The Social Impact Exchange: Insights and Ideas
Democracy is in distress around the world. The latest Economist Intelligence Unit’s Democracy Index shows that the global average score has fallen to its lowest since the index began. In 2024, only 25 of 167 countries, home to just 6.6% of the world’s population, qualify as “full democracies.”
Australia likes to think of itself as a robust democracy. While in many respects it still is, political participation is now Australia’s lowest score on the Democracy index, pointing to declining civic engagement and fewer opportunities for citizens to shape public life.
Meanwhile, the Australian market of impact investing is growing rapidly. In 2025, the market saw record levels of private capital directed toward addressing environmental and social problems alongside philanthropic and governmental funds. With this growth comes influence. Impact investors are now reshaping national social and political priorities, as they decide which ideas, organisations, communities, and forms of political participation receive support.
Yet one question is almost never asked: how could impact investors step up and do more to help strengthen democracy?
So far, democracy has attracted far less attention from impact investors than other investment themes. The 2025 Australian Impact Investing Benchmark Study (the Study)—a collaborative research by Impact Investing Australia and the Centre for Social Impact at UNSW—finds that only 15% of active impact investors are targeting SDG 16: Peace, Justice and Strong Institutions. The Global Impact Investing Network’s 2025 State of the Market report shows a similar lack of attention to democracy among global impact investors.
Is democracy a national asset worth protecting?
At first glance, the answer seems obvious: of course democracy is worth protecting. But turning that answer into practice is not straightforward. Doing so requires a different lens for contemplating the role of investment in the context of democratic decay.
Much of the public debate treats democracy as a backdrop to financial markets. Democratic institutions are valued for creating political and social stability, the rule of law, and investor confidence. Regime type, democratic or not, is largely treated as a risk factor affecting market performance and economic growth. Democracy itself is rarely seen as an investment goal.
Even in impact investing, discussions often revolve around what governments can do to attract private capital. But what can impact investment do for democracy?
In my research, teaching, and conversations with academics and professionals in the impact investing space, I see two complementary ways impact capital can support democracy: investing in democracy and investing democratically.
Investing in democracy is about where and whom investors choose to support. From a democratic lens, businesses are more than vehicles for profit; they can also be platforms for civic engagement.
Recognising that markets aren’t neutral in their impacts on democracy helps clarify why investment choices matter. Investing in democracy means backing enterprises that safeguard and rebuild the social fabric essential to democratic life: for instance, ventures using AI to combat misinformation and hate speech, organisations that facilitate citizen-led problem-solving, or firms embedding participatory governance into their operations.
These are not just good businesses; they are pro-democratic ones too.
Investing democratically comes down to how investment decisions are made. Finance is a highly professionalised field that rightly values expertise, but expertise can sometimes create distance from those constituents whose life are affected by investment outcomes. Sociologist Robert Michels describes this dynamic as the “iron law of oligarchy”: as organisations try to achieve efficiency through vertical division of labour (i.e. hierarchy), decision-making power tends to flow upward and concentrate in the hands of the few, with the voices from staff and wider communities at the risk of fading away.
For impact investors, this tension between expertise and voice invites several questions. Who sits on your investment committee? Whose voices weigh more in shaping what counts as investment outcome? How are those you aim to help included in the processes of defining and assessing impact?
Measurement alone cannot single-handedly address all these questions; in fact, it may reinforce knowledge hierarchy and exclusion when only experts are left to decide what “impact” means.
To some investors, this democratic approach may sound provocative. Sharing the access to decision-making is uncomfortable, especially within the current legal frameworks emphasising fiduciary duty instead of democratic inclusion.
Yet there is encouraging evidence. Our Study finds that those who treat beneficiaries not as passive data sources but as partners in shaping and assessing investments achieve better-than-expected financial and social outcomes.
While it may not be feasible to invite beneficiaries to every management or board meeting, it does suggest a “democratic premium” on performance: investing democratically can also make for better investing.
Neither approach is likely to be easy. The democratic benefits of businesses take time to materialise, while opening up decision-making can immediately feel like a loss of control to investors. There is an even harder question: what happens when private investors, partly or wholly, own infrastructures that underpin democratic life, such as media outlets, digital platforms, or community spaces?
Private ownership of public infrastructures is not new. What is new is impact investors’ claim that unlike their impact-agnostic counterparts, they are intentional about creating positive social change. That claim carries an imperative to ensure their influences strengthen rather than erode democracy.
Democracy, after all, is like a society’s muscle memory. It atrophies when a few get to exercise it while the majority do so only occasionally, or not at all. Regaining and keeping this democratic muscle memory requires collective and continuous exercise of citizens in everyday practice, besides casting ballots on the election day.
Impact investing can, and should, support that exercise and even become part of it.
Investing is more than pricing risk and return. Decisions about who gets funded and who has a voice in those decisions affect the civic infrastructure of our democratic life, especially during a time when social cohesion and political trust are being tested.
For years, impact investors have asked whether their capital can deliver both social and financial returns. From a democratic lens, achieving such impact depends on whether these investments build, ignore, or demolish the very opportunity where our democratic muscles are exercised.
If impact investors want to help make a better future, they cannot ignore the democratic conditions that make such futures possible. By paying greater attention to their democratic footprint, impact investors can play a bigger role in strengthening the health of democracy in Australia and beyond.
The Social Impact Exchange invites long-form reflections and agenda-setting op-eds on building a fair and sustainable future from the CSI UNSW, current students, CSI alumni, and our partners. Contributions are also open to UNSW academics.