In the age of pandemics we need to build an economy based upon well-being, not capitalism.

With Wall Street experiencing the largest losses in the shortest period of time due to the coronavirus, some are asking, "is this the end of Capitalism in its present form?"

Robert

In the age of pandemics we need to build an economy based upon well-being, not capitalism.
With Wall Street experiencing the largest losses in the shortest period of time due to the coronavirus, some are asking, &quot;is this the end of Capitalism in its present form?&quot;
Equally, some fear that ESG and Impact Investing (Sustainable Investing) will fall out of favour during this period of hunkering down. But now more than ever, creating an economy based upon well-being is absolutely critical. Investing in companies that integrate social and environmental risks and work for stakeholders, and not just short-term shareholders, will prosper.
We need a society that is resilient and provides a support mechanism for the entire population. This will allow the economy to weather these storms and prevent outbreaks of pandemics and societal collapse.
But one of the greatest challenges in trying to integrate sustainability into the investment mindset is the issue of proof. Investors unfamiliar with a specific strategy want proof. But the issue is not proof, but belief. If one looks at how much research was done on CDO (collateral debt obligations) as a risk, there was little. But how much money went into CDOs, despite the lack of proof? Too much. Those investors believed, without proof, that CDOs linked to mortgages would churn out returns forever.
The reason for ESG and impact investing’s rapid growth is because it describes a form of investing that has multiple beneficiaries, and not only the investor. It looks at all risk factors: social, environmental (climate change) and governance, as well as financial. If a company has extraordinary social performance, it often spends less on hiring the best and the brightest, and it retains them for longer. Most employees are looking for some purpose. Additionally, companies that have excellent environmental performance, often waste less, pay fewer fines, user fewer raw materials and energy. All of this leads to higher returns and lower risk.
Most importantly, ESG and impact investing has inherent within it the concept of values or principles, which are rooted in how most of us were raised. There is a face added to the investment and not only a number. It is not particularly tied to one set of religious beliefs or another.
Various reports and agreements have been instrumental in growing the market. But the big driver of ESG and impact investing is resource depletion from emerging markets’ economic growth.
Lester Brown, of Earth Policy Institute, has highlighted the stresses coming from China’s growth. At 8 percent growth, China would reach US consumption levels in 2030. This would translate to an oil consumption of 60 million barrels per day for China (present consumption is about 84 million worldwide). This massive commodity requirement is even worse if we look at grain, iron ore, paper, coal, steel, and meat. If we then add India to the mix, and then the other three billion in emerging markets and the developed world, one can see that linear growth is not possible at this level of inefficient use of resources. We won’t have enough.
“The Western economic model — the fossil-fuel-based, automobile- centred, throwaway economy — will not work for China,” says Brown.
To avoid conflict for resources, the real opportunity for the financial sector is a massive drive for resource effectiveness or efficiency, which is what sustainability is about. Doing more with less. This also translates into more profitability.
Many like to consider ESG or impact investing as a niche. Let’s look at it as a big party and we got there early. What are the barriers to the growth of ESG and impact investing?
<ul><li>The financial sector (asset owners and managers) know what they already know, and it is challenging to get new thoughts through.</li></ul>
<ul><li>The media gives little attention to the issue of sustainability.</li></ul>
<ul><li>Few incentives exist for analysts or fund managers to truly embrace ESG and impact investing.</li></ul>
<ul><li>Product prices don’t reflect their true cost. If you buy a bicycle in Europe there will be nearly 21 percent in sales tax. If you buy an aircraft ticket, there is no sales tax or taxes on kerosene.</li></ul>
<ul><li>Many wealth advisors and gatekeepers have not been educating their clients about ESG and impact investing.</li></ul>
<ul><li>MBA schools have been teaching traditional courses and few were offering a fully integrated teaching programme on sustainable finance. This is slowly changing.</li></ul>
<ul><li>A key challenge is management isolation. There is always a barrier to new information getting through, and a network of management also thinks along the same lines. Getting new information is very hard.</li></ul>
<ul><li>Most importantly, the financial sector was not convinced about ESG and impact investing. That is changing, slowly.</li></ul>
At present, certain wealth holders are re-examining the traditional 19th century approach to philanthropy. Take the assets, create an endowment or trust or foundation, invest that money and then you give away 5 percent of the interest. This 5 percent is subsidised by taxpayers. Many of the very large foundations, Rockefeller, Ford, Gates, don’t invest their principal in line with their values. In fact, many of these institutions invest in companies and projects that negate the good work of the foundation. The difference is the sums of the principal are 20 times larger than the foundation grants.
What if we took the principal and invested in a risk-adjusted portfolio that clearly aligns the values of the asset owner with the investments? We would be using 100 percent of the principal versus 5 percent of the returns. If we gave 5 percent of the returns, we would be using 105 percent of the money. That is impact.
With current low interest rates, the conversation between wealth holders and wealth managers is rather poor and not very inspiring. The wealth managers will say “sorry your portfolio is down 3 percent because interest rates are low”. That liquid side of the portfolio represents the vast majority of the portfolio. If one engaged a client with Investing 2.0 in illiquid investments, that conversation would be much more engaging and passionate, despite it being very small. Impact investing instils passion and excitement.
If one looks at the anticipated transfer of wealth (US$30 trillion) in the coming 20 to 30 years to ‘Gen Z’ and millennials, this is a massive opportunity. Gen Z values are not only financial. They are more willing to align their values with their investments.
It seems only true ESG and Impact Investors understand the big picture and the need to look at all risks and returns. This will only grow. Let&#x27;s face it - a society where businesses&#x27; main focus is profit maximisation at the cost of society, is a strategy doomed to fail.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.
<h6>Cover photo by <a href="https://unsplash.com/@edwardhowellphotography?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Edward Howell</a> on <a href="https://unsplash.com/photos/VlTJdP8ZY1c?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a>​ </h6>

Why Impact Investing Is More Important Than Ever

Is so much money really going into ESG and Impact, or is the definition incorrect? Has ESG and impact become synonymous with a membership card to a fitness club but never going?  Has any of this money really addressed the challenges that they were intended to help, fix or address?

<img src="https://illuminem.b-cdn.net/articlebody/5a1c871de1bbc7fc417d26946a370fdcd0c1e727.png" alt="undefined" />
When I started working 25 years ago to change the financial system so it worked for multiple stakeholders, there was tremendous pushback from Asset owners, managers, service providers, rating agencies, etc. Many think it was smooth sailing in Europe. The opposite is true. I remember being asked to speak to the Dutch insurance industry about climate risk. I said &ldquo;The Netherlands is below sea level. Sea Level are going to rise, I would be concerned.&rdquo; The answer I got from the audience showed how low a level of awareness existed. &ldquo;It is not a problem for us if sea level rises. We don&rsquo;t cover salt water damage.&rdquo; I told that insurance executive &ldquo;that is true but you give mortgages. If 200.000 homes are underwater, you have a big financial disaster&rdquo;. We have come a long way. Unfortunately the money flows and definition has given a false sense of success. I think we have failed miserably.
Based upon the money flows, one would say it has been a resounding success. &ldquo;ESG assets may hit $53 trillion by 2025, a third of global AUM&rdquo; according to Bloomberg Intelligence&nbsp;February 23, 2021 In addition, there never has been so much attention via media, business schools, policy makers, impact network associations, conferences, press releases talking about ESG and Impact. We won! Or did we.
The assorted Social Investment Forums claim 40 Trillion dollars committed to ESG, already, in one shape or form. Are these figures accurate?
Is so much money really going into ESG and Impact, or is the definition incorrect? Has ESG and Impact become synonymous with a membership card to a fitness club but never going. Has any of this money really addressed the challenges that they were intended to help, fix or address?
The environmental and societal challenges the world faces, after all the trillions going into ESG, are staggering. ESG and Impact Investing seem to be a failure.
<ul>
<li>Climate Change Destruction</li>
<li>Biodiversity loss</li>
<li>Water Shortage</li>
<li>Food shortage</li>
<li>Health Crisis (Diabetes)</li>
<li>Income Inequality (Living Wage)</li>
<li>Pollution</li>
<li>Threat of War</li>
</ul>
All of the above have grown significantly despite the money flows that were intended to reverse the trend.
A family office in Singapore asked me to stop by to discuss ESG and Impact Investing, as this family was transitioning from intensive fossil fuels to sustainability. The head of the Family Office said &ldquo;Robert. We don&rsquo;t understand how can the most toxic companies score so well on ESG Sustainability Indexes:
<ul>
<li>BP &amp; Shell-Carbon intensive and climate change criminals</li>
<li>Unilever-Semi-toxic cosmetics and processed food.</li>
<li>Pepsico-Diabetes from snacks and sugar water&rdquo;</li>
</ul>
I had to explain that the methodology used for ESG assessment is not what the company does but how it reports.
If one looks at institutional investors like pension funds, they began claiming ESG alignment because they were engaging with the companies through intermediaries. Engagement was very popular as nothing had to change, the pension funds maintained their positions and an intermediary spoke to the companies that the asset owner wanted to see behavioural change. Were they really changing the behaviour of the companies to address climate risk? Not really.
Impact and ESG Network organisations were building up their members who all were claiming commitment to ESG and Impact. If you &ldquo;pull up the kimono&rdquo;, nothing substantial is there. Often empty gestures, but all want to be seen as part of the club, because that is where the money flows were going. Don&rsquo;t want to miss the party.
The ones who have benefitted from ESG and Impact Investing are:
<ul>
<li>Fund managers (fees)</li>
<li>Inst. Investor Box Tickers</li>
<li>Aspirational Club Members</li>
<li>Service Providers</li>
<li>Advisors</li>
</ul>
Society and the environment has not benefitted.
<h2>Why has ESG become so popular?</h2>
The reason for ESG&rsquo;s rapid&rsquo;s growth is because it has multiple beneficiaries, and not only for the investor. It looks at all risk factors; social, environmental (climate change), governance as well as financial.
If a company has extraordinary social performance, they often spend less on hiring the best and the brightest and they retain them longer, as most employees are looking for some purpose. Additionally, companies that have excellent environmental performance often waste less, pay fewer fines, use fewer raw materials and energy. All of this leads to higher returns and lower risk.
But the really big drivers of ESG and Impact investing is at the macro level of resource depletion, being driven by emerging market economic growth. At 8 percent annual growth, China would reach US consumption levels in 2030. This would translate into an oil consumption of 60 million barrels per day for China (present consumption is about 84 million worldwide).
This massive commodity requirement is even worse if we look at grain, iron ore, paper, coal, steel, and meat. If we then add India to the mix, and then the other 3 billion in emerging markets and the developed world, one can see that linear growth is not possible at this level of inefficient use of resources or present business model. We won&rsquo;t have enough.
The real opportunity for the financial sector is a massive drive for resource effectiveness or efficiency, which is what sustainability is about. Doing more with less. This also translates into more profitability.
When a wealth manager engages their clients on ESG investments, that conversation can be much more engaging than traditional investing. Impact Investing instills passion and excitement. If one looks at the anticipated transfer of wealth &ndash; some US$30 trillion- in the coming 20-30 years to Gen Z and Millenials, this is a massive opportunity.
Gen Z values are not only financial. They are more willing to align their values with their investments. As information, education and infrastructure for ESG Investments increases, the market will grow even faster.
The market is clearly there but the way ESG is done now is just a death march in the wrong direction but slower. Fortunately, many asset owners are realizing this and demanding investment that is regenerative in nature or far less harmful. This message was clearly made with the announcement of the launch of <a href="https://www.netzeroassetmanagers.org/">Net Zero Asset Managers</a> The Net Zero Asset Managers initiative is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050. I hope this is not another empty promise wrapped in a shiny press release. We have had enough of that. Let&rsquo;s stop the ribbon cutting and grab the shovel and do the work.
<blockquote>"There is no more neutrality in the world, you either have to be part of the solution or you&rsquo;re going to be part of the problem &mdash; there ain&rsquo;t no middle ground." - <a href="https://www.doublequotes.org/quotes/authors/eldridge-cleaver/">Eldridge Cleaver</a>​</blockquote>
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.

ESG & impact investing: death march in the wrong direction, but slower

Based upon the money flows, one would say ESG has been a resounding success. Investors poured US$54 billion into bond funds specialising in ESG impact as of August 2021, according to Morningstar, which said 2021 was on track to surpass 2020’s record. This is on top of the claims of US$40 trillion committed to ESG. Unfortunately, the money does not seem to have addressed the issues at stake, such as water shortages, biodiversity loss and climate-change destruction.

Based upon the money flows, one would say ESG has been a resounding success. Investors poured US$54 billion into bond funds specialising in ESG impact as of August 2021, according to Morningstar, which said 2021 was on track to surpass 2020’s record. This is on top of the claims of US$40 trillion committed to ESG. Unfortunately, the money does not seem to have addressed the issues at stake, such as water shortages, biodiversity loss and climate-change destruction.
This is because the methodology used for ESG assessment is not what a company does, but how it reports. Greenwashing is prolific, so there needs to be more transparency.
No doubt there is huge demand to invest in ESG companies. ESG describes a form of investing that has multiple beneficiaries, and not only for the investor. It looks at all risk factors: social, environmental (climate change), governance, as well as financial.
If a company has extraordinary social performance, it often spends less on hiring the best and the brightest and retains them longer, as most employees are looking for some purpose. Additionally, companies that have excellent environmental performance often waste less, pay fewer fines, and use fewer raw materials and energy. All of this leads to higher returns and lower risk.
The real opportunity for the financial sector is a massive drive for resource effectiveness or efficiency, which is what sustainability is about. Doing more with less. This also translates into more profitability.
When a wealth manager engages clients on ESG investments, that conversation can be much more engaging than traditional investing. Impact investing instils passion and excitement. If one looks at the anticipated transfer of wealth — some US$30 trillion — in the coming 20-30 years to Gen-Z and Millennials, this is a massive opportunity.
Gen-Z values are not only financial. They are more willing to align their values with their investments. As information, education and infrastructure for ESG investments increases, the market will grow even faster.
The market is clearly there, but the way ESG is done now is going in the wrong direction. Fortunately, many asset owners are realising this and demanding investment that is truly regenerative in nature or far less harmful. This message was clearly made with the announcement of the launch of Net Zero Asset Managers. This initiative is an international group of asset managers committed to supporting the goal of net-zero greenhouse-gas emissions by 2050.
Let’s hope this is not another initiative that sounds good but never delivers.
This article has been lightly edited for clarity. It is also published on <a href="https://www.bllnr.com/philanthropy/comment-the-power-of-impact-investing">Billionaire</a>. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

The Power of Impact Investing

Billions have been raised to help fix societal and environmental challenges. Should we be thrilled or skeptical? Robert Rubinstein chooses the latter.

Over the last 5-10 years, there has been a tidal wave of investment funds, all claiming to have Impact Investing focus. In a time when we need more investment going into societal and environmental restoration, this development is encouraging. 
We often don’t see so many investment professionals raise money, governmental institutions allocate money, or asset owners invest their own to fix or improve society. Admirable and noble. 
Billions have been raised to help fix societal and environmental challenges. Should we be thrilled or skeptical? I choose the latter.
If one looks at some of the mission statements or ambitions of several of the funds created recently, we can only feel that the tide is turning:
<ul><li>“investment platform focused on generating superior returns aligned with sustainable principles.”</li></ul>
<ul><li>“Assist great entrepreneurs developing products and services for the three billion people in the bottom half of the world’s economic pyramid.”</li></ul>
<ul><li>“We invest to build more inclusive and equitable societies.”</li></ul>
<ul><li>“We back founders on a mission to build a better world.”</li></ul>
<ul><li>“dedicated to startups leveraging exponentially accelerating technologies to address humanity’s grand challenges.”</li></ul>
<ul><li>“investing into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.”</li></ul>
<ul><li>“seeking deeper positive net impact across the spectrum of capital.”</li></ul>
<ul><li>“We believe that investment capital can help meet large-scale global challenges.”</li></ul>
<ul><li>“enables private sector investment in projects aimed at climate adaptation and mitigation in developing countries.”</li></ul>
<ul><li>“We back entrepreneurs building climate tech for a regenerative world.”</li></ul>
<ul><li>“Our ambition is to identify and invest in high- impact solutions for climate mitigation, as well as to catalyse and multiply capital to scale them.”</li></ul>
<ul><li>“family office investing in regenerative food systems.”</li></ul>
<ul><li>“vision to invest in entrepreneurs building sustainable enterprises that can catalyze development impact for excluded communities and remote geographies across the globe.”</li></ul>
<ul><li>“support promising entrepreneurs, with growth capital and proven business tools to reach their full potential and enable them to achieve systemic change.”</li></ul>
<ul><li>“backs technology businesses committed to having a positive impact that answers the most pressing social and ecological challenges of our time, in a way that is both scalable and sustainable.”</li></ul>
<ul><li>“invests in companies driving measurable social impact alongside business performance and strong returns.”</li></ul>
<ul><li>“we believe that we can address and alleviate some of the world’s challenges by investing with purpose.“</li></ul>
Mission statements are intended to inspire and act as a flag in the ground. Where the organization intends to go. My question is are these investment funds or investors really purpose driven or do they revert to traditional investment mind set of “hunting unicorns”. Those companies that will have a 1 billion dollar valuation. 
Isn’t that the purpose of investments to maximise returns for the investor. That is why they are hired and compensated. No issue there. My issue is with the false packaging. If you are just hunting unicorns, just say so, so the entrepreneur won’t lose any time who’s mission is not to be a unicorn, but a zebra (focussed on improving society and environment, not exponential growth) . Most investments will never be unicorns.
It is hard to start and run a company and do the continuous capital raise. They should not be wasting their time with investors that want to be entertained, informed or are pretending to be interested when they are just researching competitive investments. Perhaps the most important question to ask an investor is “are you a unicorn hunter?”. 
If they are and your ambition is to draw down carbon by improving the soil and livelihoods of small holder farmers, without any apps, then the fit is wrong. If you want to create meaningful jobs for unemployed youth by doing vocational hospitality training then unicorn hunters are not going to help or invest. If you are a long term developer to de-commoditise the food system then don’t bother with unicorn hunters. If the mission or purpose is your raison d’être, then you are not helped and won’t get money from unicorn hunters. They are looking for an app, few employees, super fast scaling, warp speed growth and monopoly. It is a win-lose approach mindset.
Many investors and most venture capitalists are fund managers driven by achieving the carry, asap. Few ever ran a company. Growth, Market share, IPO’s are the mantra. They are looking for that big payoff as soon as possible. Zebras won’t do that, unicorns will. Maybe they will. At least in the eyes of unicorn hunters they will. If you are looking to fundamentally restore the social and environmental balance first and foremost, as well as make a profit to fund all your activities and growth, avoid unicorn hunters; especially those pretending to be impact Investors. Those are the worst. They wrap themselves in something that is important to you, but has no value at all to them. Be discerning.
Ask them are you a UH (unicorn hunter) or II (Impact Investor)?
As Groucho Marx stated it: &#x27;The secret of life is honesty and fair dealing. If you can fake that, you’ve got it made.&#x27;

Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy &amp; Sustainability writers, their opinions do not necessarily represent those of illuminem.

Robert Rubinstein

Robert Rubinstein

Why Impact Investing Is More Important Than Ever

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