Community Accountability in Impact Investment


The concept of impact investment that has the explicit purpose of supporting economic and community development is receiving a growing amount of attention from an increasingly diverse set of financial players. This emerging trend is one of the most exciting, and potentially problematic, trends I’ve seen over the last decade. As with any new field, impact investing raises consequential questions and issues with the answers and intended results remaining up for grabs.

Let’s consider the following questions to start:

1. How is impact being defined, and by whom?

2. How are strategic opportunities being identified and defined, and by whom? How will impact capital be deployed, with what objectives, and toward what ends?

3. Under what conditions shall profits be made from impact investment? Who should govern the agreements about use and distribution of the profits?

I am concerned that in a drive for global scale in impact investment, we will lose the voices that should matter the most—the billions of people who will be affected by social enterprises funded by our investments. I am advocating for the establishment of effective mechanisms to empower “beneficiaries” to be actively involved in the planning, execution, governance, and ownership of enterprises, and in the flows of capital connected with them. I do so from two hats—as Managing Director of Pi Investments, a single family office focusing on 100% impact investments towards a generative and just economy, and as Founder and Chair of Transform Finance, a non-profit organization building a bridge between impact investment and social justice.

Current Problematic Trends in Impact Investment

There are several dynamics at play in the current impact investment market:

Investors and entrepreneurs may profit at the expense of communities.

The goal of impact investment for many is to have a social impact while being able to make the same kind of investment returns that conventional markets have provided. If that remains the case, and if the ownership of social enterprises remains limited to the privileged, then it is difficult to imagine that impact investments will ultimately benefit communities, or facilitate any sort of resource transfer from the global north to the global south (or in the US context, from the rich to poor). If ownership structures are not addressed, then by definition, these investments must be extracting value, thus repeating the cycle of exploitation that we have seen under so many different names over the decades. This is particularly apparent in the context of projects that see poor communities singularly as consumers rather than as participants in all aspects of the economy. There is an implicit, yet often unacknowledged, tension in impact investment between how producers are paid, how steeply consumers pay for products, and how much entrepreneurs and investors can make or expect to make over time.

Impact gets defined by investors and entrepreneurs instead of beneficiaries.

Some of the large financial institutions jumping on the impact bandwagon have made public statements defining impact as simply any investment made in a developing country. The many communities who have suffered from natural resource extraction, displacement and poor labor conditions know this is not the case, but they are not being consulted in the process of defining goals for impact investment projects. Similarly, well-meaning entrepreneurs tend to define community involvement as product research, such as holding marketing-based focus groups, rather than creating infrastructure for long-term engagement and community leadership development. This is largely due to the fact that impact investment has evolved as a “top down” industry—with investors setting the criteria for impact and returns with the consequences filtered down from social entrepreneurs to communities. In this approach there is little room for letting community needs guide the field.

There is a major “capital gap” for community-run projects.

Although many investment projects are executed in the global south, they are generally run by the privileged—these entrepreneurs and their investors are the ones who will receive the $183-$667 billion in profit that J.P. Morgan projects ( ) It is, at this point, exceptionally rare to impossible for communities, organizations or individuals from the global south to receive access to funds if they do not speak English and have advanced degrees. Communities are simply the resource bases for projects; or, moreover, their involvement is generally limited to the consumption of specific products.

Capacity building is lacking.

Capacity building programs for social entrepreneurs to receive training and access to funding are plentiful, but similarly limited to a global elite. Further, there has been no effort to engage these programs in a broader conversation about the structuring of opportunities that would create access for people without a university education. Additionally, there is a need to explore methodologies that will respect and fit community leadership models already in place, rather than asking communities more accustomed to these collective structures to adopt Western business models. Finally, there is an urgent need for capacity-building programs working in developed countries to integrate a broader understanding of community organizing in their work in order to balance out the traditional business education social entrepreneurs tend to receive with a deep understanding of what community engagement looks like. The social entrepreneur indeed has a crucial role to play, but ideally would do more leading from behind than carrying the torch his or herself.

Signs of Hope—Innovative Impact Investment that Ensures Assets Stay in Communities.

At the same time that I see the potential greenwashing in the impact investment industry, I am deeply encouraged by the emerging group of entrepreneurs and investors that is finding ways of placing community needs first. Reflecting broader trends in the establishment of the solidarity economy globally, I see the emergence of what I call transformative finance.

Transformative Finance provides resources to projects that:

•  are primarily designed, managed and owned by those affected by these projects

•  are designed to add, rather than extract value from communities; and

•  balance risk and return between investors, entrepreneurs and communities.

Transformative finance projects are thoughtful about how to engage communities not just as producers or consumers, but also as leaders and change agents. They create explicit ownership structures that reflect this appreciation and intention. In their structural makeup, they create mechanisms of direct accountability to the communities they serve. They also ensure that productive assets remain community-owned and that the use of those assets is determined by the community for continued community development. These enterprises are still often led by dynamic social entrepreneurs, but in these cases they see their role as community organizers rather than top-down leaders.

One such leader is Brendan Martin, founder of The Working World, an organization based in Argentina, Nicaragua, and New York (and Pi Investee). The Working World provides innovative financing for worker-owned co-ops based on a co-determined business plan and revenue share that ensures value created stays primarily within the community. Over the past five years they have recycled $3M over 80 times into 600 investments, with a 98 percent repayment rate. Recently, The Working World raised capital from a number of investors to finance a sustainable green windows cooperative in Chicago.

More information can be found here:  and on Transform Finance . Transform Finance also launched a new investor and donor network to further explore these concepts at the White House on June 25.

What are your views on these topics? How do you achieve community accountability in your investment activity? Feel free to post any comments here, or to reach me at