Socially responsible investing is a global phenomenon. It relates to any investment strategy which considers both financial return and social good to bring about change. We asked seven experts what makes an investment sustainable and how money can be a force for good.
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1. Brigitte Baumann, Go Beyond Early Stage Investing.
I consider an investment sustainable if the products and services it provides, and the way it builds itself, balance the “3Ps”: Planet, people and profit. Despite what some may think, profit can coexist well with social and environmental impact. In my investing business, I evaluate social impact companies in the same way I evaluate all other companies: To be sustainable they must have sources of revenue to grow and sustain their mission. The difference being, of course, that social impact companies must also deliver positive social change in addition to the financial return it provides to investors.
Investments from business angels such as myself can turn money into a force for social good. One of the big reasons I’m a business angel is because I can contribute to economic growth and towards a better world. I do this by choosing to invest in entrepreneurs who address critical global challenges while considering the needs of people, the effects on the planet and how they will create a profit in everything they do.
Angel Investing is the combination of art, science and psychology. Go with your instinct.
One of my investments, Barefoot Power, that produces small solar lighting systems for developing countries, is an example of something that allows me to align my money with my values. I would encourage investors to build a diversified portfolio and ensure they also add value to the entrepreneurs they fund by going beyond the money. Keep some money aside to continue supporting entrepreneurs who are doing well – financially and creating positive change in the world.
Approach investing with the realization that there will always be changes in markets and societies that affect a sound investment: world events, politics, high or low valuations and the time to exit. Also, value systems will always change, as we’re currently seeing with the rise of the shared economy and advances in technology. Artificial intelligence is an example of something currently influencing how we invest.
2. Ron Cordes, Cordes Foundation.
An intentional focus on measuring the environmental, social and governance metrics of an investment qualifies it to be called a sustainable investment. Of course, all the other traditional financial metrics are important too. Social impact investment can realize profits in the same way that traditional investments do – investing in a great entrepreneur with a promising business model, or a great team of fund managers with a strong pipeline and investment process. I first ask: “Is this an encouraging ‘investment,’” then dig deeper into the measurement of “social impact.” If impact doesn’t exist, I look at how we might add it.
If we don’t pay enough attention to the investment part, we could end up making a disguised charitable grant from our investment portfolio. When we created the Cordes Foundation in 2006, one of our missions was to prove that capital can deploy in multiple ways to serve a mission – in our case global poverty and the economic empowerment of women. We believe that the 100% impact portfolio we’ve built and managed is a great example of how capital can be a social force for good.
Be fearful when others are greedy, and greedy when others are fearful. – Warren Buffett
In the social impact space, great intentions and a virtuous model to create social impact are not substitutes for a well-constructed business model – you don’t get a “pass” on all the challenges of the capital markets just because you’ve incorporated a social purpose with an investment. We’re entering a period where governments, in the U.S. and abroad, are likely to be investing less in addressing social and environmental issues. It’s imperative for impact investors to “step up” and accelerate the flow of capital into investments that will help solve the looming global challenges we are all sure to face.
3. Tim Freundlich, Impact Assets.
At best, sustainable investments are a holistic set of commitments that run from a supply chain, to value chain, to product or service, with deep commitments to employees, investors, and customers around creating value for society and the environment. Other than the ‘old fashioned way’ of creating profit, impact ventures have added additional layers of opportunity. Increased customer loyalty can be monetized, and risks can be reduced by applying good sustainability practices. Greater long-term profitability is possible because of the resilience these types of investments bring.
When you buy breakfast, be aware of who is a chicken and who is a pig. Chickens have given eggs. Pigs have given bacon from their hides. There’s a difference. Be aware of ‘skin in the game’ when assessing an entrepreneur and the investor ecosystem.
When I aligned all my investment assets with my values, I created a two-fold “good.” One was at a portfolio level, by actively getting behind ventures that matter, building companies that enabled the flow of capital towards this good. Secondly, I created physical spaces in which social entrepreneurs and investors could excel and connect, such as at Impact Hubs and the SOCAP Conference. On a personal and family level, I started a conversation about how to be in sync with the world and what kind of world we wanted to leave to our children. Nothing trumps tenacity and quality entrepreneurs. Not the intention of how much impact you’d like to create, not a business idea, not even a ton of capital.
Execution, creative course-correction, and staying power are what makes the difference between success and failure. My personal mantra is increasingly that I should be “all in” for impact. This sentiment isn’t a tentative commitment. The context and times we live in drive this. The clock is ticking on climate and injustice. The value of time and the urgency of positive impact demands a departure from the cautious – to a stance of immediacy.
4. Shazi Visram, Happy Family.
Sustainable investment should be a business model that creates efficiencies, rather than being a drain on natural resources. It must avoid creating challenges for the future, and rather help solve problems. Impact investments must be evaluated with the same competitive metrics of a typical business yet must also deliver a Social Return on Investment (SROI) – something harder to create.
Approach it in the same way as if you’d decided to set higher standards for yourself every day; improving and evolving. Pure-hearted, wealthy individuals, who are deployed to better our world through philanthropy to invest in businesses, will drive progress for social good. Invest with your mind and gut. If it’s too good to be true, it usually is.
If it’s not lucrative enough to meet criteria you need for your portfolio, don’t use your investment allocations as charity. Investors should focus on authenticity in the businesses they support. This will drive a higher success rate with millennials who demand transparency and purity of purpose.
5. Kristen Bauer & Stephanie Cohn-Rupp, Threshold Group.
An investment can only be “sustainable” if it has positive social, environmental or governance outcomes beyond a financial return. Typically, impact investments share two characteristics: intentionality and measurable performance.
Seeking profit through social impact investment is the same as in traditional investing, with the difference being that due diligence extends beyond traditional investment characteristics and is profoundly influenced by the unique values of
the investor.
Money can be a force for good in many ways. The best example I can currently give is the way investors have reacted to the approval of the controversial Dakota Access Pipeline. Concerns around negative environmental impact have caused many socially responsible asset owners to act. They have divested and withdrawn their money from the financial institutions that support the pipeline.
Spend less than you earn. Recognize the power of saving and compounding interest. Utilize retirement plans for a tax advantage and look to use a myriad of assets (time, treasure, talent, action) to make this world a better place.
Financial success looks different to different people and depends on individual financial goals and personal values. The best advice I can give is to be very thorough in your choice of financial advisor – it can be life-changing if you get it right.
We’re expecting an increased volatility in the financial markets for the latter part of this year, yet values systems are changing too– for the better. The 2017 Annual Impact Investor Report produced by the Global Impact Investing Network states that capital invested in social impact will increase by 17% this year. We see this as a great reflection of investor values.
www.thresholdgroup.com
6. Fran Seegull, U.S. Impact Investing Alliance.
A sustainable investment should consider measurable social and environmental impact as well as financial returns. The impact can come in a variety of forms – quality jobs, housing, clean energy, and water or boards and management with diversity. An excellent example of a private company creating impact is Revolution Foods that serves more than one million affordable, healthy school lunches every week in public, charter and private schools.
This example shows how capital can be a force for good, but the long-term financial imperative to invest is growing too. With a global population of 9 billion people forecast for 2050, increased effects of climate change and dwindling natural resources, we should see stakeholder value increasingly driving shareholder value – not detracting from it. Grants and government aid alone are insufficient to meet these challenges.
Women and millennials stand to benefit from a $40 Trillion transfer of wealth in coming decades.
We need to harness the power of the capital markets and investment portfolios. Fortunately, the growing impact investment movement, with investments of more than US$8 trillion in the U.S., may be a solution. Impact investing now makes up US$1 of every US$5 investment dollars.
Women and Millennials stand to benefit from a $40 trillion transfer of wealth in coming decades, and 3/4 of them say they will invest in things that align with their values. The truth is that all investments have positive and negative impacts and it can be difficult to identify and account for them.
7. Roger Ying, Pandai.
To make an investment sustainable we look at the core business model behind it: revenue, costs and the cost of capital. We ask if it can turn a profit and continue over a period, keeping all stakeholders in the investment happy. Social impact investments tend to lead to the ‘forgotten’ markets. In China, for example, this might be the rural farmers, which usually means a highly underserved, inefficient market with weak competition. In these type of markets, there is decent profit to be found, although it’s mostly about controlling the risk.
Look at your risk tolerance, relative to the reward.Understand where you are and what type of investment risk you’re prepared to take at specific stages of your life.
As an example, we may finance organic farmers in Yunnan province with a US$15,000 loan, which in one year can return a US$15,000 net profit. Compare this to the US$3,500 a year they make from low-level jobs, and it’s evident that this formula creates poverty alleviation. The investment also helps provide high-end, organic pork that fetches a premium in cities. The biggest investment tip I can give is that you should understand the asset you’re investing in from the ground up; understand the fundamentals of the asset.
This year is a fascinating one. There are many political changes and geographic uncertainties. Value systems are changing, and we should be asking ourselves about the intrinsic value of money in our bank accounts – affected by central bankers inflating the world economy. Look for assets that create real value or have intrinsic value over a length of time.
www.pandai.cn
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