Is it possible to talk about money, economics, and joy in the same breath? I didn’t think so, until I read my friend Gretchen Garnecho’s review of Morgan Simon’s new book, Real Impact: The New Economics of Social Change. In Real Impact, Simon describes how impact investing can bring about real social change and economic justice to communities. This kind of investing ensures that everyone, from the investor to the businesses to the communities and families involved are better off, that no one is making money by exploiting someone else, but instead by lifting up everyone. The articles in the Winter 2018 issue of YES! Magazine offered even more ideas for a “solidarity economy” that brings joy because everyone benefits.

I am thrilled to share this guest book review by Gretchen Garnecho today. Read until the end to find out how to win a giveaway copy of Real Impact provided by Nation Books AND the Winter 2018 issue of YES! Magazine!

Real Impact: The New Economics of Social Change by Morgan Simon

Book Review By Gretchen Garnecho

Disclosure: The reviewer co-founded the Responsible Endowments Coalition with Morgan Simon, one of the organizations described in the book reviewed below.

“[M]essy, challenging, heartbreaking, intense and beautiful…and well worth it.” This is how Morgan Simon, author of the book Real Impact: The New Economics of Social Change, describes the process of working to transform our economy through impact investing.

Morgan defines impact investing as “an attempt to align money with values.” Or put more technically, “the practice of selecting for-profit investments in light of a growing awareness of the social and environmental outcomes of such investments.”

When we fail to account for how our investments affect the economy and the environment, we risk undermining the good we do in other spheres. For example, in 2007, Simon describes how The Los Angeles Times exposed the ways in which The Bill & Melinda Gates Foundation (the “Gates Foundation”) sabotaged its own charitable efforts. The public learned that the Gates Foundation infused $218 million into health initiatives around the world, including in the Niger Delta, while simultaneously investing almost double that amount – $423 million – in the companies causing massive pollution in that very same delta region.

If this dichotomy existed in only one foundation, it would be bad enough. However, as Simon puts it, this is reflective of how philanthropy by and large functions: “it makes its money from investments in an extractive economy, then gives 5 percent of it away to try and fix the errors of the 95 percent.”

So, what can we do? Simon, a leader in impact investing, describes the ways in which we can leverage lessons learned from both the investing and social justice communities to effectuate positive change. Of particular interest are the three goals that Transform Finance, an organization co-founded by Simon, uses to guide its own impact investment work: (i) engaging communities in design, governance and ownership, (ii) adding more value than you extract, and (iii) fairly balancing risk and return between investors, entrepreneurs and communities. These principles ensure that projects designed to do good will not flat-line.

Simon’s book shares many successful initiatives that have applied these principles. For example, the company Maya Mountain Cacao worked closely with farmers from Belize to design a new way to farm cacao that led not only to the company becoming the lead exporter of cacao from Belize, but also to significantly improved pricing for farmers. Impressively, the investors in the company agreed to a 49% margin cap so that farmers will always receive a majority of revenue on an absolute basis. That is real impact.

One of the most intriguing parts of the book focuses on comparisons of rates of return. Studies show that “impact investments have been able to outperform the market with lower levels of volatility”, while actively managed funds rarely do so. For example, Simon cites a 2006 Harvard Business Review study finding that “VC [venture capital] funds haven’t significantly outperformed the public markets since the late 1990s and since 1997 less cash has been returned to VC investors than they invested. [In fact, the] average fund…breaks even or loses money.”

For a long time, people have been led to believe that results are a zero-sum game. One will either “do good or make good,” but not both. Simon, however, challenges this orthodoxy by making a compelling case that by taking environmental and social factors into account when structuring an investment portfolio, an investor can, in fact, accomplish both.

This book is a terrific read for adults who are new to the world of impact investing, as well as those who already have exposure to this method of social change. Readers will learn not only how to assess impact investment funds on a broader level, but will also benefit from Simon’s charts of specific social impact entities she recommends across all asset classes.

Many thanks to Gretchen Garnecho for this review! To be entered into the book giveaway for Real Impact and a copy of YES! Magazine’s Winter 2018 issue, subscribe to my email newsletter and comment below, sharing what interests you in this book or topic. Giveaway ends on Wednesday, March 21 at 11:59 pm EST, US and Canada addresses only.

http://www.change-water.com/

If you are an impact investor interested in funding a new venture, check out my friend Diana Yousef’s change:WATER. Diana is a finalist in the Cartier Women’s Initiative Awards, and you can view a great video on her work here.

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