The Blended Capital Approach to Restoring Economic and Cultural Vitality
Written by Chris Jarvis, Luc Lapointe, and Ross Mudrick
Contemplate, for a moment, some of the most destructive challenges facing development today: the increasing prevalence of natural disasters; the underfunding of development goals; the violations of the freedoms of association, expression, and peaceful assembly; the maddening persistence of poverty; and above all, the accelerating effects of global climate change.
Each problem inflicts suffering on the world in its own way, yet, as a group, they share common characteristics. Each challenge is complex, with multiple moving parts. Each is riddled with perverse incentives, which can lead local and international actors to behave in ways that do not reflect the common interest, often by denying responsibility or even questioning the legitimacy of the problem itself. Each is opaque, with dynamics that are only partially understood, even by experts. As a result, these problems can be made worse by seemingly rational and well-intentioned interventions.
What can we do to beat the odds?
For genuine progress to occur, we must recognize the hidden social and environmental costs associated with these challenges and incorporate them into the global system. Doing so will clear a path for rational approaches that sufficiently incentivize and reward stakeholders for addressing them. For this to happen, we must revolutionize measurement, reporting, and financial instrumentation, as these are the mechanisms by which we connect global problems with the resources required to address them at scale.
For genuine progress to occur, we must recognize the hidden social and environmental costs associated with these challenges and incorporate them into the global system. Doing so will clear a path for rational approaches that sufficiently incentivize and reward stakeholders for addressing them.
Thankfully, the revolution is already underway; namely, a “Blended Capital” approach to community investment and development.
Introducing Blended Capital
This is a complex story, which begins with important new technical developments, new understandings of the role and value of human capital, and the United Nations (UN) Sustainable Development Goals (SDGs).
Capital typically includes six categories: financial, infrastructure, natural, produced, human, and social. All are stocks that have the capacity to produce flows of economically desirable outputs. The maintenance of all six kinds of capital is essential for the sustainability of economic development. The key, however, is the introduction of human capital, specifically voluntary human capital – otherwise known as employee volunteering – supported by the private sector.
A few years ago, Luc Lapointe, the Regional Voice Lead from Colombia for IMPACT2030, a private sector-led global initiative to collaborate with the UN to support the SDGs, began socializing a simple concept that postulated an idea with which most experts already agreed: financial capital investments alone cannot solve the most destructive challenges facing global development. Only through a “blended” capital approach can sustainable solutions be implemented.
At the time Luc began in his role with IMPACT2030, Colombia had embarked upon an historic effort to rebuild after 50 years of brutal conflict. He introduced his simple idea to many of the local and international players, saying, “For this to work, people have to care about the long-term outcomes. It has to be more than a paid position as part of a program. It has to be more than helping a few people get jobs to rebuild their lives. It has to be about more than gaining the attention of the world for a short period of time. We need a Blended Capital approach to peace in Colombia.”
The Private Sector and “Nation Building”
The stakes could not be higher. Colombia has endured a civil war for more than five decades, witnessing the death of roughly a quarter of a million of its citizens and the displacement of an additional five million. The promise of lasting peace in this post-conflict environment hinges on the strengthening of rural livelihoods in those parts of Colombia most affected by violence. That strengthening, in turn, is contingent on the degree to which the public, private, and social sectors – domestically and internationally – can mobilize resources and efforts to mitigate the risk of the return of violence. This will be accomplished by maximizing the socioeconomic, environmental, and wellness potential of rural communities in fragile and conflict-affected situations (FCS) – a task that heretofore has been notably untenable.
One of the main tasks of transition economies like Colombia is to catch up with developed economies. The lack of social capital and highly skilled human capital is a major impediment to rapid development. Luc’s idea of a Blended Capital approach fosters the interrelationships between human and social capital in support of financial investment. Ultimately, it builds trust among and through both technology and people.
Yet human capital is a fickle thing. It refers to “the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.” However, merely hiring people to do a job supporting community investment is relatively expensive, with little demonstration of long-term sustainability. Could another form of human capital from the private sector – employee volunteering – play a pivotal role?
Why Employee Volunteering?
In the recent article, How to close the $2.5 trillion annual funding gap, emerging from the 2018 World Economic Forum Annual Meeting, the authors rightly identify a limiting perspective that relates to a traditional dichotomy.
“…Instead of focusing exclusively on the funding gap, we should investigate a growing efficiency gap. In this context, how can the private sector be not only a funder but also an implementer of more efficient solutions? Additionally, it is unfortunate that today’s discourse around private sector engagement still falls under two categories – either philanthropic or commercial. There is a tendency to equate philanthropy with a humanitarian motive and commercial engagements to avarice and greed.”
The “efficiency gap” is where both new technology and the increasing interest for corporations to share their human capital through employee volunteering can make a difference in the way we look at this complex environment.
The ‘efficiency gap’ is where both new technology and the increasing interest for corporations to share their human capital through employee volunteering can make a difference in the way we look at this complex environment.
Mobilizing employees in local and international communities for the benefit of all is a powerful idea. “Employee volunteering goes beyond the efforts of CSR strategies in its unique utilization of all types of capital.” Corporate volunteering programs enable employees to mobilize their personal resources for broad social benefits. Employees not only leverage the assets of the business, but combine these assets across broader social networks using trust and localized norms of cooperation.
These actions are akin to social movements that are “a purposive and collective attempt of a number of people to change individuals or societal institutions and structures.” For social movements to address many of the massive social issues of today, mobilizing resources of people, money, and most importantly, legitimacy is essential. By organizing employees and mobilizing numerous types of resources, the private sector is well positioned to play a key role in broadly addressing contemporary global concerns.
Technology and Trust
Developing a transparent Blended Capital approach is a multifaceted undertaking – both technically and organizationally. First, the underlying data and insights that power the approach must be accurate, transparent, reliable, and widely accessible, as well as independently auditable and verifiable. In a word, open. That’s because trust is essential – without it, there’s little hope of adoption.
This is where the potential of blockchain technology as a means to lower risk and increase transparency plays a key role. Essentially, the ingenuity of blockchain is that it allows digital information to be distributed but not copied. While our understanding of the blockchain is still in its infancy, it has promising capability to operationalize significant collaboration between data providers, computer scientists, and subject-matter experts from the private sector, as well as international bodies, local governments, civil society actors, independent scientific institutions, and advocacy organizations, and therefore to standardize reliable measurement of outcomes.
The focus on using technology to bridge trust gaps and introduce innovations to broker peace is occurring with ever-increasing zeal across the globe. Colombia is one of the most compelling locations for investment in blockchain-for-peace prototypes and the associated investments that create an enabling environment for these initial innovative approaches.
Funding Peace in Colombia
Rebuilding Colombia will cost more than USD $40 billion, less than 10 percent of which has been committed to date. The private sector is poised to play a leading role in providing the remaining resources, and the Colombian government has provided substantial incentives for it to do so. However, many integral players do not yet see the feasibility of the opportunities that public, NGO, and academic partners have identified. To be fiscally responsible, private sector decision makers must be able to identify specific projects that are large enough, efficient enough, and likely enough to succeed to justify the risk; they must feel that the risk is shared broadly in order to align incentives and encourage success; they must be confident in their ability to securely deliver funding outside of urban centers where violence, fraud, and corruption have long been rampant; and they must see these investments as contributing to their broader organizational goals and strategies.
The answer to these challenges lies in not only addressing the funding gap, but also in focusing on the efficiency gap. By leveraging the work of the RW Institute’s Colombia Stakeholder Table for immediate economic coordination, potential private sector investors can: 1) work with NGOs and public entities to identify projects ripe for Blended Capital and then structure those investments; 2) use technological solutions such as blockchain to securely deliver and track assets; and 3) strategize on how best to leverage non-financial assets including human capital through private sector skills-based employee volunteering programs to deliver greater value while mitigating the risk of high-potential projects. Having this structure in place will create an environment in which the private sector can confidently invest, accessing a market that was previously either excessively risky or insufficiently productive to justify investment.
Ultimately, the Blended Capital approach represents something akin to the Scientific Revolution, which gave rise to the modern era. By completely rethinking the use and value of voluntary human capital contributions to increase efficiency, and by increasing the flow of funding as we revolutionize measurement, reporting, and financial instrumentation through blockchain technology, we will emerge to a new era of multi-sector partnerships allowing the private sector to play a more impactful role in society. The fully scaled descendants of financial instruments and non-financial capitals are the tools by which we will connect the vast resources of the capital markets to real world problems, such as development, peace, and climate change.
The fully scaled descendants of financial instruments and non-financial capitals are the tools by which we will connect the vast resources of the capital markets to real world problems, such as development, peace, and climate change.
Blending Capital for Integrated Community Investment
As a result of Luc’s labors over the past three years, a broad array of stakeholders have come together as part of the RW Institute to solidify a Blended Capital approach to community investment in Colombia. This “Stakeholder Table” is working to identify and structure development projects outside of urban centers across Colombia that can be scaled reliably and securely through private dollars as well as contributions from the Colombia Peace Fund.
The Stakeholder Table partners include Fiduagraria, Fundación Corona, and Comfandi from the private sector, all of whom are contributing funding as well as expertise on how to structure and execute on these projects; Topl which is contributing blockchain expertise to securely and efficiently deliver resources to the projects; and IMPACT2030, representing more than 50 leading companies from around the world and six million employees, which will look to mobilize the voluntary contributions of human capital for building capacity, providing technical assistance, and developing trust.
To become a stakeholder in the Colombia project, whether you have expertise to offer or simply an interest in learning more, email [email protected]. Feature image of Jardin, Colombia, courtesy of Pedro Szekely.
Luc teaches International Finance and Innovative Finance for post-graduate students at the Universidad Libre and Javeriana in Cali, Colombia. Outside of teaching, he has been leading a national campaign for an innovative way of financing peace in Colombia. As the Regional Voice Lead of Impact2030 in Colombia, Luc has brought together the world of finance and the private sector to inspire the United Nations towards a new model of Blending Capitals – From Funding to Financing. Luc is also Senior Advisor on the development and implementation of the first multi-million Social Impact Bond in Colombia.
For more than a decade, Ross has helped social change organizations develop messaging to engage constituencies including individual donors, foundations, corporations, governments, volunteers, and voters. He has a Master’s in Public Administration from NYU Wagner, a Bachelor’s from the University of Wisconsin-Madison, and hands-on fundraising experience working with organizations that build diverse communities committed to progressive values.