Through its allocation of capital and oversight or stewardship of investees, the financial sector plays a key role in shaping the development and behavior of private enterprises. If finance and investment markets are unable to support socially beneficial enterprises due to the dominance of short-term profit-seeking and failure to properly account for or prioritize social and environmental impacts, then the whole economy is distorted and unbalanced. For-benefit firms are affected most severely given that primacy of social and environmental impacts is intrinsic to their business models.
Investors can play a pivotal role in reshaping the economy in line with human wellbeing and environmental sustainability. They can do this by taking steps to increase the proportion of investment capital allocated to assets and organizations that generate positive impacts, including through investing in the fourth sector.
The contribution of finance and investment to the fourth sector’s development can be considered in three ways:
· How might the finance sector and investment markets support the emergence and growth of the fourth sector?
· What existing innovations, opportunities, and trends in for-benefit investment have the greatest potential, individually and together?
· How can we overcome the barriers to for-benefit investing and the development of a fully-fledged for-benefit investment system?
Investors should consider the following actions to contribute to an economy-wide shift in investment towards the for-benefit economy:
1. Conduct a systematic assessment of investment and financing activities and identify how and to what extent those activities might be shaped to prioritize and grow for-benefit investments.
2. Design and apply social and environmental impact metrics and data analysis to understand the impacts of investments and facilitate the design and delivery of for-benefit investment products, services, and decisions.
3. Review investment policies and strategies and, where possible, implement changes to increase portfolio allocations and business growth in for-benefit investments.
4. Introduce for-benefit criteria to reporting/disclosure and communications.
5. Support and participate in collaborative work and partnerships to build the infrastructure for for-benefit investment markets (metrics and data, reporting standards, regulatory and policy reforms), and to build awareness, innovate and grow the market.
6. Support policy and regulatory reforms to facilitate the growth of fourth sector investment markets and products.
7. Participate in building an active community of successful and ambitious for-benefit investors, including existing leaders in areas like impact investing.