“Impact investing is the process of aligning the assets one has allocated to achieving a financial return with values and to measure and respond to the data of both performance and alignment over time,”
–Chris Hale, founder and CEO of microtrade finance firm kountable
Up until this point, I still hold the general impression that sustainability something that is out the minds of investors when it comes to choosing stocks. My financial background has taught me that the investors, regardless of their asset level, will strive to maintain and increase its numerical value. Despite of the heat and debates that we hear in the academic and business community, we are still waiting for a for-profit organization (preferably multi-national giants) that places sustainability before profit.
A new concept, Impact Investing, aims to marry the profitability and the dedication towards social good. Coined by Chris Hale, the guidelines for such an investor add an additional criterion to the existing rick-and-return trade-off portfolios. Investors dedicate their money and decide to earn an income by solving problem XYZ. Alternatively speaking, this elevates the level of decision-making from simple profit to meaningful impact. The investor is expected to align the investment with their person values and objectively evaluate the return. Naturally, we would be concerned about the feasibility to quantify the various externalities that influence the stock performance. When environment and resource is added into the formula, the mechanic model not only increases in complexity, but also increases in difficulty to gain updated and adequate level of data to retain the statistical significance of the analysis. The data problem is evident, as admitted by Hale, and they are still in a process of formulating a systematic way to simplify the decision-making process.
I personally found the notion to be unique; however, I feel that the definition provided could be further improved to reduce ambiguities. Investment is always a choice, and Impact Investment is not an exception. Although Hale emphasised that Impact Investment will not compromise the financial prospect of a portfolio, this seems to contain some inherent uncertainties. Theoretically speaking, the emergence of companies is directly relevant to the needs of the general public, which could be referred to as opportunities or potential problems. For example, the computers and appliances that we purchases often contain an “ENERGY STAR” certification, denoting a reduction in power and resources consumed. It could be safely claimed that every established company, regardless of the scale and industry, are deemed to solve problem X, problem Y or problem Z. This really challenges the claim of solving problems. What should be the important problem by Hale’s definition? Are there further criteria that help investors to identify companies that are truly dedicated, rather than coating their business in green? There are still some explorations needed with the questions raised above, as the concept evolve and mature though practice.
Image retrieved from Google, and the image about World Problem is founds from: http://propertyupdate.com.au/biggest-problems-facing-australians-world/
(the only two countries that contains such plot is Australia and New Zealand. it is chosen for pure graphical representation purposes)