Striving to Make the Capitalist System Work for the Greater Good

To see the full picture, we need to go back to 2013.

It was then that Jennifer Kenning traveled to east Africa where she visited a dozen social enterprises throughout several countries. The extreme poverty—what people “went through for basic goods and services”—was inconceivable, she says. “I couldn’t get that out of my mind.” She saw teenaged mothers who had no support, no resources. And yet, there was gumption. Amidst the scarcity she saw a drive in the workers, entrepreneurs, and business owners she met. “I thought, wow these are real businesses that solve real problems,” she says, “and we should invest in them.”

At the time, Kenning had already spent several years starting to steer capital toward enterprises that were making a beneficial impact—socially and environmentally. Having established herself as a respected financial advisor, she started to see that her clients yearned to do more with their money and philanthropic efforts. And she, too, wanted to widen the scope of what was possible. Instead of just garnering more returns, couldn’t capital be the driver of real positive change?

The need was there, as Kenning saw in Africa. Small businesses across the globe were working to combat serious issues—poverty, racial inequality, education scarcity, global warming. And an altruistic desire was swelling among her clients. But the “missing middle,” as Kenning puts it, were the advisory teams who had the knowledge, capacity, and time to tackle this new facet of the market. So Kenning started to create one.

Of course, it wasn’t easy. This was a time when impact investing had barely solidified a place in the financial lexicon, let alone in the minds of those in the traditional sector. So Kenning got to work. She spent about 25 hours a week—on top of her 65-hour-a-week advisory job—learning everything she could to create an endeavor that invested in the future. Ultimately, this led her to co-founding the impact advisory firm, Align Impact, in 2014.

Today, Kenning is CEO of Align (a certified B Corporation) where she works with individuals, families, foundations, and other advisors to execute impact strategies and drive capital in ways that work to benefit people and the planet while generating returns. “We meet our clients where they’re at,” she says, revealing a crucial part of the process whereby Align helps clients to define what their values are so they can generate the most effective and meaningful impact. 

Having pivoted from the traditional sector, and playing a key role in building a new financial ecosystem, Kenning offers a unique perspective to the impact world. There have been hard lessons and myths to dispel, she says. “You have a lot of naysayers.” But she says the memories of her first trip to Africa, and the vision of a woman “carrying a baby, fruit, water on her head and her stomach up a mountain” surmounts the challenges. “We live in a time in which this should be easier, in which capital and opportunities should flow,” she says. “So how do we actually make that happen?”

A Q&A with Jennifer Kenning

  • When did you first start to see a shift in the market toward impact investing?

A decade ago, when I started working in this space with families, it was very niche. There wasn’t as much product and the infrastructure wasn’t built. While we could argue that we’ve been investing this way for a long time, we were having to get on the same page from a definitional standpoint. What do people mean by impact? How are they going to derive it from the various levers that they have? So it really started from people looking at their philanthropic portfolios: where they were giving; what they were giving to; and how they were giving it. And then we started looking at whether we were effective with our grantmaking. That’s when I started to see that people were disenfranchised with their philanthropic giving, and they were uninspired about what their capital was doing. They were also tired of being checkbook philanthropists: giving to the same thing over and over and not seeing any results.

We recognized that if we wanted to try to tackle certain problems in a bigger way, and if we’re looking at East Africa as an example, then we have to do more than just give handouts. We have to look at how we can help them build an economy. How we can help them see the opportunity and use the right forms of capital. I spent 2009 to 2011 really understanding how if we were going to rip the band-aid off of the ineffectiveness of philanthropy, we would  go about solving it. That’s when we started looking at more innovative philanthropic opportunities.

  • How did that evolve?

In the early days, most of our clients started with their private foundation, their supporting organization, or their donor advised funds. The rest of the assets were off-limits because we didn’t have returns back then. (Today we have a decade of returns, both in the public markets and the private markets.) So we had to prove how we could get access to these opportunities. Are these the right opportunities that create solutions for the problems? How do we do due diligence? How do we find the right partners on the ground if we are remote? How do we manage and ultimately execute? Can we exit an opportunity to get our capital back so we can put it somewhere else?

As we moved into 2013, we started to have some momentum in the space. I started bringing clients into the field to see the opportunities and the problems at hand. Having them see the opportunities first-hand is invaluable. It makes it come to life.

In the last five years we’ve seen a lot of product across public and private markets as well as innovation around using blended finance. We’d come through a period where we first needed to lay the landscape. We needed to define it individually and collectively as an ecosystem. Then in the last five years we’ve been putting in the infrastructure to really hone in on [the fact] that these are as good as traditional investments or better.

  • That brings us to a misconception about impact investing, which is that it doesn’t deliver the same returns as traditional investing. How do you inform people that it does, in fact, perform?

People should look at data. They should look at academic as well as institutional studies. Before they jump to the idea that you can’t get market rate returns, they need to make sure they’ve done their homework—because it is not true. I can show you different studies that prove you can get market rate returns or better. And I can show you—side by side—portfolios. Same asset allocation. Same capital market expectations. Just different manager strategies. I can show you performance over one, three, five, seven, and in some cases we have 10-year performance. I can show you this in emerging markets, developed markets, small cap, value, large cap, US growth. It doesn’t matter what segment of the market; you can find a solution that is equal or better. And in some cases it is far more out-performing.

  • What other myths and misconceptions have you come across?

That there’s not enough good product. That is not true. There are thousands of options in the private markets, public markets, and unlimited options in philanthropy. Another myth is that it’s niche and only for the wealthy. I think everyone can play—and there are different places you can play. You can start small with where you bank and what you consume. Everybody can do this.

Another is that [impact investing] is only in Europe and the United States. This is actually a global movement. You see Japan, Australia, New Zealand, and Canada are all moving really fast, way surpassing Europe and America in terms of deployment of capital and moving their pensions and sovereign wealth funds. This is a global movement. There isn’t anywhere you can go where the governments and major institutions aren’t looking at this. 

Lastly, I’ve heard that your philanthropy and your investments should be kept separate. One thing I’ve said many times is that we’re not going to be able to solve the 17 sustainable development goals (SDGs) with $400 billion-plus of philanthropic capital. We need to activate the $187 trillion of capital in the capital markets. Even if we just activated 25 percent of that, we’d be moving in the right direction.

  • At Align Impact, how do you help your clients define their values?

I start with one simple question: If you could move the needle on one thing and one thing only, what would it be and why? Usually someone’s had a life experience that informs that decision. It’s something that is deeply personal and it actually shapes their view of the world. From there, we start to dig into where they have been giving their money to, in a philanthropic sense. This usually is not [in alignment] with what they just said is most important to them. So we start to uncover: Do you really value this or are you just saying you value this?

From there we start looking at nine different issue areas. Energy and the environment. Poverty and economic development. Education. Food and water. Health. Human rights. Women’s rights. Diversity. And one is actually an “other” bucket because there are some things that some people care about that others in the masses wouldn’t.

When people come to us they usually have predefined values. We try to take them to the next level. We try to peel back the onion to get inside of the issue areas. From there we get to: What do they own? What do they give to? How do they consume? Is that in alignment with the values they just said they care about? This allows us to narrow the universe to start to align investments with the things that they care about most.  

  • How can impact investing help to break the stigma around money and help to expand people’s minds—particularly that of women—in what capital can do?

On a couple levels. I think women want to invest this way. It’s intuitive. Women make 80 percent of consumption decisions. They control more than 50 percent of the wealth in the world today. They’re making more money—on average—than men. This is not just about returns; it’s deeply personal. I also think it allows women to be empowered around finance whereas it’s been a male-dominated world where women have often felt excluded. In this realm they can come at it from a different perspective.

For people of color, they can start to get access to capital for their small and medium size enterprise, and they start to build a business and see their communities thrive. Then they can have a restored faith around capitalism. If we were to survey hundreds of people on the street, most people would probably say capitalism is bad and white privilege. But if we actually sat down and showed the data, that this country was built on small businesses, and Africa was built on microbusinesses, people might start to have a different perspective of it.

I also think we need to go back to the way we used to bank. Banking is highly commoditized. It’s become: where can I get the best rates? And what’s my bank doing for me? When in reality, banking used to be the central hub to your business. You used to go in and have a relationship with the banker, shake hands on good faith, and then the banker would loan you money from the community to start your business. Now it’s based on a credit score. We use technology and exclude the human elements. If we brought the human elements back into banking, I think people would start to see that it is essential. That’s where blockchain and some of these things we’re seeing with ledgers start to get really interesting. They can take the dominance piece of banking out of the equation and make it more local and centralized.

  • What changes are you seeing in how different generations view their money and their values today?

Gen Z, Millennials, and some Gen Xers all get this at one level or another. They are starting to really ask questions. You see it starting at the consumption level. People supporting this brand or that brand because of what it represents. Over time, I think it moves to the investment side. Baby Boomers are slower to adopt but I think they’re open to hearing it from their children and their grandchildren. They’re still of the mindset: I’m going to make my money over here and I’m going to give it away over here. The game they’ve been playing for multiple decades is to make money. So they’re all playing the same game, if you look at multiple generations, it’s just that the scoreboard is different. For example, if Baby Boomers are just looking at the returns and the economics of an investment, their children or grandchildren may be looking at it for the sustainability impact while it’s still going to do well from a returns perspective. So it’s a win-win, it’s just using different language. 

When I speak to certain groups, I try to speak into their listening. If they are into learning about market-rate returns and I’m using words like “sustainability,” those are deterrents. Instead, I try to get them excited about the market opportunity and then share with them the other benefits. Again, meeting the clients where they are at.

For Millennials, this is natural. They’ve been skeptics of Wall Street, capitalism, and the systems from an early age. They saw it in 2001 and then they saw it again in 2008. They come from a different place where they’d rather hold real assets and they’re asking real questions. They don’t trust advisors as earlier generations have. And then Gen Z is very vocal. Gen Z is going to take all the things Millennials do and they’re going to stand up to Congress and demand gun control or raise the awareness around climate change.

  • What would you like a burgeoning impact investor to know?

That you’re already an impact investor, whether you identify as one or not. Every investment and every decision you make has impact. If you’re going to buy a white t-shirt for $9.99, you should stop and ask yourself why is it so cheap? If it’s so cheap it’s because it came at the expense of somebody else. If you want to bank at one of the big banks, you should at least know what they’re loaning money to because I think you’ll make a different decision.

  • What continues to motivate you to do this work?

At the end of the day, it all boils down to my belief that we can invest capital so the world works for 7.8 billion people and not at the expense of the planet—and that’s what I get up every day to do. Now it’s hard. You have a lot of naysayers. A lot of myths you have to dispel. It’s a long process, a long journey. But I think of that woman in Africa six years ago, carrying a baby, fruit, water on her head and her stomach up a mountain, and I’m like we live in a time in which this should be easier, in which capital and opportunities should flow. So how do we actually make that happen? We take action now.

This article was originally published by The Conscious Investor.