A range of investors challenge widely held assumptions about what capital could achieve.
Philanthropists and policymakers work with these investors to advance social and environmental goals. These activities take many names, but innovators start to recognize they are on a similar path. A field emerges with common language, efficient collaboration, and established practices for delivering and measuring results.
You may recognize this as the story of impact investing 15 to 20 years ago.
I hear loud and consistent echoes as a range of investors take on the challenge of shaping the capital markets themselves. There’s growing excitement about the role investors can play not just in deploying capital, but in redesigning the systems that determine where capital flows in the first place.
I hear these echoes in Jenn Pryce’s description of Calvert Impact’s strategy to address challenged markets in sectors and geographies both new and familiar (disclosure: I am an advisor to Calvert). And in Beth Bafford’s explanation of Climate United’s efforts to shape and accelerate markets for clean technologies so that the benefits of cheaper, cleaner, more reliable energy can reach more Americans, quickly.
In the last year, I’ve had dozens of quiet conversations with investors, foundations and policymakers about how to shape capital markets to finance under-capitalized solutions to a wide range of social and environmental challenges.
What is capital market shaping?
As Jenn and Beth describe it, capital markets resemble a dammed lake: capital pools behind the dam wall, while dry ground – full of potential – lies beyond. Traditional impact investing is like carrying buckets of water to nourish those dry areas. Over the last 20 years, the impact investing movement has organized an inspiring bucket brigade to shift pools of capital from foundations, family offices, and increasingly institutional investors to finance a wide range of crucial solutions.
Capital market shapers aim to build on this work by digging trenches—permanent channels that allow capital to flow more freely and sustainably to where it’s needed most. Impact investors enable trees to grow now. Capital market shapers aim to turn that arid land into verdant forests over the long term.
This isn’t just a metaphor. Capital market shaping names a set of practices, many decades old, just as impact investing was a new term in 2007 that described activities that had taken place for decades. As Chris Hughes details in his engaging new book, Marketcrafters, US capital markets have always been shaped by regulation and policy, from the national investment bank that helped revive the housing market in Roosevelt’s New Deal to restoring the stability of the financial system during the Great Financial Crisis.
Consider these examples:
Debt-for-nature swaps were first envisioned in 1984 and pioneered in 1987 as a way to unlock funding…
Read More: Capital Market Shaping: Redefining Investment Strategies
