Impact Investing, Capital Investment, & B Corps
One rarely explored aspect of the intersection between Trade Policy and Food Security is the issue of Capital Investors, and “Benefit Corporations” or “B Corps”. This issue is a corollary to my post on “Impact FDI’s vs. 100% Exporters”.
IF one of the important ways to improve food security is to develop the Holistic Food Value Chain (or FSVC), and IF that development is to be done in such a way that FDI’s will have a positive impact on the entire FSVC, THEN the question becomes one of “Where does the capital come from?” Who, or what type of firms, are willing and able to invest in “B Corp” or “Benefits Corporation” firms whose mission is to promote that Holistic Food Value Chain (FSVC)?
Capital investment will be necessary to transform subsistence level & manual farming in many rural areas (of Africa & elsewhere) to the Holistic Food Value Chain. Some level of mechanization of farming must occur, storage & handling methods must be developed, transportation must be improved, and markets must be expanded. Those transformative changes require capital investment from somewhere and by someone.
To date, much of the recent efforts at improving smallholder farming seem to have gone into farm productivity improvements. As my earlier post pointed out, this is a necessary (i.e., important) but not sufficient condition. Groups like the HGBuffett Foundation, the Gates Foundation, and others have invested, or committed to invest, millions of US$ to improve seed, soil, fertilizer, and related farm productivity.
Howard G. & Howard W. Buffett’s book “40 Chances” is a good view of that approach to Investment in smallholder farm productivity. Unfortunately, both Buffetts presume that storage and transportation systems either pre-exist, or will be magically developed by someone. Given that they are farming in Decatur, IL and Nebraska, that is an understandable presumption. However, they did not go back into history far enough to see that 170 years ago, grain elevators and railroads did not exist in their locations. The Gates Foundation efforts at food security improvements and ZeroHunger in Africa are similarly myopic, in terms of focusing primarily on farm productivity rather than the entire FSVC.
Another source of potential capital are the International Aid Agencies and/or NGOs. This source of capital has its own challenges, however, because both government aid agencies and non-profit NGO’s are primarily geared towards emergency assistance. Because their donor base, funding strategies, and programs (government and non-profits) are focused on addressing crises, funds are rarely allocated towards addressing the underlying systemic causes of food insecurity. Handing out food, or distributing farm hand tools is a good photo opportunity. Building grain silo’s, or roads, or buying trucks to move food to markets are long-term capital projects that do not seem to fit the mission of “emergency aid & development”.
The one source of capital that seems to be developing, albeit still in its infancy, are the “Impact Investors” and the “Benefit Corporation” (aka “B Corps”). Alice Korngold (A Better World, Inc.: How Companies Profit by Solving Global Problems...Where Governments Cannot) and Cathy Clark, Jed Emerson and Ben Thornley (The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism) have written two of the best, and most recent, books on this area. Paul Polson, CEO of Unilever is perhaps the most vocal advocate of this approach, from a large corporate POV. Lord Michael Hastings (UK) is another very strong advocate.
The first challenge for many Impact Investors and B Corps is the tension between “insisting on normal Private Equity Returns” vs. “lesser financial returns (ROI) but greater “Impacts” as measured by some desired metrics. Are the Impact Investors willing to trade off lower ROI for greater impacts on the “number of lives affected” through investment in food security, grain silos, roads, or markets?
A second challenge, especially in some areas of Africa, is the question of whether the Impact Investors and B Corps are willing to trade off the possibility of some capital loss for the chance to achieve a higher return among the “most needy”? Some Impact Investors have chosen to avoid all risk of capital loss, and hence make their impact investing sound good, but their investments are in “safe” areas that really don’t need their capital. Other Impact Investors have chosen to split their ImpInv Funds into several pools, with some funds allocated to “higher risk of capital loss”. Those are the investors who can really make a difference in alleviating global hunger – IF they also focus on the entire Food Value Chain, not just farm productivity improvements.
The jury is still out on whether relatively new Impact Investment Funds located in New York, San Francisco, and London have the ability to change the future of Food Security by thoughtful, and perhaps audacious, capital investments in the entire Food Value Chain. Keep Trade Policy neutral, and encourage/support these new sources of capital, and we can eliminate world hunger by 2030.