This week’s conscious capitalism in the news: Impact investing - What is it? Can anybody do it? Greenwashing - What is it? Who’s doing it? How can you spot it? A tsunami of women impact investors on the horizon, The Gap Inc. steps up its sustainable water game, and more…
Traditionally, we pay our bills, make our investments, and perhaps, if we have something left over, write a check or two to our favorite charity. Impact investing takes care of the last two in this list. Combining philanthropy and investing gives us the opportunity to both vote with our dollars and generate a return.
What is impact investing?
Impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return. – GIIN
Impact investing opportunities generally involve organizations that have a stated mission or purpose. This could be anything from creating affordable housing domestically, providing clean water to those without it in developing countries, or reducing the pollution in our oceans.
Do I have to be an accredited investor to participate?
No. Anyone can do it. There are several ways everyday folks who are not accredited investors can take advantage of generating returns (both monetarily and materially) and making an impact in an area they care about.
Mutual funds, ETFs, and Separately Managed Accounts
There are increasingly more and more mutual funds that promote environmental and social causes. More recently, financial technology has made investing in green or socially responsible mutual funds available to everyone without the need for a broker. Companies like Swell offer investment opportunities for as low as $50.
Community Supported Agriculture (CSA) initiatives are steadily increasing across the country. Put simply, an investor subscribes to a particular community farming organization, or harvest, and receives, as a return, food directly from them. This paradigm cuts out the middlemen and gives investors access to fresh, healthy food. (Look into any CSA initiatives in your area.)
Microfinancing provides small loans towards projects that have a social return. It could be providing microentrepreneurs at the base of the economic pyramid with small business loans. It could be providing funding for a new school in a small developing corner of the world. There are a myriad of opportunities out there. Google away. Microfinancing institutions connect the investor to the project so that you can invest in a space that you both believe in and believe has the potential for financial success.
Buying shares in green tech supports a needed move away from fossil fuels in a competitive and booming industry. These opportunities can range from solar, wind, geothermal, and hydro to efficient building materials, energy storage and more. This space is growing rapidly and offers a variety of options.
We have the tremendous opportunity to not just keep pace with the traditional capital markets, but to reinvent them entirely. The decisions we make today have the potential to shift attitudes, transform systems, and build the sustainable economy of the future. – GIIN 2017 Annual Impact Investor Survey
The buzz in the investment world about women investors is that because women are generally more likely to search for products and companies with connections to what is important to them, they are also more likely to engage with investments where issues of social responsibility and the environment are prioritized.
It is said that women investors generally tend to take a more holistic approach to investing as they are more interested in investments that support their values in tandem with financial returns.
- A study of women aged 25 to 70 with household income over $75,000 by Calvert Investments reflected that 95% of ranked “helping others,” and 90% ranked “environmental responsibility,” as important.
- Currently, women control 51% of the personal wealth in the United States. That $14 trillion is expected to rise to $22 trillion by 2020.
- Meanwhile, Impact investing has grown into a multi-billion dollar market. The Global Impact Investing Network (GIIN) anticipates that impact investing market will continue to expand to $500 billion by 2020.
An increasing number of companies are working towards attracting women investors who are committed to seeing social and environmental returns along with their financial returns. And they are using social media and influencer marketing to do it.
The coupling of a new breed of investor with a new breed of investment vehicle, both of which prioritize environmental, social and governmental concerns, is a potential tsunami push for creating social and environmental change within the markets. If the financial experts making these predictions are correct, we should see some exciting stuff happening soon.
The Global Impact Investing Network (GIIN), has launched its Roadmap for the Future of Impact Investing: Reshaping Financial Markets. The Roadmap looks at industry progress to date, discusses trends that will play a part in the future, and actions that can accelerate the development of the industry.
The Roadmap details six categories of action to drive progress:
- Strengthen the identity of impact investing by establishing clear principles and standards for practice;
- Change the paradigm that governs investment behavior and expectations about the responsibility of finance in society via asset owner leadership and updated finance theory;
- Design tools and services that support the incorporation of impact into the routine analysis, allocation, and deal-making activities of investors;
- Develop products suited to the needs and preferences of the full spectrum of investors, from retail to institutional and of various types of investees;
- Increase the supply of trained investment professionals and the pipeline of investment-ready enterprises through targeted professional education;
- Introduce policies and regulation that both remove barriers and incentivize impact investing.
The Roadmap also discusses broader trends that will affect investing overall such as automation, fintech, blockchain, big data, crowdfunding, and wealth transfers to women and younger generations. While the report acknowledges the distance that impact investing has come over the last decade, it does not shy away from the challenges facing our world today.
Notwithstanding the progress to celebrate in the impact investing industry, the needs to address continue to loom large. Exploding inequality is kindling great political turbulence in many parts of the world, even as close to a billion people live in poverty .- Roadmap for The Future of Impact Investing, GIIN.
Since 2014, Gap Inc. projects have saved more than 2.4 billion liters of water. Recently, Gap Inc. has announced a new goal of saving 10 billion liters of water by the end of 2020 – the equivalent of the daily drinking water needs of 5 billion people – by committing to continue both product innovation and efficiency improvements at fabric mills and laundries.
In addition, Gap Inc. is taking action globally to reduce its environmental footprint in its retail operations and across its supply chain. It has committed to a 50% reduction of greenhouse gas emissions in its owned and operated facilities globally, and to divert 80 percent of its waste in the U.S. from landfills by the end of 2020.
We believe that access to clean and safe drinking water is a fundamental human right, so we strive to ensure that the process of making our clothes is safe for people and communities. It’s not only the right thing for people and the planet, it’s also crucial for our business growth. – David Hayer, Senior Vice President of Global Sustainability and President of Gap Foundation at Gap Inc.
You can read more about Gap Inc.’s sustainability initiatives at http://www.gapincsustainability.com/
Environmental, social and governance (ESG) indices are sometimes overgeneralized in the media as a mere trend from the conscious capitalism movement when in reality, they are a superior form of risk management.
Projects such as mining, fossil fuel extraction, chemical plants, pipelines, and factories carry intensive risk that can not only affect the environment, employees and surrounding inhabitants, but also investors. One need not look any further than the BP Horizon incident which destroyed shareholder wealth by 55% and resulted in billions in fines.
Banking and insurance industries are particularly interested in being able to access information on infrastructure projects. And corporations themselves are increasingly interested in monitoring and evaluating their own ESG risks in their supply chain.
RepRisk is a global business intelligence provider for due diligence on ESG and responsible business conduct risks. Using AI and human analysis, Reprisk focuses on companies and projects exposed to ESG risk. Reprisk has now included new data on over 25,000 projects in addition to over 100,000 private and public companies. Data is key in evaluating ESG risk for all stakeholders.
Business conduct risks related to human rights, labor, the environment, and corruption can now translate into reputational, compliance, and financial risks for a company. – RepRisk
BP rebranded from British Petroleum to Beyond Petroleum, but it is still predominantly an oil and gas company. Now the Norwegian company Statoil is proposing to change its name to “Equinor.” The rebranding will cost $32 million. Why are oil companies doing this?
Some oil companies have been attempting to distinguish themselves as “energy companies” rather than “oil companies” under increasing public scrutiny. In short, while the companies themselves change very little, they hope that the public perception of them will change. This is called greenwashing.
Statoil, stated that it intends to “build a material industrial position within profitable renewable energy, and expects to invest 15-20% of total capex (capital expenditure) in new energy solutions by 2030.” So, what they are really saying is that in 12 years they plan to have a capital expenditure that is at least 80% fossil fuels.
Nice try “Equinor.”
Costco and San Francisco Bay Gourmet Coffee Pay 1/2 Million in Greenwashing Settlement – Daily Coffee News
Last October, San Francisco Bay Gourmet Coffee (owned by Costco and JBR Inc.) unveiled it’s compostable” Keurig-compatible “No Waste OneCup.” At the time, the company labeled the ‘OneCup’ coffee pods as a ‘No Plastic Cup,’ but the ring, mesh, and part of the lid were all made of plant-based plastic.
California has a complete ban on biodegradability claims tied to any products containing plastic. A lawsuit was filed against Costco by 25 California district attorneys’ offices.
In addition to paying the $500,000 in civil penalties and costs, Costco and JBR Inc. can no longer sell plastic coffee pods advertised as “biodegradable” in California. In addition, they must obtain specific scientific certification in order to sell any pods advertising the “compostable” label.
California consumers trying to help reduce the problem of plastic waste in landfills are often misled to believe that plastic products labeled as ‘biodegradable’ will break down in municipal trash. – Alameda County District Attorney Nancy O’Malley
Greenwashing occurs when a company spends money to try and appear “green” via advertising and marketing without implementing business practices that avoid or minimize destructive environmental and/or social impacts. “Eco-friendly” is all the rage today, so companies may market as “eco-friendly” whether they are or not. This leaves it up to the consumer to determine whether companies are living up to their claims.
A Canadian-based environmental marketing agency has developed a seven-part test to evaluate green claims. TerreChoice’s “Seven Sins” of greenwashing can give you an idea what to look out for:
- The Hidden Trade-off: A product that claims to be “green” in one aspect, but isn’t in another. For example, paper from a sustainable forest that was processed using chlorine.
- No Proof: An environmental claim that cannot be substantiated by easily accessible supporting information, or by reliable third-party certification. For example, tissue that claims a certain percentage of post-consumable recycled content without any evidence.
- Vagueness: A claim that is so poorly defined or broad that its real meaning is likely to be misunderstood. For example, the phrase “all-natural.” Arsenic is naturally occurring, too.
- Worshiping False Labels: A product that uses words or images to give the impression of a third-party endorsement where no such endorsement exists. For example, a green leaf on a detergent bottle that is not a reputable certification, but merely an icon. Make sure certifications actually mean something. Green Seal, Energy Star, EcoLogo, USDA Organic and FSC (Forest Stewardship Council) are reputable labels.
- Irrelevance: An environmental claim that may be truthful but irrelevant. For example, “CFC-free” is a frequent claim despite the fact that CFCs are banned by law.
- Lesser of Two Evils: “Organic cigarettes,” or “fuel-efficient” SUV.
- Fibbing: Environmental claims that are simply false. For example, products claiming to be Energy Star certified that aren’t.
The trend toward ‘eco-friendly’ or ‘green’ products is a good one. Unfortunately, not all companies will color within the lines. Take a closer look at the claims companies are making and decide for yourself whether or not you buy them.