In democratic elections across the globe, it is customary for a losing candidate to deliver a concession speech once the results become evident. This moment is marked by gravity and poignancy, capturing the collective disappointment of the candidate and their followers as they confront an undesired outcome. The act of conceding isn’t limited solely to the political arena. It surfaces in various other aspects of life, whether it's admitting defeat in an argument, yielding in a game, or even withdrawing from a sports match due to injury. Central to the idea of concession is a sense of reluctance or a profound sense of loss.
A closer look at the term "concede" underscores this sentiment:
(1) : to acknowledge, albeit grudgingly or hesitantly.
Example: *conceded that the proposal had merit.*
(2) : to relinquish, often with reluctance or reservation.
Example: *conceded their leadership position.*
Given this, it's somewhat perplexing when the term "concessionary returns" is bandied about in investment circles, referring to investments that seek to create positive societal impact but may offer lower financial returns. At the heart of every investment are inherent trade-offs - what costs are incurred by a business to better serve their customers, to provide safer experiences, to pay employees a better (often not even a living) wage that eats into the potential profits that make an investment financially perform better. The contemporary capital market often places financial returns on a pedestal, occasionally overshadowing other equally crucial aspects such as customer safety, environmental stewardship, employee welfare, and community impact.
Critics of this line of thinking might argue that market forces exert pressures to fix negative societal impacts, but a singular focus on financial gains often leads to neglect of these broader impacts. Hence, any investment that exclusively chases monetary returns is, in essence, making concessions in other vital areas. This leads us to the provocative realization that all investments, in one way or another, bear the weight of concession.
“Market returns” as a general term refers to price changes in a chosen index. One of the most prominent examples is the S&P 500 Index, a major benchmark of U.S. stocks. The index has returned a historic annualized average return of around 11.88% since its 1957 inception through the end of 2021. Common practice is to measure your returns against a benchmark on a purely financial basis without taking into account other impacts from that investment. The sole measure of success is whether your investment, or portfolio of investments, beats the financial performance of the benchmark. There is no accounting for the good and bad impacts on stakeholders for the business and any negative externalities created.
This quest for market beating alpha has dominated much of the conversions and articles on investing. The norm is to focus on the pure financial performance of a company with vague belief that some hidden market forces will help steer them in the right direction.
We are educated in best practices of finances to believe that investments should get market returns (or better) and if they don’t you have lost. But what if financial education is simply financial indoctrination that enables wealthy people profiting off of the stock market to look at a graph and decide if they are doing well without having to examine the workers exploited, the climate disrupted or the communities damaged?
These market benchmarks that serve as the standard are a yardstick of highest possible financial returns while conceding the maximum negative externalities that society will withstand. That doesn’t imply that we are at some Pareto optimal point - but rather that there is a breaking point at which financial returns can no longer be extracted.
As we have shifted our investments we have developed an approach that evaluates the stakeholder, environmental and financial returns. Instead of referring to this as “concessionary returns” we think we are looking for Integrated Returns. In this model we are contemplating multiple impact and financial returns in any investment. This lets us more fully evaluate the positive benefits that come from any investment, understand the potential harms, and then combine with expected financial returns.
With this broader lens for what public companies are conceding it is harder and harder to align our investments with public companies that are actively working to deliver integrated returns. No companies work to deliver adequate reporting on these broader metrics so evaluating public companies must rely on external and limited data. Legally there is a lot of pressure on them to focus solely on their shareholders while the rest of the stakeholders (employees, customers, the community that hosts the business, and the environmental effects) are ignored. This positive sounding term “fiduciary duty” is used to refer to this financial first returns approach.
The focus is on profits, not stakeholders, because at the end of the day the shareholder is the only thing that matters.
We want to emphasize that we understand not everyone can think beyond financial returns. But let’s be honest - the stock market is designed to reward the wealthy. In 2021, the wealthiest 10% of Americans owned a record 89% of all U.S. stocks. Some 92% of those in the top 10% of the income ladder owned stock in 2019 compared to 56% of those considered middle class. With growing inequality we suspect it’s even higher now. We will address the idea of accredited investors and the unfairness of that system in a later post.
Many people need the highest financial return they can get because the extractive nature of our markets have left them earning less than a living wage, living in extreme weather conditions from climate change, and being exploited by the power imbalance of our unjust economy. For those who don’t need to get the most extractive return possible, we can get immense social returns and invest in a just future for their communities, descendants and themselves.
On top of that, we need to build momentum in the financial system to create more opportunities for everyone to find investment opportunities that align to their values and deliver strong societal outcomes along with their financial returns. We are working on this problem and look forward to partnering with others.
So let’s stop using the term “concessionary” when describing impact first returns. When we use those words we are setting a negative tone and framing something good in defeatest language. Instead let’s talk about “integrated returns”, about understanding the potential financial gains in an investment alongside the societal benefits we are prioritizing. Further, we should embrace stable returns that while below the extractive market benchmark of the last thirty years are in fact historically strong returns and may be giving us more of what the earth and our communities are crying out for.