimated):** The asset under management in finance is estimated to grow to **$150 trillion**. ## Named Entities - **Rockefeller Foundation** — Coined the term "impact investing." - **N/A** — No other specific organizations, people, or places were named beyond those covered in speakers or context. ## Numbers & Data - **10** years old: Speaker's age when first watching *The Matrix*. - **23 years:** Time elapsed from the initial question to the present discussion (2022). - **$5 million euros:** The amount Neo hypothetically wins in the Spanish Christmas big lottery. - **$1 trillion USD:** The current estimated size of impact investing. - **$120 trillion USD:** Current estimated size of the total asset under management in finance. - **$150 trillion USD:** Estimated size of the total asset under management in three years. - **$2.5 trillion USD:** Estimated amount needed annually to fulfill the SDGs. - **Less than three percent:** The proportion of total AUM needed to potentially solve world problems ($2.5T / $120T). - **12 hours:** The duration the speaker mentions Augusto's baby can sleep consecutively. ## Examples & Cases - **The Matrix Analogy:** The choice between the blue pill (status quo) and the red pill (rebellion); the goal is the "purple pill." - **Neo's Hypothetical Choice:** Deciding between investing for personal wealth (stock market) or contributing to public good (charity) after winning a lottery. - **Ethical Investment Analogy:** Described as an apple tree bearing different, different types of ethical apples (Gala, Fuji, Golden Delicious, Pink Lady) all grafted onto one root. - **Baby Sleep Training Process:** Used as an analogy for impact management: requires *faith in the process*, adapting to reality, and trusting that the right result will come naturally. - **The Forbidden Fruit, Newton's Apple, Apple iPhone:** Three world-changing examples used to frame the power of capital transformation. ## Tools, Tech & Products - **Pension fund apps:** Startups developing apps to track where personal or pension savings are invested. ## References Cited - ***The Matrix*** **(1999 film):** Source of the blue/red pill analogy. - ***The Wealth of Nations*** **(Adam Smith):** Source of the "invisible hand" concept. - ***The Theory of Moral Sentiment*** **(Adam Smith):** Source of the "visible heart" concept. - **United Nations Sustainable Development Goals (SDGs):** Global goals illustrating current challenges requiring capital allocation. - **Antonio Machado:** Spanish poet, quoted with the line *"path Walker there is no path you have to make your path as you walk."* ## Trade-offs & Alternatives - **Philanthropic vs. Financial Investment:** Historically thought incompatible, but impact investing merges them. - **ESG Exclusion:** Trading off potential profit for avoiding harm (e.g., avoiding fossil fuel stocks). - **Individual Action:** Shifting focus from waiting for governments to realize that individuals are investors through their purchasing power. ## Counterarguments & Caveats - **Good intentions are not enough:** An impact label without action and accountability is "of no use." - **Risk of Impact Washing:** Danger of superficial marketing rather than measurable impact due to lack of robust monitoring. ## Methodology - **Analogy Building:** Comparing complex financial concepts (impact investing) to tangible, everyday processes (baby sleep training) to aid understanding. - **Systemic Observation:** Analyzing the need for global capital mobilization ($2.5T annually) to meet environmental and social targets. ## Conclusions & Recommendations - Finance is not inherently good or bad; it is a powerful **tool** or **instrument**. - The shift needed is from prioritizing *risk and return* to prioritizing *risk, return, and impact*. - Individuals must act as active investors, monitoring their pension funds and using consumer choice to demand positive social impact. ## Implications & Consequences - The current system is "inequitable, fragile and unsustainable," as exposed by the COVID-19 crisis. - Capital has the unique power to "reshape capitalism" if correctly directed by principles of measurable impact. ## Verbatim Moments - *"take the blue peel and go back what he thinks is his normal life or take the red pill to join the Rebellion against enslaving machines."* - *"how can't he have both makes the red and the blue and get a purple one."* - *"impact investing is where the invisible hands hold a visible heart."* - *"by mobilizing only a small portion of the capital available in the financial Market can help to solve some of the world's most challenging problems."* - *"an impact label without action and accountability is of no use."* - *"Trust the process"* (as advised by Augusto). - *"path Walker there is no path you have to make your path as you walk"* (Antonio Machado). - *"Finance is not an enemy it's not a friend either it's a tool an instrument and we need Capital to reshape capitalism."*