Impact Investing
Markets / Platforms

What exactly do online “impact investing” platforms have to offer?

Burgess COMMENTARY
There has been talk about the importance of impact investing for many years, and the talk is accelerating ... but the impact of impact investing is essentially irrelevant up to this point. I argue that the primary reason for this is that the essential metrics about impact are missing. Profit reporting is based on a double entry money accounting system ... but there is nothing like it for the impact dimension of company performance. In order for impact investing to get serious traction there has to be value accounting as well as money accounting and while there are initiatives to improve reporting (like GRI, IR. IRIS, SASB etc) none of these incorporate an underlying value accounting architecture. The various market initiatives are interesting, but without the underlying impact data, they will not be able to get much traction. Peter Burgess http://TrueValueMetrics.org
Peter Burgess

What exactly do online “impact investing” platforms have to offer? So many new online “impact investing” platforms were launched recently e.g Swell Investing, Open Invest and Motif. The premise is the same and a bit familiar by now: Millennials value impact and meaning in their investing decisions but no accessible solutions are available for them. Let’s forget for now about the existence of various crowdfunding platforms already enabling this (such as Trine, Lendahand, and Wiseed), and focus on the fact that Swell and others are supported by big groups- and millions of capital – and presumably offer highly customized and automated solutions helping you “solve big problems”. I decided to sign up to them and observe directly what they have to offer (I was also secretly suspecting that they are mostly “impact washing” stock brokers trying to differentiate a bit). Swell Swell is quick to turn out nothing more than a sophisticated broker of “responsible” listed “cleantech” stocks. Categories of stocks include “green tech”(e.g Edison, Philips) “healthy living”( e.g Whole foods, Unilever), “zero waste” (recycling companies), of course, “green tech” (e.g Tesla) and “renewable energies”. Open Invest Open Invest, starts by asking you what you care about (reduced emission, gender equality, LGBT equality and..that’s it), then ask you to exclude a list of Industries: Tobacco, weapon and…. Trump-related; I liked the definition of Trump category so I am copy/pasting it fully here:“Many Americans feel upset, disenfranchised, and frightened by the election of Donald Trump to the American presidency, as well as his subsequent staffing selections. But you don’t need to wait four years to vote for change. Selecting this theme excludes companies whose executives supported Trump during his candidacy, and it overweights companies who openly refused to back Trump or removed their support for the Republican Party once Trump was chosen as nominee. The theme also takes the “strong” position of screening retailers who sell products with the Trump name”. Ok, let’s do this. I try hard to be a good citizen, so I select all values, exclude all nasty industries, and end up with these stocks: American Airlines, Activision, Comcast, Cisco etc. Clearly, it is a broker where you are allowed to have an exclusion list and select companies who are making some (small) efforts with their staff to prevent discrimination and improve governance. Sorry, impact investing is a bit more than that. Motif Oh, I forgot about Motif. It is the same approach, unsurprisingly. However, you can select only one value. The one you care the most about. Yes, life is tough and you cannot have everything, so you need to prioritize: sustainable planet, fair labor or good corporate behavior. I go with fair labor and I get these stocks: Facebook, JP Morgan, Honda etc. I trust you got the story by now. So what?, you might think, It is better than nothing, at least there are some effort to do good. Let’s take a deep breath, sit back and remind ourselves of the definition of impact investing. It requires intentionality of impact at the core of the investment strategy. Impact investing also require specific and demanding set of skills, affinities and investment mindset. Unfortunately, many players merely doing responsible investment (RSI), call themselves “impact investors”, adding more confusion to the market while removing any requirement of intentionality. I mean, are you seriously trying to solve world’s big problems by investing in Facebook and video games? In short, what I suspected revealed to be unfortunately true. Nevertheless, after this world-changing investigative work, let’s stay constructive. Are there “real impact” alternatives out there? Well, I mentioned some crowdfunding platforms at the start, that are supporting honest and ambitious social entrepreneurs with clear impact mission. Something like Ethex looks really good to me, and I really hope it can be extended to other markets. An idea is to invest in making such platforms more user-friendly, adopting the same approach as the ones above, by sourcing more diverse (unlisted) projects and helping the investor filter out those that do not top her/his value list. When it is ready, I am happy to put back my investigator hat and do some tests! Update: two months ago, this was launched, more in line with “real” impact investing