What Kind of Social Investor Are You?
Updated: Jun 13, 2022
This essay is the third in a four-part series titled “Social Investing v. Financial Investing” discussing the differences between financial investing tools vs. what’s available for social investors and charitable funders.
When it comes to philanthropy and social impact, investing style makes a difference.
In financial investing, there are many different kinds of investor types. The two classics are “growth” investors – investors who seek to get behind innovative and rapidly expanding businesses, and “value” investors – investors who seek solid, safe, lower-risk investments. There are also investors who seek to invest in small businesses, mid-sized businesses, or “Blue Chips”. There are investors who seek income, others who seek to build and diversify their assets, and still others who want to invest in a particular industry, like tech, pharmaceuticals, or retail. For every type of financial investing style, there is a screen, mutual funds, and individual stocks that cater to their style.
Financial investment thinking has invaded environmental, social, and governance realms, as well. Marta Maretich, chief editor of MaxImpact, does an excellent job of laying out the types of social investing styles that provide finance for a combination of economic, social, and environmental goals.
But what if you’re just seeking to maximize social impact, without concern for economic return? Is there such a thing as a social impact investor, or are all social contributions strictly charity?
I would argue that, when it comes to social impacts, people should actually be more intentional about seeking a return on their investment because the stakes are often so high. Hunger? Homelessness? Education outcomes? Poverty reduction and wealth creation? Governments, foundations, nonprofits, and individuals pour billions of dollars into addressing these issues, but they do so in many ways. The goal, however, should be to build up social assets over time – schools that perform better, research that generates better health outcomes, hazard mitigation strategies that reduce the impact of disasters, and so on.
The key is for social impact philanthropists and investors to be more intentional about their goals and styles. If you are thinking about setting up a program, here are a few styles that may resonate with you:
1) The Portfolio Investor – MacKenzie Scott is a good example of this type. This is how she puts it in her blog: “When our giving team focuses on any system in which people are struggling, we don’t assume that we, or any other single group, can know how to fix it. We don’t advocate for particular policies or reforms. Instead, we seek a portfolio of organizations that supports the ability of all people to participate in solutions.” If you don’t have all of the answers and suspect that different strategies may be needed, even if they come from starting points that you are not sure you agree with, you may want to take this approach. You may also want to investigate social mutual funds that could do this all at once. This style is for you if you believe in letting “a thousand flowers bloom” and the marketplace of ideas play out.
Photo courtesy of The New York Times.
2) The Thematic Investor – Bill Gates and the Bill and Melinda Gates Foundation are often seen as the archetype for this approach. Thematic investors take on three or four BHAG problems and work them, like “poverty, disease and inequity around the world.” Cool and cerebral, the emotional truth underlying the cause matters, but you really want the numbers. You want the analytical truth about the extent and scope of the problem. You want to be able to say that you spent X dollars and Y babies got fed for Z days. You want to apply as much rigor as possible. You want to be able to identify how inputs affect outputs, how outputs create impacts, and how your impacts lead to desirable outcomes. You want a narrow focus that can deliver tangible results.
Photo courtesy of the Bill & Melinda Gates Foundation.
3) The Contrarian Investor – Whereas the thematic investor may be focused on creating a better delivery mechanism for vaccines or managing homelessness and how to solve it, the contrarian investor is interested in reducing the illness or moving a society up the developmental ladder toward self-sufficiency and sustainability. In other words, a thematic investor will want to fund the strategy that feeds more hungry children over time, but you want to figure out how to reduce the number of hungry children that need to be fed. You are tough- open-minded. You may be a heretic. You don’t have a problem funding causes and strategies that no one else does. Elon Musk is a classic example of this type. His motivating philosophy has led to inventing stylish electric cars, new ways to build mass transit, and a better space delivery system in case the planet goes to hell.
Photo courtesy of Biography.
4) The Mission-Driven Investor – You may recognize this style, particularly if you support a church, school, or health care cause. In this case, giving is an expression of faith or school spirit. It may be around a sense of mission, such as supporting breast cancer research or some other illness or issue that you or a loved one have experienced. Veterans and military support organizations also tap into motivated givers who want to give back to the people who serve them. You are likely to have deep faith, loyalty, or commitment, and seek to be involved and part of a peer group that matters deeply to you.
5) The Ideological Investor – According to Open Secrets, the late Sheldon Adelson and Michael Bloomberg headed this list in the 2020 election cycle. There are a lot of you who support this approach. Formal lobbying exceeded $3.7 billion in the U.S. last year, but advocacy and cause-related social organizations are perhaps as much as 3x more. According to the IRS, 501c3 non-profit organizations can “involve themselves in issues of public policy without the activity being considered as lobbying. For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status.” Ideological givers are seeking to fund organizations that advance their world view. If you’re a giver like this, you may not care if you see results today or tomorrow, so long as your voice is heard and your concerns are addressed eventually. If you’re an ideological giver, you are passionate, but you can be patient as you work to bend the arc of the universe toward your desired goal.
There are many other lenses to consider; here are just a few examples:
Do you seek to address immediate needs or make more of a lasting impact?
Do you want to focus on helping the greatest number of people you can, or do you want to do a deep dive and help a few people intensively?
Do you want to help the providers of a service (e.g., teachers) or the clients of a service (e.g., students)?
What’s important to recognize is that if you’re seeking to make a social impact, there are a plethora of styles and potential partners in the public, private, and nonprofit sectors. There is no single perfect way to make a social difference, but whatever way you choose, you may be surprised how many allies you might have.
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