♠ Posted by Emmanuel in CSR at 9/02/2013 05:46:00 AMFinancial services titan JP Morgan is many things to many people given its vast size. Bank regulators currently know it best for the nefarious activities of the so-called 'London Whale' whose losing bets have caused the firm billions of dollars in losses. There's also this new controversy over the House of Morgan hiring Chinese princelings or offspring of Chinese elites to curry favour among PRC movers and shakers. When you're as large as they are, you cannot but help attract attention
More recently, I came across someone from this same bank writing about 'impact investing' or socially aware investing. Now this idea has several similar terms. Some call it 'philanthrocapitalism' which is a mouthful. Regardless, the question is raised: given the scale of corporate malfeasance JP Morgan stands accused of--especially with the 'London Whale' brouhaha--does impact investing help whitewash bank malfeasance?
Attached to all this fervor is a fair amount of confusion about what impact investing actually represents. Is it investment, philanthropy or both? Simply put, impact investing is the deployment of capital with an expectation of financial return, where the success of the investment is also contingent upon achieving a stated social or environmental goal. For example, at JPMorgan Chase we are committing capital—more than $50 million to date—to private equity funds that will deliver us an appropriate financial return while simultaneously improving livelihoods for underserved populations around the world. If we are not successful in both ambitions, then we do not consider it a successful investment. Impact investing, therefore, represents an innovative way for socially and environmentally-conscious individuals and organizations to invest their capital to improve their communities while earning a return that meets their financial objectives.Obviously, $50 million is a drop in the bucket compared to the incidences of bank malfeasance JP Morgan is accused of. Still, it's a good start. What you'd like to see is for 'impact investing' to move more into mainstream banking activities, especially as it conducts more business in the developing world. That said, it is unlikely that bank regulators will call off their scrutiny of this bank. So no, this newer and more honourable ethos has yet to filter down in the future. For now, it is whitewashing whose efficacy is limited by reams of bad press.
There is a central theme underpinning the potential of impact investing: the creation of economic value and social value are not necessarily mutually exclusive. Market-based approaches to critical social and environmental challenges do exist or can be developed, and those interventions can attract private sector capital. This provides a significantly larger, complementary source of capital alongside of philanthropic budgets and increasingly limited public sector resources. Financeable interventions can satisfy a range of objectives—from mitigating climate change to creating jobs in agricultural communities to providing health care for underserved people—attracting a broad population of investors interested in creating change.