April 2016 – Daniel Lau's Blog

April 10, 2016

The Future of Impact Investing is About Measuring Impact

Impact investing has been gaining traction as it has evolved over the years with the shift in consumer mindset from the sole purpose of business and investing is to make money to one that also includes solving social and environmental issues. Yes, for-profit investing is both morally legitimate and economically effective in addressing social and environmental challenges but impact investing refers to investments made into entities with the main intention of generating a measurable and beneficial social or environmental impact alongside financial return.

“Positive externalities” can be a better way to see the nature of impact investments. For example, companies such as Tesla and SolarCity were built because building advanced technology infrastructures that harness and utilize renewable energy sources in productive ways provides both positive returns for investors and the environment. These positive externalities need to be displayed in a way that is clear to investors, showing the actual impact that their investments have on social or environmental problems and how the corporations that they are investing in differentiate themselves as impact companies that solve problems that are more important than traditional that solely focus on delivering value and solving problems for their customers.

So, why is the future of impact investing all about measuring impact? In these recent decades, investors have become more clear about what they want from their investment and corporations have become more capable at capturing, analyzing, and presenting data related to their triple-bottom-line results through sustainability-impact reporting. So, who cares about measuring impact? The millennials will play the main role in the future of impact investing as they are the main recipients of the largest wealth transfer in all of history. People in this generation have become more open minded and conscious of sustainability. In order for this generation to be convinced that sustainability is the solution to long-term success of not just companies but also the planet, impact needs to be measured and displayed in a meaningful way that instigates and drives action beyond awareness.

Source: http://www.sustainablebrands.com/news_and_views/new_metrics/mike_hower/chris_hale_future_impact_investing_about_measuring_impact

April 9, 2016

How to Make a Material Impact on Your Company’s Sustainability

Three trends have been on the rise for sustainability: the number of companies in the S&P 500 has increased by almost 40 percent, a majority of CEOs believe that measuring analyzing, and reporting triple bottom line data with corporate sustainability ratings is key to long-term success, and a high majority of sustainable corporations in the Corporate Knights Global 100 list distributed bonuses to executives who achieved sustainability targets. With these in mind, the question now is “what is the first step that new corporations should take in their pursuit to becoming sustainable?” The answer: start by understanding what is material in the business, specifically the core inputs or factors that contribute to the long-term success of the business.

Once these material inputs and factors have been determined, corporations need to set high-impact goals. This requires corporations to not only report their Key Performance Indicators (KPIs) in their reports, but to also set and report their goals in relation to their KPIs and the ability of the planet to support its activities and operations indefinitely financially, socially, and environmentally. With these sustainability goals put in place, corporations can be more conscious about the business decisions they make and how they execute their activities, which leads to the last step of planning for and executing successful implementation of sustainability initiatives.

There are three key material inputs and factors that will contribute to the long-term success of corporations: people, process, and technology. With regards to people, there needs to be a team fit for driving this sustainability strategy and this will involve employees across the board from operations to management to finance and even to human resources. The key to mobilizing people successfully is to engage employees in the mission to have a mindset of meaningful impact. With regards to process, corporations need to have the right policies in place and accountability and transparency to enforce those policies. Investors and the general public need to be able to see how companies do what they do. Lastly, technology has been one of the biggest drivers of evolution and growth for corporations and continues to be to this day. Corporations can take advantage of this new age by creating new software solutions that are committed to managing and driving sustainability to the forefront. There is huge potential in technology and with the right technology, corporations can inherit and maintain long-term success with their sustainability goals at the core.

Source: http://www.sustainablebrands.com/news_and_views/new_metrics/micah_remley/how_make_material_impact_your_companys_sustainability

April 8, 2016

It’s All Relative – The Fatal Flaw in Corporate Sustainability Ratings

Corporate sustainability ratings are becoming the gold standard that business leaders, investors, and the general public look for whether it is analyzing a company or simply getting a first impression. The main reason why people look to these corporate sustainability ratings is because they desire to distinguish the sustainably invested corporations from those that are not. However, using these corporate sustainability ratings to do so does not, in fact, allow people to truly see that difference.

What do sustainability ratings do? They evaluate companies based on key performance indicators (KPIs) that address different economic, environmental, and social issues. Some examples of these triple-bottom-line characterized KPIs include energy productivity, carbon productivity, water productivity, waste productivity, innovation capacity, percentage tax paid, CEO to average worker pay, pension fund status, safety performance, employee turnover, and leadership diversity. However, all of these sustainability ratings have one flaw and that is not connecting these KPIs to the broader sustainability context in which companies operate. For real value and results to be revealed from measuring corporate sustainability, there needs to be a clear connection between a company’s performance and nature and society’s capacity to indefinitely support its activities and operations.

How can sustainability ratings me made useful? Right now, many companies are only reporting their KPIs and sustainability ratings through absolute and relative measurements that only give the results of the KPIs themselves and no information on how they relates to whether the specific levels of performance for a given KPI are sustainable or not. What needs to be answered is “does the earth have the ability to support these companies’ levels of performance?” The solution to this is the standardization of KPIs, where standardized targets will be created across the board for all KPIs and bonuses and penalties will be applied to scores that exceed or fail to adhere to the required standard. Each KPI will be given a specific weight and will be amalgamated to form an overall corporate sustainability rating.

Now that there is a clear connection between the corporate sustainability rating and the earth’s ability to support companies’ activities, the questions that now remain are “how do we decide how much weight to put on each KPI? How will we accommodate and standardize new KPIs across the board? How should we penalize companies that do not meet the standard for its corporate sustainability rating? And how will we get more companies to join in this initiative?

Source: http://www.sustainablebrands.com/news_and_views/new_metrics/cory_searcy/its_all_relative_fatal_flaw_corporate_sustainability_ratings