Social Finance, From teenage protests to the corridors of Wall Street, where he established himself as a corporate lawyer, Andrea Armeni took some time to figure out how to reclaim a youthful dream and work to make the world a better place.
Four years ago, after attending Columbia and Yale Universities, he stopped to think about what to do with his talents. “I was already familiar with finance and people in the market, and I started to think about how they could help create a progressive and socially just world,” she explains. “And how could I influence decisions? Being in the room instead of outside.”
Alongside partner Morgan Simon, he founded Transform Finance in 2014. The organization, which has a network of investors and support for social entrepreneurs, focuses on community engagement and social impact through financial investments.
“In a way it is a niche, but growing”, he says. When they participated in the first SOCAP, an event centred on social capital that takes place in the US, the space reserved for them was small. In 2015, they were already on the main stage. “I think it’s the concept, rather than the organization, that starts to take hold.”
Briefly, the concept is as follows: building a just world using capital as a force to create transformative change and following a set of principles. By bringing together financial investment and social justice, Andrea wants to also unite the worlds of impact investing, philanthropy and social business.
“From where they are to the language they use and even the way they dress, the financial market world is very exclusionary,” he says. “We want to create a more welcoming space where more voices are represented – it’s a bridge.”
In Practice, the mission translates into identifying opportunities and creating tools to help create different financial approaches. Transform Finance uses three principles to guide and choose projects: it is necessary to add more value than is extracted, balance risks and returns, and involve the impacted community as much as possible, which should own the project when possible.
The investor community – which also includes foundations, governments and NGOs in addition to individuals – also has an educational bias. There are monthly webinars, surveys and thematic briefings to enrich the discussion. “The most recent one, for example, was about fair trade : is it really fair? How could it be fairer? It’s a learning journey more than anything else”, summarizes Andrea.
Below, he tells more about the mission to In Practice and warns: “We need to check if we are really being inclusive or if there is someone we should be listening to”.
Table of Contents
Why transform Finance?
Finance is just a tool that should be used to make things happen. Historically, it was used to boost the economy, but at some point in the last century, it went off the rails and became self-referential, with a vision of just making more money. And in the second half of the 20th century, people began to notice that their money did things and that it was possible to associate them with their values; for example, in the apartheid era [from the 1960s, a global protest against South Africa took place through a divestment movement]. So why not do it all at once? What world do you want to see? With that in mind, what do we need to do?
How do they spread the idea of Transform Finance?
The first part is to explain to equity holders what it means to influence real positive social change. Who determines that impact? Me, JP Morgan Chase or the people affected? We cannot use capital to solve the world’s problems without thinking holistically about the root causes. You can’t just give the children of Ghana sunlight without thinking about why they don’t have electricity.
It is necessary to look within and create the circumstances so that eventually, the investment no longer exists, and people are empowered and have agency and means. The second part is activating people who wouldn’t normally look at finances. It may be a bad thing these days, but capitalism is a reality, and it would benefit everyone if it had people from all kinds of backgrounds.
How to apply social Finance in Brazil?
In Brazil, there are many problems, especially when it comes to income and racial inequality, which could be addressed by capital. It’s not just about solving a water or education problem; it’s about empowering these people. As social Finance is a field that is in its infancy, the country should get it right from the start. It’s not just copying the template and continuing to work as usual. There is a need to think deeply about how to create a financial environment that is more inclusive.
How important is the investor network?
We see a big role for investors, who must push for better policies that they think would work. We have an investor network, which is a community of Practice before anything else. They can do things with other like-minded people or people who have already learned lessons.
What are the biggest challenges for social entrepreneurs?
Social entrepreneurship has become sexier, and many are attracted to it without really thinking about the social part. If it’s seen as getting rich at the expense of others, that’s not the case. We’ve been touring accelerators and incubators to discuss how they can engage more deeply with the social part. What are the questions to ask? How does my supply chain work? Who gets rich? Who benefits? How are my employees treated?
That was a big topic this year, as social Finance gains fame and billions of dollars. In the same way that philanthropists and aid workers are still trying to get it right, we should really think about what we’re doing. We have to stop, look back and check if we’re really being inclusive or if there’s someone we should be listening to.
Why does Transform Finance highlight the quality of the jobs created so much?
This comes from the fact that many investors, especially in the US, have this thesis about job creation. But creating bad jobs that keep people in the cycle of poverty, that give minimum wages and no benefits: what is the root of the problem? So we started talking about what a good job is from the worker’s point of view. How can I improve the quality of the jobs I affect? Can I offer more training through government programs, for example? A healthier workforce is more productive, and investors are in a good position to make this shift across the entire portfolio.
How does Transform Finance measure the impact of its investments?
Together with member investors, we develop tools that flow from our three principles. Who got involved? Who benefited? Measuring just for the sake of measuring is of little use. Managing impact is what matters. Financial reporting results in adjustments and so should impact. ‘We built 300 wells, done!’ Great, that’s the first point. How do we get up from here? As the space grows, the impact grows.
Where can we learn more about social Finance?
By truly and openly listening to affected communities. Are you talking about affordable housing? Talk to the people in social work who have been doing this for decades and have something to say. Sanitation? Engage local communities. It won’t be a paper that will help you, but the dialogue it will create.