Investing with Purpose

by Diana Drake

Lots of high school students are considering what matters to them these days, especially those who are moving on to college or directly into the workforce. School counselors, parents, teachers are asking, “What is your mission statement? What do you value? What are your interests?” It’s a time of reflection.

In a recent rundown of suburban Chicago, Ill., high school scholars, the Daily Herald featured a personal statement from senior Kshitij V., of Schaumburg High School in Schaumburg, Ill. Kshitij wrote, “The ideal of the impact investor is something I wish to live up to, utilizing what I learn to assist rather than exploit marginalized communities globally.”

While not every 18-year-old aspires to be a savvy impact investor like Kshitij, it is definitely a topic that more people are talking about these days. In the past two years alone – from 2014 to 2016 – sustainable, responsible and impact investing (SRI) assets have grown 33% to nearly $9 trillion in the United States, according to the U.S. Forum for Sustainable and Responsible Investment (USSIF) data.

‘A Tipping Point’

A simple way to think of impact investing is “doing good and doing well.” More and more people are looking for ways to put their money into investments that help the world and also give them a positive return on the money they invest. Impact investing is the practice of taking environmental, social and governance factors into consideration in making investment decisions, and refers to the full range of approaches within the category, including socially responsible investing. Back to Vashi for a moment – he wants to study economics through a lens of “learning to make wise investments guided by my…ethical beliefs.” So, doing good and doing well.

During a panel discussion titled “Mainstreaming Impact Investing” at this year’s recent Social Impact Conference, sponsored by Wharton’s Social Impact Initiative, Christopher Geczy, an adjunct professor of finance at Wharton, noted that more students are enrolled in his impact investing class than in his traditional investment management class, which he called “a tipping point” for this brand of investing. What’s more, according to a recent Bank of America survey, 85% of millennials are interested in, or are actively doing, impact investing.

To better understand what it means to put your money to work for social purpose, consider d.light, a solar technology company that Judith Rodin, president of the Rockefeller Foundation and past president of the University of Pennsylvania, cites in her book The Power of Impact Investing (see Related Links to listen to an interview with Rodin). D.light is an enterprise in which impact investors put their money. In a Knowledge@Wharton interview, Rodin said, “Electricity poverty is one of the root causes of poverty globally. People who have no source of lighting that is reliable tend to use kerosene … or they burn wood, and that is environmentally unsustainable. How do we get either solar or battery light [that allows] people, often in very remote areas of the world, to have access to lighting? D.light started as a very small, almost flashlight model or idea… That’s one example where there is direct investment into a social enterprise, and that’s wonderful for some impact investors. [Direct investors are] people who … really want to engage with the enterprise, and they want to see and feel the outcome of the work.

“But not every impact investor is like that,” continued Rodin. “Some impact investors really have very strong views about social purpose, but feel that they don’t have the time or the experience or the energy, frankly, to engage that deeply with the enterprise itself. Just as in the financial-only industry, there are funds for investing in the social enterprises that do the social and financial due diligence. The investors then invest in the funds. Sonen Capital is a very well-known one now, but there are many other great funds.”

Another important point is that a wide gap exists between people who are interested in impact investing and those who actually do it. As a result, the industry is trying to improve the quantitative, data-driven aspects of impact investing so investors can better understand how their money is working for them. In other words, they want more numbers to understand the trends and measure the effectiveness of impact investing.

Suzanne Biegel, founder of Women Effect, which provides information about gender-lens investing, urges anyone involved with impact investing to also focus on the qualitative aspect of potential investments. Tell the stories of these companies – as well as listen closely to the stories to understand how they might match up with your own values. “People change their investment behavior when something moves them,” said Biegel during the Social Impact Conference. “Storytelling is absolutely critical.” She added that she could get people’s attention far more easily by noting that the necklace she was wearing was made by survivors of human trafficking than by citing the multi-billion-dollar size of the trafficking industry.

Related Links

Conversation Starters

Are you an impact investor or have you considered it? Why is this important to you? Tell us your story in the comments section of this article.

What is d.light? Using the Related Links, research this company and what it does. Share your findings. What other companies might inspire your impact investing? Think beyond environmental impact.

Suzanne Biegel refers to both quantitative and qualitative measures when considering impact investing. What does she mean by this? How does this apply in general to evaluating good investments?

18 comments on “Investing with Purpose

  1. I believe that impact investing should be the overarching strategic maneuver that investors should take as we adjust into this more innovative and rapidly developing environment. Investors seek to attain capital returns, but they can only do that if the underlying value of the company increases, and in today’s age, companies who are behaving ethically and stimulating positive social change, are the companies that investors want to get in on (in my opinion), i.e Tesla (solving pollution related issues), Walmart (providing goods to families with lower incomes), and Biogen (The biotechnology company which develops therapies for neurological and autoimmune diseases but also prides itself also on giving back to the community and encourages thousands of employees to go out on one day and help out). These companies have grown 68.59%, 15.86%, and 15.86% respectively within the last year, very commemorable numbers for those companies and private investors. These values are indicative of the new investing style in 2017 and certainly seems as though this trend will continue for many years following this. I would consider myself an impact investor because I look for value and positivity in a company before I invest into it, in other words, I invest in companies who want to change the world I live in. I have particular criteria before I put my money into a company and one of the umbrella criteria is ethics, which include the questions: “is this company acting ethical? Has it had ethical issues in the past? Is this company innovative whilst remaining ethical? And does it have a strong and published CSR document?” If a company does not suit even one of these questions, I do not put money into them. I think investing in companies/industries with an unethical background (regardless how profitable) will only lead to a long term loss. I believe that it is important to be an impact investor because it is what keeps the world innovative and keeps good and ethical business thriving in a very competitive market and drains out businesses who only seek to exploit consumers and trick investors. I think promoting social change through the investment of money is a remarkable action that I can do and I feel like I am aiding my community monetarily and helping the business change the lives of others. I invested into Wells Fargo in late Q1 of 2016 as their fake account scandal really hit the papers and their share price as it was shifting up and down. I was looking to make a quick profit (going against all of my principles and my criteria) so I invested in them hoping that after the hit they took the day before, they would rebound and I would sell at a limit. I didn’t feel ethical whilst executing the transaction (especially considering that it was not my standardized style of investing) but I was greedy so I went through with it. At the end of three days, the stock price dropped close to 2%, luckily I waited until it was up 0.2% and sold it because I knew it wouldn’t get much better. Since that sell, I realized the vitality of not only sticking to what you are comfortable with, but to invest in companies that don’t want to hurt your money, but those who want to use it to make the society/environment better and more efficient for you and I to live in.

    • Hi Samir. You make some excellent points about impact investing! Thanks for taking the time to really think it through, both in response to this story as well as when you consider how to invest your money. I have also learned to look beyond the surface, as well, when evaluating a company’s values. Many like to champion their CSR causes, but are they really making a positive impact in every aspect of their businesses? For example, Walmart has run into some discrimination and pay issues with its employees. I’m not saying the company isn’t worthy, only that I’ve learned to look at many different aspects of operations before determining if it is indeed a strong impact investment that meets my own values. Good luck!

      • Great point. Operations in a company come to show the quality of management it has and can also define a good investment from a bad one.

    • Hey Samir, there were a lot of fantastic points in your comment. I got to learn about a lot of cases that you mentioned. Personally, I am a strong proponent of impact investing. However, I am also a strong believer of investing in my Circle of Competence, a concept introduced by Warren Buffet in one of his annual shareholders letter. It basically says that, invest only in those companies that you know best. If I were to invest in Tesla, I have to get a thorough understanding of its operations in different sectors, which is not an easy task.
      If you pass that hurdle, then you get into the management side of things. You can’t simply invest in a company without evaluating the senior members of that firm because there’s no widely agreed-on skill set for management (good managers come in all shapes and sizes), there’s an assumption everyone knows how to do it.

      All said and done, the most important thing that is missing from its Arsenal is, ‘Cash Flows.’ As they say in my native tongue, or in any other Language – ‘Cash is King.’ If more money is coming in than is going out, you are in a “positive cash flow” situation and you have enough to pay your bills. If more cash is going out than coming in, you are in danger of being overdrawn, and you will need to find money to cover your overdrafts. For the last three years, if the company is not generating any cash flows, it simply implies that in future, the company might not be able to sustain itself.

      What I am trying to get at is, I do not invest in companies, just because they are ethical. I have to have an understanding of the business, its management, the industry it operates in, the management, the economy etc. Impact investing is also gaining traction amongst the savviest of investors. However, investing without understanding the business is as good as picking stocks by throwing darts, at names of different companies, while you are blindfolded.

    • What I truly love about reading articles from the past is analyzing their responses for accuracy. Samir, you nailed this one! Your introductory claim that impact investing will become an “overarching strategic maneuver” was meticulous and factual. You supported yourself with statistics about the growth of ethical companies (Tesla, Walmart, Biogen), and you were confident in your opinions. Only two years after posting your comment, the impact investing market grew from $114 billion to $502 billion (Global Impact Investors Network). Even notorious investment managers such as UBS Wealth Management and Goldman Sachs Asset Management, have entered the field of impact investing. They realize that this has become a necessary component of their portfolios to attract present and future investors. A recent poll showed that over 80% of Millenials and Gen Z investors own or show interest in impact investments. The fact that this demographic controls over $1.4 trillion in purchasing power forces these institutions to examine their investments carefully and eliminate ethically compromised businesses from their funds.

      One point on which I disagree with you is your comment that impact investing is a “style” and “trend”. I strongly believe that transparency in business practice has become firmly established as the norm. The days of cutting costs through inferior materials, compromised safety standards, unfair labor practices, and pollution have passed. Today’s investors are aware that short term gains from these practices are outweighed by substantial losses when these crimes come to light. For example, Nike lost more than half of its market capitalization after unfair child labor practices were made known. As shareholder engagement increases with a focus on socially conscious behavior, impact investing is not just a “style” and “trend”, it becomes a business imperative.

      I applaud your prescience, recognizing the importance of this investment sector in 2017. I respect your ethical and moral criteria for investing. I am also impressed with our generation’s focus on positive social change as an essential ingredient for economic success. Through this symbiotic relationship between businesses and shareholders’ demand for ethical accountability, future investors can continue to maximize profits while ensuring social and environmental security for the next generation.

  2. Lately, most speculative investors are trading tickers and not companies. Warren Buffet could not stress enough the fact that we, as investors, need to buy a company and not simply follow charts, momentum, and other speculative strategies. Given this point, I would like to say that the impact investor is knowledgable in what he is investing in because there are a number of factors that move him to make an investment rather than just returns. We can not forget companies are listed in the stock market to raise capital. The impact investor looks to provide capital to those companies that will not only benefit him or her financially, but also those that will take greater action with that capital. I would consider myself an impactful investor after taking long-term positions in companies that take actions to help those around them. Just to add on to the concept of impact investing, I believe that we can all take part in it if we find a company that fits our ethical criteria. In my case, McDonald’s was the perfect fit for an impact ivnestment. McDonald’s offers scholarships to those in need and has its own charity to aid sick children and their families. They believe in the importance of education and realize many lose the opportunity to develop to their full potential because they simply can’t afford attending a school. Furthermore, they stand behind sick children and the impact their family has on them. The Ronald McDonald House Charity serves to keep parents close to their sick child at no cost and they have over 354 houses around the world. Approximately, this housing helps around 8,000 families each day. McDonald’s is also taking steps into being more eco-friendly, you can find the specific details in their website:
    Apart from the impact aspect of McDonald’s I also found the company to be a great fit for my investment style. McDonald’s tends to have a sort of immunity against recession due to its cheap pricing. Try comparing the downfall of McDonald’s with the DOW or S&P 500 during 2008 and the time it took for each to rebuild to its previous high. McDonald’s acts as a hedge for the simple fact that eating at the fast food chain is much more affordable than cooking at home. We are looking at value meals that range from $1-$6, this is not an $800 Iphone and much less is it a $1200 Macbook. The point is that when a recession hits and unemployment rates hike most people don’t have the luxury to buy from companies like Apple.
    After researching the impact McDonald’s brings to the community, inputting numbers into different valuation models, and taking a long view of its future; I decided to take a position in this company which has grown over 20% in the last 3 months. Best part of it is, not only will I enjoy the returns on my investment but I will also know that I helped fund a greater cause.

    • Ah, Francesco…thank you for such a detailed and well-thought-out comment! Your interest in the stock market and, more specifically, in impact investing is inspiring. I hope you keep developing your interest and your personal approach. I agree that companies like McDonald’s have impressive CSR initiatives. Where I get stuck, though, is with the impact of the company’s products on our health. I deeply question what kind of impact fast food is making in our lives when it comes to chronic health issues like childhood obesity and diabetes. I also question the company’s strategy to often locate in urban and lower-income communities. I know the company has introduced healthier options, but I have a hard time getting beyond the Big Mac and fries.

  3. Dear Diana,

    First and foremost, I hope you’re having a great day and thank you for giving us the opportunity to share our ideas once again in this new competition. I’d love to tell you about my perspective on McDonald’s and why I feel like there is a greater good behind their Big Mac and fries. To begin, I would like to address the issues regarding childhood obesity and diabetes. There are many things that account for this problem: the lack of exercise in the youth, the increase of technology, school lunches, and the small stuff (candy, coke, etc). I deeply understand that the fast food industry is one of the many factors to blame for this overwhelming problem in our society, but I would like to say that this is what differentiates McDonald’s from the industry as a whole. The company has taken steps that many of its competitors have not regarding healthier foods. I will link an article that talks about some of the changes they have made and changes they are expecting to make in the near future. Lastly, I know you have concerns with their impact on our health but they have put nutritional facts next to their menu to help us make informed health decisions.
    I believe you make a great point by saying that they like to locate in low income urban communities. However, I can most certainly say that they are locating within range of their target market just like every other business. The food at McDonald’s is meant to target those who don’t have the luxury of buying a $20 hamburger. I actually find this part of the business to be beneficial to those that have low income. This is overlooked by many but it is very impactful. The best part is that their nutritious wraps or salads are also very affordable!
    Another factor to look at is the amount of jobs McDonald’s has created. The company gives a second chance to those who don’t meet the qualifications needed at other jobs and it gives them the opportunity to move up in the company and increase their pay.
    I agree with all your points and I think that they are valid, but I feel like this company is often seen in a bad way despite their charities, grants, efforts to improve nutrition in their food, special foundations, opportunity of employment, low costs for those who have low income, and much more.

    I would love to get your feedback. Thank you once again!

    Francesco Chiappe

    • Dear Samir & Francesco,
      Both of you deserve kudos for some very stimulating thoughts. Samir you make great points, especially from your personal experience, about the need for ethical investing. I can recognize that you are seeking a connect between personal values and the value proposition of the Company, to guide your Investment decision.
      Francesco you have succinctly reminded us of the misplaced motivations of the lay investor who fails to use his money to provide capital plus social impact. The examples of McDonalds, Walmart and thought provoking comments from both of you ring a bell.
      However, we need to be cautious of I.I degenerating into the next fad. I believe we need to dwell deeper to imbue it with a more holistic frame work . I would build it on the understanding that ‘Investing with a purpose’ nudges us to look beyond the compartmentalized confines of Company Financials and CSR. For example, in line with the ambivalent McDonalds & Walmart examples, there is a global Soft Drink Major with a popular green campaign which finds nothing amiss in fighting with local villagers for the last drop of water for its manufacturing facility. Similarly, a Global Mining Major in Asia is making large CSR investments for the welfare of Eastern Indian tribes whose very habitat it is alleged to have destroyed, in its hunt for profits. Therefore, a plain textual reading of Company profiles, performance or commitment may not provide the full picture.
      Liesel Simmon of Blue Haven hits it on the nail when he states that every investment has an impact, either positive or negative. And I would insist- packaging can’t change it. Drawing from my personal experience in a developing country and going back to Kshitij Vashi’s desire to use investing to “assist marginalized communities”, I would recommend analyzing opportunities for 1) Purpose 2)Practice 3) People.
      Potential Investors need to examine their personal motivations and the Purpose underlying the Company in which they invest. Does the twain meet? This necessitates digging deeper beyond official Company programs into what makes the Company tick. Is it solely the bottom line or share price? What tradeoffs is it willing to undertake say for ensuring progressive pro-women practices in its outsourced units?
      Wharton classrooms are reflecting a surge of interest in impact investing. It is timely to combine Individual conscientious investors and create a significant dollar volume which is willing to provide premium investment for desirable Environmental or Social Behaviour. Start Ups could provide products and platforms for Cause Specific tailored made aggregation, as an alternative to the slow-traditional investing arms of BOA, Bain etc.
      Recently, the US President has excused himself from the Paris Climate talks. As Prof Berkey remarked, that leaves the leadership opportunity in Corporate hands, many of whom (Amazon, Apple, Target) have come forward to pledge ‘Green Practices’ as a Company policy. An investor Coalition can reward such Companies for a (third party evaluated) commitment to purpose.
      I think the Second, essential element is Practice. Going beyond PR or return on investment desired outcome Metrics need to be redefined and universally accepted. These should be applicable to practices followed in both Governments and Private sector. Acknowledging the long term economic benefits, this measure should not be restricted to output and instead should also consider how humane, sustainable and Green the practices are. To push these metrics, Investors need to utilize their power, beyond dollars, as opinion makers and as influencers. Political economy in States/Countries would also prefer to do business with Companies whose practices are lauded by independent Impact Investment Coalitions. This can create a win-win for the Investor, business and society.
      Third and most crucially are People whom we seek to benefit. D-light checks all boxes. However, it provides only little drops in the ocean. A state failing to provide electricity creates a temporary space for D-light. The elephant in the room are ‘Governments’. If we want to trigger large scale Impacts, we have to look to invest in transforming government. Encourage Municipal/State Bonds, preferentially and at a premium of old metrics, of Governments which follow a humane purpose, sustainable practice and safeguard its future generation.
      That could be the Next Wave.

    • Hi Francesco! Although I see your desire to shed McDonald’s in a positive light, and know that MCD stock is very bullish at the moment, I feel that once you dig deep into the news reports of the company, you will find that McDonald’s is not everything it’s cracked up to be. It’s funny; I considered buying MCD for similar reasons you have mentioned this past December, but after researching for a while, I ultimately ruled against it. Here are some posts below that specifically address and counter some of your arguments. Please contact me if you want to learn more about how I made my decision.

      1) It has been revealed that McDonald’s is only a minor contributor to its own charity, Ronald McDonald House. Even McDonald’s customers contribute “as much as 1.5 times more to the charity than does McDonald’s itself”, straight from their own pockets.

      2) McDonald’s is on track to replace nearly 6,000 cashiers with digital computers by 2018.

      3) And to bring Angad’s argument into this comment thread, I have found the link to the quote in his post that exposes the health risks, production risks, and poor labor practices of McDonald’s. Full props to Angad for finding this article.

      How would you respond to the information in these links? Do you still think McDonald’s is a suitable company for socially responsible investors?

      I would love to hear your opinion!

      Best Regards,
      Brandon Beck

  4. I agree that a company should be having great CSR initiatives, which is what is the underlying principle of Impact Investing. However, I fail to understand why McDonald’s seems to be an appropriate example of a company in fast food industry.

    I would like to quote one of the articles on on McDonald’s-“Although McDonald’s might has taken steps to make their food healthier, most of their offerings have a lot of calories and sodium – sometimes with preservatives but rarely with many other nutrients. Their labor practices are similarly poor and meat production for their burgers is a driver of antibiotic resistance and global climate change.”
    I would also like to tell you that in a recent event, McDonald’s has decided to shut down 43 of its outlets in New Delhi, due to which jobs of about 1700 people are at stake. It has also neglected user’s data protection in India. The McDonald’s India app, McDelivery had leaked personal data for more than 2.2 million of its users which includes name, email address, phone number, home address, accurate home co-ordinates and social profile links.

    I have always found pizza restaurant chain ‘Domino’s Pizza’ to be a great company.
    Their sense of CSR and being the most advanced in online food ordering has led to it overtaking McDonald’s and many other companies. A couple of their CSR initiatives have been given in this link-
    They were initially criticized for their low-quality pizzas. However, they realized this fact, and undertook a lot of initiatives to change this and, lo and behold, it’s not surprising to see this company’s stock to grow over 2000% since that reputation, beating the likes of even the tech-giants today. I believe that the impact investors realized this, and that is what led to the investors’ faith in the company.
    This company has been growing ever since then, and if given some capital, I would love to see my investment made well suited to bring a positive change!

  5. Wow! All of you have brought this discussion to fascinating levels, especially in terms of McDonald’s and its value as an employer and a food provider. Truly, there is validity in all sides of this argument. McDonald’s place in the labor market is a rich topic of discussion and debate. As legend has it, the idea of “McJobs”– low-paying positions with little chance of advancement — bothered the CEO of McDonald’s so much that, when Merriam-Webster included the term in its dictionary in 2003, he wrote a public letter of protest. In reality, so-called “burger flippers” do play an important role in the economy and potentially as job training for high school students as they look to prepare for other jobs in the workforce. But do such jobs prevent people from aspiring to greater employment goals? Does that even matter? And what of Hamburger University, an actual campus created and operated by McDonald’s that trains restaurant managers, mid-managers and owners/operators? Corporate training is an important career track for lots of people who choose to enter the workforce right out of high school. So much to consider!

  6. This article is linking people to investing into things such as stocks etc. you have to do good and well in order to be able to invest into something. SRI assets have grown in two years 33%. 9 trillion U.S. dollars.

  7. The article “Ivesting with Purpose” at first look looked like an amazing article to read because of the title. “Investing with Purpose” 100% relates to Personal Finance. Why? This is because investing is a HUGE part of the course Personal Finance. Throughout this article the author explained why and how investing is a HUGE part of everyone’s lives. Some people don’t invest and live paycheck to paycheck each and every single day they live their lives. Which should not be happening because that causes tons of stress, anger, etc.

  8. Investing is very important. Many people don’t realize and try to pull off living pay check to paycheck and then they struggle and sometimes don’t even have money until they get paid again. If you invest then you will have a better plan and more money in the end.

  9. I’m not impact investor, and I never thought of it until now that I’m reading this article, but it sounds like a good idea of putting your money towards something positive like helping the community and the environment and then somehow getting money back.

  10. I considered being a impact investor because I want my money to have value and I don’t just want it to sit in the bank. She means consider quantitative and qualitative because they emphasize the importance of asses investments not only based on financial returns quantitative but also on their social impact (quanlitative). This apply’s in general to evaluating good investments because you would want to consider quantitative and qualitative knowing the benefits.

  11. As someone who has zero investments I would say that I’m not an investor let alone an impact investor. It was interesting to read more on it as someone who is considering investing its interesting to know that I could invest in things with a positive impact and still get a return on my investment. I would most definitely consider becoming an impact investor as having an impact on the world to me seems really cool. I would say I would invest in environmental stuff as I love life as in the Earth, people ,animals , plants and I think its important we take care of them.

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