João Paulo Pacífico: Investing in Compassion

Millionaire businessman, João Paulo Pacifico, challenges the very foundations of conventional economic wisdom in this captivating episode.

Unveiling the hidden facets of financial markets, João Paulo shares firsthand experiences from the tumultuous 2008 crisis, highlighting the dehumanisation within the system. He recounts a pivotal moment during the crisis, leading him to question the ethics of capitalism, and create Gaia, a venture founded on principles of empathy and sustainability, aiming to redefine success in the business landscape.

The conversation explores the origins of innovation, debunking the myth of individual genius and shedding light on the collaborative efforts behind groundbreaking advancements. From critiquing exploitative financial practices to advocating for impact investing, this episode examines the urgent need for alternative business models that prioritise both people and the planet.

Voiceover 1: I don’t think the millionaires and billionaires should be taking the leads on living how everything works from economics to environment, because that’s how we got here in the first place, basically.

Voiceover 2: It’s already shown that you can’t trust them with the amount of greenwashing and false promises and stuff that are being committed at the moment, but they’re the only ones that really can make it a fact. It’s quite hard for the regular person to have much of an effect on clearing up the mess. 

Voiceover 3: Those with resources should be there to help and be conscious of their actions. They have a responsibility to at least lead the way in setting a good example. Millionaires and billionaires should be paying their fair way of tax. There are far too many people out there getting away with not paying anything or using tax havens, things like that, when that money could be bettering the world, society.

Carl Schlyter:
These days there is a bit of a global buzz about how millionaires and billionaires are shaping our world, often in a way that suits their own interests rather than the future of the planet or ordinary people. More and more of us are questioning why we allow this connection between immense wealth and a narrow focus on profit to continue. Welcome to another episode of the SystemShift podcast, where we dive deep in our exploration of what a wellbeing economy could look like and how we can get there. Today’s episode is not just about the financial system, it’s about a millionaire’s journey to redefine wealth, ethics and social impact. Enter João Paulo Pacifico, a millionaire with a mission, he sees himself as an activist rather than just another member of the ultra rich. João is ranked among the 250 richest people in the world, and he’s the only millionaire in Latin America who signed the pledge that demands that government should raise taxes so as to prevent the hoarding of wealth and the deepening of inequality. João sold out a traditional part of his business, created the Gaia Group, and now all profits are used to invest in social housing and cooperatives led by the landless workers movement Movimento dos Trabalhadores Rurais sem Terra. He believes in using his wealth for positive change, focusing on social impact and to have a net positive impact on the environment. In this episode, we’re going to explore João’s all too rare journey from building financial empires to becoming a staunch advocate for ethical finance. By telling this story, we hope to challenge preconceptions of what it means to be wealthy and successful in today’s world. So without further ado, a warm welcome to you João.

João Paulo Pacifico:
Thank you, it’s a pleasure to be here talking to you Carl.

Carl Schlyter:
And that’s not the only pleasure you have. You apparently have some pleasure in paying taxes. Can you tell me about that?

João Paulo Pacifico:
Really? I don’t have a pleasure in paying taxes. I think this is the world in which I want to live. The world, in which the people who has more money, is going to pay more taxes.

For me, it’s so obvious. So, it’s not that I love to pay taxes, but I am sure that I should pay more taxes than the people that are poorer than me. So, it’s so obvious for me. 

Carl Schlyter:
And that’s kind of interesting, because it’s not at all how it works today. Globally, only 4% of tax income comes from wealth and inheritance. 

João Paulo Pacifico:
Yeah. It’s crazy. It’s crazy because I believe that what’s driving the world today is the greedy. Everyone looks just for themselves. Just try to accumulate even more. And there is a kind of addiction for money. The people who have a lot of money and want to make more money and exploiting others and the environment. So, it’s kind of crazy how we are normalising this kind of attitude and this kind of mentality. 

Carl Schlyter:
Even sometimes glorifying like that and the lifestyle that comes with it, I feel that the whole consequences on the planet, like a billionaire on average pollutes 1 million times more emissions than the average global citizen. But this is not in the daily debate. It’s like a goal for people. And as you said, when is enough? How many of your colleagues said I had enough? Now, I don’t need more, is that common or is it no end?

João Paulo Pacifico:
Yeah, it’s no end. As I said, here is an addiction for money. And what is crazy is that we have this Forbes ranking of the richest people in the world. And everyone applauding those guys and those guys is making a lot of money. And we cannot accept, countries such as Brazil, in which we have more than 30 million people starving, and we have some billionaires, doesn’t sense in a country to have starving people and billionaires at the same place. Many people living on the streets. Hey, come on, today we have money for everyone. We have food for everyone.  Is it possible to live in a world in which everyone’s going to be access to the wellbeing? But what we see is that few people are accumulating a lot of money, a lot of power, and a lot of people are, losing their money, their rights. And it’s, very bad for the society. And what is, very interesting is that the very richest people try to convince others that everyone is able to go there to be a billionaire, and it’s impossible. It’s impossible for someone just to work without exploiting other people, without having heritage to become a billionaire. And then we have many people, applauding. Oh, congratulations. And it’s doesn’t work like that.

Carl Schlyter:
And actually, I have a link to Brazil. I did my final thesis, in Salvador, Bahia. I was working there at the landfill to extract methane gas. And to me, I’m from Sweden, and it came to me as a shock to see these favelas with really poor people struggling every single day, even going to the landfill to find some garbage to sell some metal or whatever scrap. And at the same time, not far from there, you had a gated community with armed guards that you wouldn’t even be allowed in to the area. And the people in that area, how do they justify this, that doesn’t like, want to change? How do they justify in front of themselves this extreme inequality? What do you hear, so to speak?

João Paulo Pacifico:
Well, what we can see is that there is a dehumanisation of other people. They see the poor people, not as a person. They can also recognise it’s a kind of, an object. It’s not a person like the one who has a lot of money. So, they try not to see. I work in, two blocks from Faria Lima, which is a kind of the Brazilian Wall Street. In the same street we have helicopters and we have people living on the streets. The same street. And they dehumanise it. It’s not a person, it’s a kind of other thing. It’s very bad. 

Carl Schlyter:
This is really interesting though, because in our first season, we had an episode with Kojo Koram, who wrote a book about British imperialism. And he said, like, people don’t go around the world to be racist or to teach people Shakespeare. They go around the world to extract resources and wealth, and they don’t care about other people. And then they build up philosophical or ethical values that excuse us, this domination and control. And then you get racism and dehumanisation. And still hundreds of years later, today this is exactly what you’re describing, still going on. What do you think would be needed for these people to see that this is unsustainable? What kind of tools would you use to explain this?

João Paulo Pacifico:
We have a very big segregation in Brazil. The people who live in the caste, though there is no caste in Brazil, but in this kind of a caste though, they can’t have access to other people and they do not want to have access to other people and to talk to other people.

I’m going to give you an example. I’m very close to MST which is the largest social movement in the world.

Carl Schlyter:
Movimento Sem Terra.

João Paulo Pacifico:
Exactly, Movimento Sem Terra. I think that, we took MST to the capital markets. And when we made this movement, directing money to MST to make plantation, agroforestry, food and to reduce inequality. No one in the market want to sit with MST. And I ask some guys, some lawyers. Let’s talk with MST Of course, you don’t have to agree with them. But, first of all, just go to a meeting to understand their point of view. And almost no one would like to sit with them. And there is a kind of, a prejudice, prejudgment. And, so there is a huge segregation and also a racial segregation in Brazil. In Brazil, we have 54, 56% of black people. And, when you go to companies to see the CEOs, you just see white people. And when you go to favelas, just black people. So, the slavery here is to us, very huge and that, 100 and something years ago. 

Carl Schlyter:
But the social structures are still in place that keep the system alive. 

João Paulo Pacifico:
The same. Yeah.

Carl Schlyter:
And then it’s interesting because you have a company called Gaia and you’re now creating, well, maybe you can explain a little bit what Gaia’s logic is?

João Paulo Pacifico:
Yeah, sure. I founded Gaia in 2009, we have 15 years. In the beginning we were a company in the capital markets. And then my first idea was to have a company in which everyone could be happy, trying to humanise the people who work with us. So, we started in capital markets financing good real estate properties, agribusiness and we became to be successful, but always being human with others. In 2013 I started to study positive psychology, which is the science of happiness. What makes someone happy? And then we create, the new values for that time. The first one is practice gratitude. The second one is smile and make others smile. Number ten is, celebrate. The nine is be kind with others. Which are human values. So, in 2014 we also created our first NGO, which is Gaia Plus, in which we work with, kids, poor kids, and mainly in social and emotional intelligence.

And then, in 2016, I realized that it was possible to use the capital markets to reduce inequality. So, we issued a bond, which is something for the capital markets to finance the restructuring of houses in favelas, to give credit for the people who doesn’t have a bank account. And it was the first blended finance deal in Brazil. The newspapers called it, the Venture for the good. It was the first one in Brazil. And then they started to try to find other ways to reduce inequality and to regenerate the environment with the capital markets. So, then I got in touch with MST, as I told before, the social movement to finance smallholder farmers. And then it was 2020, I realised that my future would be just to work with impact investing. And impact investing is when you invest in something that’s going to cause direct impact. They’re the ones that want to receive the money. And at that time, I split Gaia into two companies. One is the impact investing company and the other one was what we have been doing in the last 30 years at that time. And then I sold everything that wasn’t impact investing. And then when I sold it, I was thinking about what am I going to do with this money of this sale of the company? Should I keep it for myself just to accumulate? I was studying inequality and then I realised that’s impossible to end the poverty without the ones who has more money giving this money and paying taxes. So I, decided to give up this money, to donate this money to an endowment fund, and not for my daughter’s, and also the company that were remaining, the company who structures impacting investment deals also to donate to this NGO. So right now, Gaia no longer has a shareholder. So, I have donated everything in which all of the profits of the company are donated to NGOs. And we have something right now called Steward Ownership, in which there once who has power, the president of the board and, all of our directors, we receive, of course, salaries and etc. but the profits go to another place and Gaia no longer has a value because no longer has a dividend. So, we are right now, in fact investing company in Brazil focusing on reducing inequality and to regenerate the world using the capital markets. We are in the Brazilian Wall Street trying to make the world better for everyone. 

Carl Schlyter:
That’s actually going a little bit against the logic of Wall Street facilities and financial markets, because their return on invested capital is the main driving force for most people, and even an impact investment, you still have a lot of pensions funds and insurance companies actually like having a risk based, approach to how much dividend they can take out. So, you are taking this impact investment a bit further and saying, no, I don’t want to have a profit dividend on this capital. I want to create good. So, it’s like pure impact investment, so to speak, because impact investments is broad and sometimes it can be greenwashed a little bit like ESG.

João Paulo Pacifico:
Yes, right now I can see it’s a marketing tool, is not, something that is, causing any change in the world. Impact investment, is something that many people make profits. And I’m okay with this. I’m okay. But what we do is more radical. And I believe we tried to ring here to show that it is possible to do like this, but even the impact investing, it’s a niche. It’s something very small today because 99.9% of the world just want to make more profit. Investing in fossil fuels and so, we are bringing here to other place to show the people and not to normalise the accumulation, the exploitation. It’s ridiculous. So, it’s possible to have something that’s going to be good for the world. The next generation is going to look for us and say, oh, come on, guys, you are, financing fossil fuels with this climate change work. What are you doing? So, we try with Gaia, to create new possibilities of a new world.

Carl Schlyter:
The clothing brand Patagonia did a similar thing as you have been doing. And I mean, yes, it is a small, small, small part of the global financial system, but still the international Global Alliance of Impact investors still reach $1.16 trillion last year. So, it’s actually growing. But if this is not going to be a second ESG greenwash logic, ESG is like social responsibility accounting. But, what would you like to see as kind of rules or logics behind impact investment for this not to become a greenwash for companies with other interests. 

João Paulo Pacifico:
We need to have governance. We need to have measures, and we need to have good people looking for it. And, showing what’s happening. I have some hope that, impact investment will not go in the same way as ESG because then it’s terrible. So, then what was there another word, ESG in relation to revolution money, I don’t know. 

Carl Schlyter:
I guess revolution money would get some attendance too, but then if you have this kind of, logic that you want to create good. Another old-fashioned term, a stakeholder-based economy, like the people who are affected by the activity of the company are also invited to have a say. How do you implement the stakeholder logic in an impact investment strategy?

João Paulo Pacifico:
Yeah, what I believe is that we need to have public policies because, otherwise we are going to be just in the well intention of some guys such as evolution art from Patagonia and myself and some others. But it’s very important to have this multi stakeholder ownership or a multi-stakeholder listening because right now the world is coming from, a logic that the companies just serve one stakeholder, which is the shareholder and doesn’t care about the employees, the clients, the environments, communities and etc. So, the best companies, looks for everyone. I also like a lot, big corporations’ movement. We are part of the big Corp’s and big corporation. To become a big Corp they analyse, a lot of aspects of the company. And the multi-stakeholder approach is one thing that they analyse for the companies to become a big corp. And I like it a lot. And I agree with you, Carl. As you said, it’s increasing. It’s increasing, this kind of conversation that we are having right now, in 50 years or 20 years ago, it was impossible to have even ten years ago. So, I hope that the next generations that are entering the markets that they’re studying right now, they can have a new, a new view of the world because they can see the problems. When I was in college 25 years ago, the goal of everyone was just to be rich. Oh, I’ll be rich, I’ll be rich. And, right now the guys that I came from university, together, for instance, they have a different view. They want to make the world better. They have more conscious about all of the problems, of the challenges that we have right now in our society, because something that we see today, the social media is bad in many aspects, but in other aspects you can have more access to information. So, in the past, there is a few media ways to receive information. And in Brazil, when I was a kid, we had five channels in TV, just that.

Carl Schlyter:
We had two when I was a kid in Sweden.

João Paulo Pacifico:
Exactly, so you are going to learn what they say and then they can decide the truth. Right now you can have more access to information. So, it’s good. Of course, you have a lot of fake news. We have many problems. Yes. But yeah, in a way, Gaia and myself, I can communicate with many people, in just a few minutes through social media, all of the followers that we have, we can try to mobilise more people. So, this is why I hope that in the near future, we are going to have our kind of movement. It’s going to increase a lot. 

Carl Schlyter:
I mean, sure, we have information and disinformation, as you said, but now we have a chance to inform people about alternatives. And I was thinking like, you are still struggling. Yes. You said 99% those investments are irresponsible, more or less. and also, the whole logic of the shareholder owned company puts everything good that society wants, like decent pay, good environment. That’s it on the negative balance sheet quite often. So how would you see not to be swimming against a stream, always trying to do something good? But how would you see a reform form of, you know, company law or shareholder logic in order to not having to swim against a stream, but making the companies work in the interest also of society. Do you have any ideas there?

João Paulo Pacifico:
Some ideas. yeah. Public policies can increase. But the problem is that the ones who has more money has more power. And they have a lot of lobbyists in all of the parliaments in the world, and it’s very bad. But other thing that I believe is that this current logic of shareholder value just benefits few people. If the people that are lacking, salaries, rights and etc. became conscious about everything. And if these people understand that without the work there is no company in the future, probably yes with AI but right now we need people to work in their companies. So, it is important to have labour unions. Of course, the shareholders try to avoid these unions, of course, but if the people realise how important the union are for everyone, how important the job of the middle class is for the economy, then they can change, because then these people are going to press the politics and then we can change. But there is, a war of narratives. Who’s going to win these narratives? And those guys who owns the companies, they are with the main media. They are on TV; they are paying a lot of money to convince others that they are the best ones. They are the selected ones. And everyone who works 14 hours per day can be there. But someone’s going to realise that’s not so possible. So, I think that things we are defending is the major part of the population, we can make a kind of a peaceful revolution and try to change the way in which companies are working. 

Carl Schlyter:
Isn’t this interesting, though, because the current economic system, certainly since the 80s, has increased inequality enormously. The financial markets are easy to escape the taxes, on that income. And, normal people pay more and more income taxes, compared to the rich, at least. And so, we have a corporate structure where it’s not benefiting society nor the environment as a whole. And people kind of accept this a little bit, like you said, when you went to school, everybody wanted to become rich, and these richest people, with all the damaging lifestyles and extraction of the environment and people’s lives, they are considered heroes and successful. I think that’s a problem where you’re considered to be successful when you damage society. Isn’t this something we could work on?

João Paulo Pacifico:
Yes, we the society, we value the people for the money that they have. We consider the ones who has more money as a better person. There is no sense for it. Because how does this guy make this money? It was through the slavery. It was through the exploitation of others, of the environment. And there is, one thing that we can see is how much someone earns per hour, the labour, the middle class, and the CEO of a company. We have cases of more than 1000 times how the work of someone values, 100 times, 20, 100 times, or 1000 times. the work of another person doesn’t make any sense for me. 

Carl Schlyter:
I mean, many years ago, when humanity’s problem was to transform nature to produce better life, and the problem was to change nature into things that made life more comfortable. And the limiting factor was our capacity to do that. If you had a great innovator and he or she did something that benefited the society because everybody had access to a warm house or whatever, then you saw a kind of link between creating something good. But today, when the limiting factor is nature, extreme consumption that billionaires often have and extreme extraction is actually undermining everybody’s lifestyle. So, the situation has changed from the 19th century, and more production was inherently good because it gave people a better shelter and more food and so on. But today, the limiting factor is not our technological capacity, it’s nature itself. So today you have the double effect. If you have a lot of consumption as a billionaire, you use more resources, so is less freedom for everybody else. And quite often when you earn this money, you destroy the future generations capacity to have a good life. So today, when you have a totally different narrative, how come people still believe that this is something to strive for and this is success? How would you explain that? 

João Paulo Pacifico:
I don’t think I can explain that. When you see in Davos where they are going to talk about sustainability or whether you see the COP, the United Nations environmental events, the people going there in private jets to discuss how to make a better world and when you see events in, you know, East talking about, sustainability. And they have a lot of fossil fuels, they are trying to convince everyone. When you see in Brazil and even in the US, some presidents of the country, being the guest. So, I think it’s a kind of a construction of those greedy guys that try to convince others that there is no climate change, that, we something of, Greenpeace that is creating some crazy ideas. I can’t explain, really, I can’t explain the people who are lacking many rights defending the richer guys. Who is thinking this? The people who live in favela voting on Bolsonaro. I can’t explain really. 

Carl Schlyter:
But maybe you can explain another thing, though. I think you’re the only Brazilian part of the proud to pay more manifesto. Could you tell me about that then?

João Paulo Pacifico:
Yeah, I don’t believe that I’m the only Brazilian who believes in this and who would like to pay more taxes. But I’m the only one who signed the manifesto. It’s a movement that says that we believe that we need to pay more taxes, and that we can’t trust just on the philanthropy to redistribute the wealth, because philanthropy is something that each one’s going to decide, if it’s going to give or not. And in philanthropic there is another thing is that supposing I have, a cancer disease in my family, so I’m going to donate to cancer. But there are many diseases of the poor people that I don’t know. And, when you give a lot of power to someone who’s going to direct his money, if he’s a good philanthropist, for instance, Bill Gates, he donates a lot of money. What he donates for what he believes is good. But it’s just a one person deciding what is going to be solved when we pay taxes? We are going to have governments, technical people deciding how it’s the best way to, what’s the best thing to do with this money? To serve the people. And also, I, believe that is very necessary to talk about the universal basic income. We are going to lose a lot of jobs with AI in the near future, and then we are going to have a huge crisis in the jobs in many countries. So, everyone deserves to have an income. So, we need to talk about basic income for everyone. And the only way to pay it is through the governments who’s going to receive taxes and pay. And I don’t see other way. And in Brazil the poor people pay much more taxes than the rich people. It’s not fair. I know few comfortable paying less taxes than a poor people. Oh, for me, it’s, it’s a kind of, I’m a human being with compassion, with empathy. And I believe that this is the only way to have a better society. 

Carl Schlyter:
But I think this is rather interesting because you have empathy, but also you say that philanthropy is not good, and I think that’s really interesting. I myself was part of the global initiative drugs for Neglected Diseases, the diseases that target tropical diseases, and mainly poor people that get only 1.4% of medical research is going to these diseases that kill more than 12 million people a year. While you and I are both white men, and middle aged. And anything we need that will be a lot of research on and even if our problems are really small, they will still do a lot of research. So, this universal inequality in where the fund is going. And I mean, judging from what you said earlier, also when the governments are kind of often in the hands of the richest people, you can see that also medical innovation run by governments are still going not in a fair way to distribute globally to the poor or like even the patent rights on drugs is not the most efficient way to get innovation. I myself prefer prize funds where you decide some billions for a new drug for a disease, and then whoever finds that everything is in the public domain. And from day one you have licensed reproduction for rich and poor in the whole world. That’s fair. That’s no pirate copying of drugs. That’s for everybody. And you can prioritize health needs. This is kind of decisions. We would need. But then we also need to tackle the lobbyism and the power that you talk about. Have you seen examples of where you feel that wow, why have politicians catered to the finance industry? Do you have any examples that you want to show? 

João Paulo Pacifico:
In Brazil we have very bad examples of politicians doing bad for the world as a whole.

In Brazil there is something that is not so strong in other countries, which is the chemicals used in agriculture. And we say in Brazil, agrotoxic. And in Brazil we use more chemicals in agriculture than the US and China combined together. So, in Brazil, more than half of the Congress is with the agri-business industry, and they represent just the few people in the country. And this is the lobby. The lobby of those guys is the major one in Brazil, and it’s killing people and it’s killing the nature. 

Carl Schlyter:
I think now this was a good explanation for why Greenpeace is campaigning against a new trade agreement with Brazil, Mercosur, where we would import all this tax chemicals and products from it. So, thanks for that explanation to our listeners too. And also, on a more positive note then something you mentioned, was basic income. We have a whole episode on basic income, actually, a with Guy Standing where we explain what basic income is. So, I recommend everybody to listen to that episode from the first season. But when you talk about basic income, it’s also about this what we have been mentioning several times is a power shift, because if it’s unconditional, then people do not need to take the dirtiest and most toxic and most polluting job just to survive. So, it’s also matter of power?

João Paulo Pacifico:
Yes, definitely. And it happens a lot in Brazil. The big companies, exploit the poor people that doesn’t have any option. So, if everyone has an option to say no, I’m going to have dignity. If I say no, then the power will change a lot. And, it’s one of the best things of the basic income. And of course, finishing the hunger and everyone has the rights to, to live in a house. But the basic income changes the power balance. And it’s very strong. 

Carl Schlyter:
And it’s actually just fulfilling the UN Convention on Human Rights that states that every nation shall provide for the basic needs of everybody in that nation according to that nation’s capacity that we all already promised this, but we’re just not implementing it. So, I think this is really good that you bring this up also in this episode.

João Paulo Pacifico:
Yeah sure., and the Brazilian constitutional says the same thing. Everyone has this right. And also, in the Brazilian constitution we have been saying that the richest person should pay more, the tax for wealthy people is written in the Brazilian constitution.

Carl Schlyter:
Really?

João Paulo Pacifico:
Really, from 1998 and up to date nothing has happened. 

Carl Schlyter:
You have it in your Constitution, that’s the first time I heard. Okay, interesting.

João Paulo Pacifico:
Yeah, it’s in our constitution, but the lobby is stronger than the desire to do what the Constitution is saying to us.

Carl Schlyter:
Okay, let’s play a game here of, arguments against taxes on inheritance or rich, wealth and high, very high income. So, the first one is, of course, well, everybody will escape and they will take their money away. What do you say about that counter argument?

João Paulo Pacifico:
So, blackmail, I’m the owner of the ball, so I’m going to decide their rules. Hey, come on, you are not fair. This is the first thing that I say. Other thing that I say is that, many people in Brazil says if you tax the rich, I’m going to go to other country. Hey, come on, you make a lot of money in Brazil. And our prime Brazilian rate is extremely high. And it’s easier for our richer person to make more money here in Brazil. Goes to other country and creates a new company. You do not have this lobby that you have here. Many people try to convince others that if this guy leaves the country, then it’s going to be bad for the country. No. Come on, go there. Go there and try to make a lot of money. And when you are, join the one you are saying to reach the people. We are not trying to transform the billionaire into, someone. That’s when, don’t have any money. Hey. Come on. It’s not something that you don’t have access to money anymore. Just pay more taxes.

Carl Schlyter:
That’s kind of funny, because independently of the situation in the country, it’s always the same argument. I’ll move somewhere else. And as you say, it’s not so easy. I remember my sister designed the head office for one of Sweden’s biggest companies when they were planning to move to London because they thought they could have higher salaries if the headquarter was there. And then they said like, if you don’t reduce our taxes, we will all moved to London. And then like a year later, they discovered that they didn’t speak good enough English, their knowledge was not relevant for the UK logic, and in the end, they wouldn’t get the top jobs that they really thought they would deserve. So, they just had to go back to Sweden and stay there. It was just an empty threat. And what you are saying is they used the same empty threats in Brazil.

João Paulo Pacifico:
Exactly, exactly. Suppose someone has a big company here. Oh, I’m going to move to two other countries. Oh, come on, they’re going to fire everyone. You’re going to create a new company and make more money there. I guess it’s impossible. 

Carl Schlyter:
Another common argument is that, well, these people deserve all this money because they create so many jobs and so much wealth for everybody. What do you say about that argument?

João Paulo Pacifico:
It’s the opposite. try to have a company without any employee. So, the one person who makes the company is the employer. It’s much easier to change the shareholder or the CEO than to change all of the employees. 

Carl Schlyter:
Well, that was a short and good answer. So, what about the argument that, we will have no innovation unless rich people are compensated for success?

João Paulo Pacifico:
Yeah, many of the innovations was started with governments such as internet and many others. So, when you see who has created innovation, in many cases, is the colleagues, the academia’s. So of course, it’s good to have companies, but also a cooperative can have innovation. And the one who is going to innovate is not, Steve Jobs, of course, he’s a very smart guy, but there are many other engineers who help him to create the iPhone. And the US government’s, also helped it to have all of the infrastructure in order to have, Apple. So, this kind of a superhero doesn’t exist.

Carl Schlyter:
That’s interesting. We talked about medical innovation before, and nine out of ten revolutionary new functions of molecules that are huge progress for medical innovation are actually done by universities. So, the research is done with public money and then the development into a drug and patenting it is done by a company, but they take 100% of the profits from all development. That’s like exemplifying what you said, that innovation will come anyway.

João Paulo Pacifico:
Exactly, exactly. The innovation is made by researchers. And in many cases, the public money was going to pay this because there is a, higher risk. So, there is, when a company takes some fees, there is lower risk. So, public money, it’s a good source of money into innovation. 

Carl Schlyter:
I think you are also an engineer, aren’t you? Just like I.

João Paulo Pacifico:
Yeah, yeah, yeah. Yeah, yeah.

Carl Schlyter:
So like, I think most engineers are driven by curiosity and not huge profits.

João Paulo Pacifico:
Yeah. Yeah. Yeah, definitely. But not the engineers that goes to the financial markets.

Carl Schlyter:
Well, I guess you have some experience. So, I take your word for it. But then that’s interesting though. What made you have an epiphany. When did you see that. No, wait a minute. This is going the wrong way. Well, what triggered that?

João Paulo Pacifico:
In the crisis of 2008-2009 the world, I realised how dehumanised the capital markets was, the financial markets, because the people in Brazil, I could see, banks firing people, and they didn’t need to fire people at that time. And then I realised, oh, for the banks, everyone is just a number, is just a cell in Excel, a number in Excel. Just decrease x percent and fire everyone. So, then I realised how, dehumanised the market was and I decided to create Gaia in March 2009. 

Carl Schlyter:
And what do you think creates this environment? Well, where that is normalised, like it’s okay to sack your friends and colleagues because at the end, the bottom line is the only thing that counts, that sounds kind of psychopathic. How is that justified?

João Paulo Pacifico:
I think it’s a construction that came from Milton Friedman, Ronald Reagan, Margaret Thatcher and Jack Welch. Jack Welch in the last century he was the CEO of GE, and he had a rule in which in the end of each year, he promoted 20% of each group of people, then 70% is going to stay there and 10% would be fired. So, it creates a kind of a war inside it seems, which just one is going to it’s going to win. It’s the Shark Tank logic, it’s capitalist logic where one is going to win and many is going to lose. And they say to win, you just need to be dedicated. It’s not like that. You have many privileges. So, they try to convince the poor that if they work a lot, they can be rich. And that the rich deserves to be rich. As with both, later before. 

Carl Schlyter:
What can be an alternative approach to view your employees, then?

João Paulo Pacifico:
I believe that we need to give power to employees. This is labour unions that is so important, and new ways of companies. Companies such as Big Corp’s such as ownership companies, which is I believe that is steward ownership is the best one in which you are going to split and the company there is no value because all of the profits go to something and the company is going to have a good governance that’s going to should look to all of these stakeholders. So, this is why I love steward ownership. But we need to create these new or even cooperatives. I like a lot cooperative in which everyone’s going to have a right to vote.

Carl Schlyter:
That’s the ultimate worker’s power, actually.

João Paulo Pacifico:
Yeah, exactly. For sure. 

Carl Schlyter:
I mean, you could be sacked if you work in the corporate and they say, oh, we don’t like you, you’re gone.

João Paulo Pacifico:
Yeah, you can be.  Exactly. Cooperatives it’s a wonderful model for companies. So, I believe that we need to have new ways of model. But the financial markets, the banks, they are a kind of how can I say the virus of the society? Because the banks, what they do is just make the money flow from one side to other side. But in the last decades, they become much more important than they really are. They don’t create value by bank, doesn’t produce anything. Banks just, speculation.

Carl Schlyter:
Well, they actually produce 99% of the world’s loans from capital they generated themselves without our permission.

João Paulo Pacifico:
Yeah, the banks took your money and they’re going to pay you 3% and lend to someone, charging 20%. In Brazil, we have interest of more than 1,000% a year. It’s very common to have 100% a year of interest for poor people, really.

Carl Schlyter:
That’s absurd.

João Paulo Pacifico:
Yeah, then it’s legal. 

Carl Schlyter:
So instead of being like the lubricant of the economy, they are extracting wealth from all the rest of the economy. Is that what you’re saying?

João Paulo Pacifico:
Exactly this. They are distracting value of the company. They are helping others to exploit the nature and the people. Because if the banks decide to stop financing, fossil fuels then we will no longer have fossil fuels. If the banks start to say, I’m going to stop to finance chemicals in Brazil, such as, I just gave as an example, that’s got to stop. Okay, is impossible to be the first date. Let’s make a plan for three years. Four years? There’s no more fossil fuel financing, three years or whatever, but it’s the opposite. In Brazil, they are giving a lot of money to industries that is polluting, that is deforestation.

Carl Schlyter:
Well, and this is where you have shareholder logic rather than stakeholder logic. Another interesting research and company structures is Marjorie Kelly in the US. She has decided this, concept of corporation 2020. That’s when to explain in the easiest way possible is that instead of having to work a salary on the negative side of the balance sheet, it’s on the positive and value extraction to shareholders is on the negative side. You want to minimise that and maximise the share of wealth that’s going to the people creating it in the company. And with this small change in bookkeeping, you would have a totally different focus of the company. Is that something you think could work for others too?

João Paulo Pacifico:
Yeah, sure. Something that they start to also to publicise is the cost for the planet of some companies. And many companies, would be not yet feasible because the cost for the planet is bigger than the profit that they make. What we say is that they are privatising the profit and socialising the losses. So, they are extracting values, and then we need to change it. And, accounting can be a way to change it.

Carl Schlyter:
Yeah. And I think like internal auditors are really important people because they see if they would have the mission to check that the companies not only doing things inefficiently and poorly with their capital, they should also check if they are doing something inefficiently and poorly with the environment and the stakeholders, then you would have a totally different power tool in each company, I think.

João Paulo Pacifico:
Yeah, the problem is that who’s going to choose the internal auditors, who’s going to pay them? And then there is a conflict of interest. Are you going to put as an internal auditor someone that’s going to tell the truth or someone that’s going to agree with you? So, it’s the easiest way to make a greenwash.

Carl Schlyter:
So that’s a greenwashing tool, or could be. What kind of relation would we need then to avoid greenwashing?

João Paulo Pacifico:
Good question. I think we need to have, a stronger state, and some stronger entities in the capital markets. That should be in the law, really, because such as we in Brazil, I’m going to give you an example in the other area in Brazil in the past, who had a lot of advertising for kids to buy food that are bad to the kids. And then they create some legislation to avoid this kind of advertising. So, we can have something like this regarding greenwashing. You can say you can’t make this kind of advertising and having strict regulations also to the damage that these companies are doing for the for the world, for the nature. 

Carl Schlyter:
So, environmental taxation and for example, fossil Ad Ban and other Ad Bans that are promoting destruction of the planet or children, then when it comes to the financial market, we have in this podcast talked about something called the wellbeing economy. What would that be for you? How would you describe the wellbeing economy?

João Paulo Pacifico:
For me, wellbeing economy is, a society and economy in which everyone is going to have the dignity. It’s going to have food, it’s going to have a shelf, it’s going to have schools, it’s going to have health care. So, wellbeing economy is the minimum required for a person to have a good life. So today in the world, as I told, we have money for everyone to have food for everyone. It’s possible. The problem that we have to bring the world is distribution is possible to everyone in the world has, money that’s going to provide the well-being. It’s possible for everyone to have food every day. But you don’t have, because we have a problem of distribution that is caused by the greed of the people. 

Carl Schlyter:
And then, as you mentioned earlier, avoid exploitation also of nature. So, we stay within the planetary limits, as we talked about before.

João Paulo Pacifico:
Exactly. I love the let’s say economy in which you have the socio-limits and the environmental limits, and you need to be, in the middle of both. 

Carl Schlyter:
So, if you would recommend people to be a true impact investor and not the greenwashing impact investor, what would be the tips and how to transform it?

João Paulo Pacifico:
First of all, you need to see where your money is going. The story of the money. You put the money in this fund, in this instrument, in this bond, where is the money going? The money is decreasing the inequality directly. Not oh, I’m going to change the lamps. I’m going to, no, no, it’s decreasing the quality. Oh, okay. It’s in fact the best, your money is going to something to regenerate the forest, to regenerate it. So organic farming. Okay. It’s invested if there is, huge story. Oh, this money goes to this company and whatever then is not the impact investing. Impact investing for me is so simple to explain, and also you need to measure to prove that your money is decreasing. Inequality is, making the money go to someone that doesn’t have access to money. And of course, in Brazil we have Microfinance but you can have a Microfinance, with huge interest. So, this is not impact investing. This is exploitation. So, it’s very simple. You don’t need to be an expert to understand. And if there is a lot of, huge text with a lot of explanations, then there’s not, impact investing. And also in the impact investment, you need to look at the returns, the return for the nature, the social return of your investments. What’s going to happen, what’s the outcome of it for this? I’m going to give an example to make it clear, we did a bond in the south of Bahia to finance smallholder farmers. And, in one year, the income of the farmers increased around 40%. Wow. So let’s see, the income of the farmers, smallholder farmers increase it 40%. So we are reducing inequality and they are planting cocoa in a Cabruca which is in the middle of the forest. So we are maintaining the forests over there, planting more trees. So, in the environmental aspects it’s wonderful. And in the inequality in the social aspects is also wonderful. This is an impact investment. 

Carl Schlyter:
So, it’s not the machine-based monoculture of cocoa plants and destroying the forest that was there originally. You keep the original forest.

João Paulo Pacifico:
Yes. And then planting agro-forest also.

Carl Schlyter:
Yeah. Exactly, and then the interest rate, they pay. Now in your company, you choose to put it in this special vehicle where actually it’s independent from the leadership of the company and is used for other good things.

João Paulo Pacifico:
Yeah.

Carl Schlyter:
Is that a necessary part of impact investment or would it still be possible? I mean, I see that the capital markets always like catch up on trends and they say, oh, here is a new niche. I can attract a lot of capital calling it impact investment, but they’re actually not true in purpose. What would you need to guarantee your true in purpose here? 

João Paulo Pacifico:
If you want to do impact investment, first of all, stop to financing fossil fuels. So, the bank, the entity who is involved is the first step. And then of course, understand what is there, understand, and the publicity is very important. But if, a bank has many funds that is polluting the world. What if it has one fund here that is going to make the world better? Come on, this is greenwashing. 

Carl Schlyter:
And normally also with a higher maintenance fee.

João Paulo Pacifico:
Exactly, exactly. Higher maintenance fee, I use a lot these every day talking to banks in Brazil. Oh, and sometimes here I’ll only invest in your firm, but I have a I need to have a huge interest. So, you don’t want to have an impact? And I listen almost every week someone say, oh, I would like to invest in impact investments, but it should be the same return of the usual investments. So, hey, come on, you don’t want to make impact investments you want to make return. So, if it has an impact, okay, so, of course impact has a cost because when you’re going to exploit someone, we are making much profit. When you don’t exploit someone, when you don’t deforest, the returns might be lower of course. So, this is why I told those guys hey common. It doesn’t make sense to have this, lower interest. So, you don’t want to make impact. 

Carl Schlyter:
And it’s also this absurd, absurd expectations in the finance industry, like a Nordic forest, grows around 1% a year. And you still expected 12% return on capital every year. That doesn’t make sense in the long run, does it?

João Paulo Pacifico:
Doesn’t exactly. Yeah. And the responsible for this is the greed. It is the materialism. So the people who don’t understand that is impossible, we don’t have a world to have this kind of returns. It’s mathematical. It doesn’t need to be, very smart guy, a genius to understand that we don’t have a planet to have this kind of return that those guys want. 

Carl Schlyter:
Well, it was this very smart guy called Bartlett, an English physical theorist. He said humanity’s biggest problem is our fundamental incapacity to understand exponential equations.

João Paulo Pacifico:
Exactly. Wonderful, I love it.

Carl Schlyter:
Yeah, well, it was nice talking with you, about this topic. And I have one final question for you. Are you ready for it?

João Paulo Pacifico:
I’m not sure.

Carl Schlyter:
What do you think will make people happy at the workspace? What’s your experience in creating not this kind of toxic mentality, but a good spirit in the working place? 

João Paulo Pacifico:
I think the best thing to teach someone is compassion. And compassion is when you have empathy for others and then you are going to have an attitude. We are going to act to avoid the suffering of others. And the science explains that compassion can be learned, you can develop compassion, and when you have compassion, you see other people, even the people that you don’t know as a human being and what you can do to avoid the suffering of others. If we develop compassion in the workplace and in the society, I’m sure that you are going to have a better world for everyone and even the person who has compassion is going to be happier because it’s good when you serve someone.

Carl Schlyter:
Okay, I’m all for compassion-ism instead of capitalism. That was good ending. Thanks a lot.

João Paulo Pacifico:
Great.