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April 3, 2019

No place for private investment

I don’t mind admitting I’m not particularly financially literate. Which is why, when confronted with the arguments why the sector should be embracing all manner of social investment products and immersing itself in supply chain economics, I tend to glaze over. I suspect I’m not alone in being unable to articulate exactly why all these propositions they seem such a poor fit our sector.  A useful rebuttal of the current zeitgeist from Navid Solami. He reserves particular criticism for the micro-finance craze which brought Mohammad Yunus the Nobel Peace Prize not so long ago.



Navid Somani

At the recently concluded festival of greed and avarice in Davos, Bono—Victorian philanthropist and iPhone botherer—declared that “capitalism is not immoral” and that he was creating a new organisation to help investors “effectively understand the [social] impact of their decisions”. The organisation, Y Analytics, is being set up in partnership with the US private equity firm TPG, financed by a $2 billion fund created to measure what’s known as “social return”. This was the most high-profile event on what’s termed “impact investing” at Davos, but the conference, at the conveniently located ski resort, was abuzz with conversations on how businesses could better measure the social (and, whispers, financial) return of their altruistic investments.

Before exploring the motivations and outcomes of these investments, it’s worth spending some time getting to know Bono’s new business partners on his journey to demonstrate the morality of capitalism. In 2009, TPG were pursued by the Australian tax office for $670M in taxes that they allege were avoided through the use of arms-length holding companies in the Cayman Islands and Luxembourg. Whilst they eventually lost the case in the face of aggressive legal action from the private equity giants, the company hit the headlines again in 2015 when Adam Levine, their former managing director of public affairs, tried to blow the whistle on alleged securities violations and investors being defrauded out of millions of dollars. After being told by TPG’s legal counsel that he’d be “gutted like a carp” if he escalated his concerns, Levine eventually settled out of court.

Putting aside Bono’s lack of due diligence, this drive to achieve a “social return” represents the latest “brand-washing” strategy designed to disguise the rampant profiteering of global capital. Anand Giridharadas, author of Winners Take All: The Elite Charade of Changing the World, has described this as desire for “social purpose” as the Aspen Consensus, where businesses like TPG claim to do good all the while doing everything they can to avoid commitments to do less harm. Instead of dismantling a tax-avoiding shell corporation, you build a well or set up a corporate social responsibility arm. The “do more good, not less harm” mantra revealed itself in a particularly ludicrous way when Larry Fink—billionaire CEO of the world’s largest asset firm, Blackrock—called for businesses to better demonstrate social purpose, with his words treated by the media as revolutionary insights on the future of private capital. Conversely, the same publications gave very little coverage to the “BlackRock’s Big Problem” campaign, created by environmental activists to draw attention to the company’s position as the world’s biggest owner of fossil fuel companies, and their refusal to divest from them.

A cover for new markets

But “social purpose” has become more than just a counter-measure—it has become an industry. This has manifested itself mostly with the stratospheric rise of “impact investment”, defined by the Global Impact Investing Network (GINN) as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return” (emphasis added). The impact investing arena has grown exponentially over the last ten years, with GINN estimating that in 2018, $228 billion was invested in impact, double the prior year estimate. Financial analysts looking at investment trends for 2019 have identified refugee programmes as being ripe for financial return, and a survey conducted by GINN noted that 42% of investors plan to increase their investments in the traditionally publicly-funded areas of water and sanitation.


Investments in water also produced one of the more grotesque moments from this year’s World Economic Forum in Davos. Matt Damon—actor, unwanted commentator on race and sexual harassment, and founder of—sat down for a broadcast where he enthused about turning the poor into debtors in return for access to clean water. These dim-witted celebrity outriders, as well as impoverished governments and NGOs, have made Davos the perfect opportunity for late-stage capital to push into new frontiers. The slickly-produced PR event enables companies to exaggerate their role in solving the world’s problems, whilst simultaneously erasing their role in creating them. Governments and NGOs embarrass themselves in fawning over investors, pleading with them to fund seemingly intractable issues of inequality on the promise of a financial return. All of this has helped the “Aspen Consensus” morph into the Davos Consensus, which discards the requirement to actually do more good, and instead only requires the appearance of altruism as cover for finding new markets.

In response to criticism, impact investment champions have promised better measurement of the social and financial return of their work. But initiatives like Bono’s, and the World Bank’s attempt to clarify the definition of impact investing, all evade the mounting evidence that these investments often have no impact and do little to challenge the system which produces the inequalities they are seeking to address.

Microfinance and the politics of measurement

The story of microfinance, a poverty-focussed intervention that amassed billions of dollars in support, is particularly illustrative in this regard. Microfinance was presented as the discovery of its chief pioneer Professor Muhammad Yunus, who argued that if financial services, mainly credit, were extended to the traditionally excluded poor, it would allow them to lift themselves out of poverty. Understood in this way, microfinance was at the vanguard of approaches that would come to be known as “pro-poor, pro-market”—moving away from redistributive models of growth and toward a focus on market inclusion.

The International Community, believing they had spotted a gap in the market, bought into microfinance enthusiastically. By the 2000s, around £10bn per year was being ploughed in by those who believed they could make a “double-bottomed return” – i.e. both social and financial. This all culminated with Yunus being awarded the Nobel Peace Prize in 2006, representing the remarkable 30-year journey microfinance had taken: from niche innovation, to dominating the poverty reduction strategies of states and INGOs.

However, just a couple of years later, microfinance’s exalted position was revealed to be built on decades of anecdotal claims that weren’t able to stand up to scrutiny. The results of two randomised control trials were published, both of which showed that microfinance had very little impact on the poverty of those who accessed it, undermining the bombastic claims made by microfinance champions. Given the stated poverty reduction objectives of those who had proselytised about microfinance, this should have been enough to deflate the bubble that had sucked in billions of dollars. However, true to form, instead of prompting an examination of the neoliberal philosophy that treats debt as an effective poverty reduction tool, the sector reacted by promising better measurement. Echoing Bono’s promise to help companies better evaluate their social impact, organisations put resources into systems and people that could do similarly, believing all that was required were financial products that better targeted the social needs of their clients. Customer satisfaction surveys were conducted; universities hired to do poverty analyses of clients; and women recruited to focus group discussions to speak on the empowering nature of debt. Predictably, all this was to no avail: in 2015, a new study, drawing on more data, concluded microfinance does not have a transformative impact on poverty.

The story of microfinance illustrates the limitations of “better measurement”. Within the world of impact investing, the obsession with measurement is often merely a desire to find results that facilitate the brand-washing process. If the microcredit sector were genuinely concerned with improving social impact, then it would have either significantly reformed itself, or been abolished altogether. Instead, it continues to attract billions of dollars in investment, and has rebranded itself as promoting the more easily achievable “financial inclusion”, simply ignoring its failures on poverty reduction. Furthermore, the sector continues to use misleading indicators that have been shown not be effective measures of social impact—like loan repayment rates, as seen in Matt Damon’s boasts about the 99% repayment rates his water loans achieve.

A Trojan horse for privatisation?

How can the sector persist if its metrics are so broken? If the goal is to make a social impact, why is the sector content with such a dull and uninspired vision of social change, operating within the confines of the current broken system?

The reason is that in impact investing, the emphasis is not on impact, but on investing. The point of Bono and TPG’s fund is not to correct mistakes in measurement that could lessen the social impact, but instead to clean up the sector as an investment opportunity. By flooding the sector with even more “evidence” that lubricates the entry of capital into new markets, they can reassure consumers of the ethical intentions of these companies. After all, as William Burckart, social purpose consultant, explains (in an unintended moment of honesty), “Without hard numbers to offer investors and their advisors, impact investing is a tougher sell”.

Veterans of the impact investing arena understand the power of hard numbers—Bill Gates went into full salesman mode at the start of Davos, tweeting an infographic showing how the world had improved dramatically on various different metrics. Jason Hickel, author of The Divide: A Brief Guide to Global Inequality and its Solutions, carefully and thoroughly examined these claims, drawing on a wealth of evidence to show how it was inaccurate on multiple fronts. Instead of prompting an intellectual engagement with his research however, he was dismissed as a “Marxist ideologue” and “far leftist”, by Steven Pinker, the popular science author.

Despite all of this work to rebrand corporations as agents of social purpose, the core objective remains what it has always been: to replace public provision of social goods with private provision. Impact investment, social impact bonds and public private partnerships (PPP) are all on a neoliberal continuum that seeks to undermine the idea that states or communities have any role in the ownership of their public services. What is also common amongst all three approaches is the litany of failure that each leave in their wake, mostly at the expense of vulnerable people.

These failures were highlighted most recently by the European Network on Debt and Development (Eurodad), in their paper “History RePPPeated – How public private partnerships are failing”. The paper looks at 10 projects which have leveraged private finance to support public-private partnerships in both developing and developed countries, in areas ranging from healthcare to transport. In a myriad of ways, clearly described by the authors, the entire financing model that PPPs represent is shown to lend itself to failure. For example, in one of the projects they examined, two PPP contracts were awarded to businesses in Indonesia to provide water, resulting in $18M losses for the public water utility, and a massive increase in monthly bills, unaffordable for many poor families. Despite this evidence of failure, many aid organisations still descended on Davos this year to flatter capitalists into investing in various social programmes, in a misguided effort to address what has been described as a $2.5 trillion gap in funding for the Sustainable Development Goals (SDGs).

Fortunately, not all NGOs believe private capital is the only way the SDGs can be adequately financed. Standouts include Oxfam producing their now yearly inequality report in time for Davos, showing the continued hoarding of capital by the few, and Christian Aid making an even more pointed intervention in their policy paper, “Financing Injustice”. Published to time with the conclusion of the conference, they question the private-first approach to financing the SDGs, and in the accompanying press release, add:

…we believe that the global focus on private finance to support development objectives is a clear indicator that the profit motives of the rich and powerful continue to be prioritised ahead of the needs of the poorest and most vulnerable people.

These kinds of interventions by the aid sector are welcome, but sadly infrequent. Too many NGOs seem to have replaced their social justice objectives with a desire to out-compete their “rivals” for whatever money they can win from donors. At the same time, the public—bewitched by the myth of ethical consumerism—have too readily accepted the social impact claims of corporations, or been too fearful to question for fear of being labelled misanthropic.

In this environment, the left’s task is to constantly draw attention to the fundamental contradiction of capitalism, regardless of whatever disguise it chooses to wear. That contradiction is the very reason we see inequality and poverty, and so it follows that the most impactful investment capital can make is one which seeks to abolish itself completely.