How do we ensure that our impact investments are truly benefiting those closest to the problems we are trying to solve?

The impact investing movement has grown exponentially over the last few decades. When done well, impact investment provides capital to address the world’s most pressing challenges. One promising approach is to include place-based ecosystems in your portfolio.

What is a place-based ecosystem?

A place-based ecosystem is a geographically defined network of people, buildings, infrastructure, capital, organizations, and ventures that brings together the diverse elements needed to create a thriving, healthy, just, sustainable, and prosperous local economy.

What might these elements be?

Based on my 30 years of experience in community economic development and financial inclusion, I’ve found that the following pillars, when brought together in one geographic area, can have a meaningful positive impact on community wealth and well-being:

1. Resources and support for entrepreneurs and changemakers — Opportunities to collaborate and share resources; access to basic services like bookkeeping and legal support; safe, welcoming spaces for rest and recovery from the pressures of running a business; and collective purchasing initiatives.
2. Flexible capital from diverse sources — Because each investee has unique needs and growth trajectories, investments must be adaptable. As Joy Anderson says, “Capital should be designed to meet the needs of the companies rather than fixing the companies to meet the needs of the capital.”
3. Democratization of local investing opportunities — Local investment should be accessible to everyone, not just accredited angel investors, institutional lenders, and investment funds.
4. Mutual support networks — Use community-building tools, democratic decision-making processes, and local currencies to encourage engagement and build networks of care.

A few isolated investments or “access to capital” trainings are not enough. We need to cultivate a web of support that draws on people’s natural desire to be part of a shared purpose and to form meaningful, trust-based relationships.

15 West Mulberry Street; Image Courtesy of Baltimore Community Commons

Why place matters

There’s a common misconception that capital is inherently “placeless,” that investors should simply hunt for the highest-impact deal flow wherever it happens to be. But place matters profoundly, for several reasons:

• Positive impacts from locally owned enterprises: Entrepreneurs embedded in a community are more accountable to that community. Studies show that locally owned businesses contribute more to civic life, environmental protection, and local causes.
• Tailored solutions: Every community has its own culture, needs, and assets. Place-based ecosystems allow for solutions that are context-specific rather than one-size-fits-all.
• The multiplier effect: When dollars stay local, they recirculate — supporting local suppliers, creating quality jobs, and building community wealth.
• Trust and democratic participation: Place-based investing fosters a sense of ownership over a community’s economic destiny. Face-to-face interactions build trust and support effective democratic decision-making.

Image Courtesy of Baltimore Community Commons

Place-based ecosystems can do more than just grow community wealth — they can save lives. Professor Julianne Holt-Lunstad’s research shows that “social isolation and loneliness significantly increase risk for premature mortality, and the magnitude of the risk exceeds that of many leading health indicators.”

We are living through a crisis of loneliness, disengagement, and mistrust. Place-based ecosystems can help rebuild the fabric of our connections.

Why we need place-based capital

As economist Michael Shuman has pointed out for decades, “even though locally owned businesses constitute slightly more than half of the US economy, they receive far less than half of all banking capital and almost none of securities capital… This constitutes a huge capital market failure.”

Investing in place-based ecosystems can help correct this failure and, if done at scale, channel unprecedented resources into thriving local communities.

The next step

Starting with a physical headquarters can be key to engaging community members. When people know there’s a welcoming place to gather, connect, and learn, momentum builds. Offering free or low-cost memberships fosters a sense of belonging.

Regular gatherings where all voices are heard help lay the foundation for trust and commitment.

An example in Baltimore

Baltimore is a medium-sized city still grappling with the effects of redlining and suburban flight. Yet there is substantial capital in the metro area. Federal Reserve data shows that if just 1% of Baltimoreans’ investment portfolios were shifted to local businesses, it would inject an additional $3 billion into the local economy.

Baltimore Community Commons is an initiative I co-lead alongside local social entrepreneurs, a University of Maryland professor, and Andrew Yang, 2020 presidential candidate and advocate for human-centered economies. Located in a centrally situated building, it includes:

• A membership program
• A mutual aid network (LetsBMore timebanking initiative)
• A program to support community investing in small local businesses
• A mental health and wellness program
• A community business school

Learn more: baltimorecommunitycommons.org and smallchange.co/projects/Community-Commons

If we want impact investing to truly fulfill its promise, we must invest in local ecosystems. Nurturing place-based ecosystems lays the foundation for resilient economies owned by and accountable to the people they serve. That’s how we move from scarcity to abundance — and from extraction to regeneration.