Harry X., a high school student from Dulwich College in Shanghai, China, who has participated in the University of Pennsylvania’s Wharton Global Youth Program investment competition and Comment and Win contest, recently filled our Wharton Global Youth team in on his life plans. Harry is headed to New York University’s Stern School of Business this fall, looking to concentrate in finance and management and minor in social entrepreneurship.
Harry’s career plans follow a trend that our team has been watching – we like to call it “finance for good.” We’ve been hearing from many high school students who are involved in our campus summer programs and other activities that they want to study finance not just to make a lot of money, but to also make a difference in the world.
“Like most other business students, I’ll definitely be studying finance as it is useful and at the very core of every business,” notes Harry, who has been talking lately to the founder of an impact venture capital firm that invests in projects working to improve the climate crisis. “However, impact investing requires people passionate about social issues and solving them. Since I have a background in community service and social impact from my high school ventures, impact investing allows me to continue this passion by supporting great projects that are beneficial to society.”
Profits and Purpose
Harry is exploring his interests in the field of impact investing, which is a high-profile profession these days that combines finance and social impact. It basically means that individual investors and others are putting their money toward supporting companies and funds that address social and/or environmental issues, everything from the climate crisis and pollution, to impact investing with a gender lens that helps improve the lives of women.
David Musto, a Wharton finance professor and faculty director of the Stevens Center for Innovation in Finance at Wharton, says the term impact investing has only been around since about 2007. “Impact investing is investing with profits in mind and also some social purpose in mind, too,” says Musto, who has recently been researching impact investing with several of his Wharton colleagues. “You have two very specific bottom lines in mind: making money and something well-defined that you’re also pursuing as a social benefit — and you’re doing both at once.” Impact investing is also sometimes referred to as ESG investing, meaning investing with an environmental, social and governance lens.
“Much of the fintech revolution is driven by thinking about social welfare, rather than just personal profit.” — Itay Goldstein, Wharton Finance Professor
Musto, who has been a part of the finance world for decades, says, “My sense is that we’ve always had people in finance with ambitions for social impact. It has just become more organized recently.” This includes a popular Impact Investing course for Wharton undergrads and student-led groups like Wharton Impact Venture Associates. The Wharton Social Impact Initiative has in recent years been building programs that give students hands-on experience in impact investing, noting that “we recognize the vital role that traditional capital markets and private sector actors can play in tackling the world’s most pressing social and environmental challenges.”
Musto urges the next generation of impact investors to understand the full scope of this field. “Venture capital can be a form of impact investing. In this type of venture capital fund, you’re trying to foster startups and new companies with new products, new goals and new ways of thinking,” he explains. “You’re investing and trying to start up a company that’s going to do a certain thing that you value as a social impact. It’s going to bring clean water to a struggling part of the world. And it’s going to make money. So, it’s going to succeed and persist as a company, and it’s also going to produce an impact that you value. Something very different is socially responsible investing. You’re not fostering a new company from the ground up, but you’re investing out in public securities. You’re going to the capital markets and buying a listed stock, bond or other financial instrument, and you’re screening your investments according to some principle or value.”
While impact investing gets a lot of the attention, students interested in “finance for good” also have other career options. One growing sector is financial technology or fintech, which includes start-up companies run by people who often also care about the environment, social justice, wage gaps and more. Generally, fintech is an industry that combines technology and financial services to assist managing your money. Fintech companies with a social spin are working on making finance more inclusive for people who are not part of the traditional banking systems, and even include microfinance platforms that give entrepreneurs access to money to grow their small ventures. Knowledge@Wharton High School profiled one example, CNote, a company in Silicon Valley, California, that allows people to invest with impact.
“Much of the fintech revolution is driven by thinking about social welfare, rather than just personal profit,” notes Itay Goldstein, a Wharton finance and economics professor. “Many of the goals are stated that this is going to make the world better, not just that we are going to get richer. So many people out there are excluded from the financial system. You have this problem in the U.S., where a fairly high portion of the population doesn’t have a bank account. Even more so, in developing countries and underdeveloped countries. The whole idea behind some of these fintech ventures is to include everyone and to make finance much more accessible.”
The financial and social aspects of impact investing and fintech are well-documented. But the intersection of finance and social impact doesn’t end there. For example, the Wharton Global Youth team recently interviewed pro soccer player Stephanie McCaffrey, who is studying for her MBA at Wharton with plans to go into private equity and banking. Her social mission is to help other women get into finance and gain positions of influence. “I think financial equality plays a huge role in gender equality,” says McCaffrey. “If men continue to control the capital, they will continue to control the narrative. Women need to be more shameless in saying, yeah, my goal is to go make a lot of money not because I want to buy a beach house or a Ferrari, but because I want to do X, Y and Z. For me, I want to pull women over the fence when I get there.”
Finance for Good or Evil?
As students think about pursuing careers that combine their love of finance and their passion for a better world, Musto suggests that they should first build a strong financial foundation. “A lot of the financial professionals you admire for what they’ve done with their careers probably started out at a regular financial institution, learned the ropes, applied the tools they learned in high school and college, and developed proficiency within the finance profession,” he says. “Then they reached a point where they could go out on their own and try to put their values to work and focus their professional activity on their values. The first thing they did was learn the profession. This includes discounting cash flows, the basics of how securities are priced relative to each other, what is the central bank doing and why? Learn those basics and if one of these topics appeals to you, pursue it.” Goldstein adds that you also need to know basic money concepts, such as the time value of money, compound interest and what it means to save.
And when it comes to making a social impact through finance, Goldstein says to open your eyes and look at the world around you. How can you improve it and make it better? “If you think about the basic functions of finance, it does a lot of good,” notes Goldstein, who believes that ‘finance for good’ has been coming on strong since the Great Recession of 2008-2009, when certain bad aspects of finance were on display. “People tend to focus on the greed and thinking about finance as evil, but at the end of the day the whole idea about finance is to manage to transfer resources from where they are not needed as much, to places where they are needed. This is the thing that helps to build economies and societies.”
- Wharton Social Impact Initiative
- Wharton Insights on Impact Investing
- David Musto’s Impact Investing Research
- Knowledge@Wharton: How Fintech Is Revolutionizing Financial Services
- K@W: Can Fintech Make the World More Inclusive?f
Do your career goals include finance and social impact? Tell us about it in the comment section of this article. Why is it important to you to work with money and also make the world a better place?
What is financial technology? Using the related links and related KWHS Stories, research this field. What are some examples of fintech startups that are making a difference? Why do you think this field has such a strong social conscience?
Professor Itay Goldstein says, “People tend to focus on the greed and thinking about finance as evil.” Do you agree with this? Why do you think this is true? Give some examples to illustrate your point.
One of my favorite quotes of all time is when Steve Jobs stated “being the richest man in the cemetery doesn’t matter to me. Going to bed at night saying we’ve done something wonderful…that’s what matters to me.” I bring up this quote because not only do I find inspiration in the words of Jobs but I find many connections between these words and this article. When Jobs says he wants to do “something wonderful” I feel as if that something can manifest itself in a few ways. For me, I have always been an innovator wanting to follow in Jobs’ footsteps and do that wonderful thing. However, what I particularly like about this article is it brings the genius out of Steve Job’s quote. That “something wonderful” refers to many things and it can be for some the desire to create or as this article conjures the desire to help and do good. I found this article to be particularly inspiring because it shows that we as people can accomplish all our goals at once. Through the simple yet beautiful process of impact investing we can further divulge into the knowledge of investing while we also pursue philantrophic acts and societal good. When Goldstein spoke about in its fundamental form finance does good I was particularly inspired. I say this because this article elucidated that fact that I can achieve multiple goals and pursue both my passions concurrently. As a business community we can fulfill our goals from a fiscal and employment standpoint all while we improve our communities and the world around us. I found that to be the true inspiration behind Jobs words, this article, and my passion for business itself. Ultimately, with the help of the motivation within this article I hope we can all do “something wonderful” for communities.
This idea of concurrently pursuing financially stable business practices and the betterment of society resonated with me a lot. For instance, I was reading a Financial Times magazine, and I came across a segment about jeans-maker Levi Strauss. Their company has long adopted progressive positions, and their CEO emphasizes its importance to all companies. Specifically, two years ago, Levi Strauss created a digital process to conclude denim designs, which substitutes the physical process, thus reducing chemical formulations from thousands to dozens. Initiatives like these combine social impact with productivity and efficiency. Mixing entrepreneurship and innovation with the desire pursue social good allows for a stronger future, both monetarily and socially.
Whenever I mention the phrase “finance for good” to my classmates, I am usually reciprocated with a series of confused faces. The traditional image of finance is of an overfed robber baron sitting on mountains of cash. But as a female student who aspires to become a investor, I often worry about this false representation. Nonetheless, I understand where this stereotype comes from. Unfortunately, the financial industry is indisputably male-dominated, a fact which is even present in my high school’s investment club. Furthermore, whenever I turn on financial channels, I am bombarded with avaricious headlines like “the highest paid traders” or “the hottest hand in finance.” However, as someone who has studied and researched social impact investing, I know that finance is so much more than that. In fact, those who choose wisely can make ethical investments that benefit not only the client but also the community.
I found this KWHS article and particularly Professor Italy Goldstein’s pensive insights intriguing. As he states, “the whole idea about finance is to manage to transfer resources from where they are not needed as much, to places where they are needed. This is the thing that helps to build economies and societies.” Many people may have the misconception that finance was originally created solely for the purpose of making money, and thus the mission of my generation is to rectify that. Professor Goldstein teaches that the creation of finance was always for the good, because finance is not only about fair valuations, but also about reallocating and balancing to reach what we as investors perceive as fair and just.
It is encouraging to know that students like Harry Xu view impact investing as a way to amplify their passions by “supporting great projects that are beneficial to society.” There is a common misconception that a business that aims for the double bottom line of impact and financial returns is unlikely to excel in both, but the facts prove otherwise. Data from the Global Impact Investing Network shows that the majority of the estimated $15 billion impact investment funds have performed well relative to traditional funds. In addition, a new study by Morgan Stanley finds that social impact funds on average had lower volatility than comparable non-impact funds.
So the message is clear: impact investing is not only beneficial to the world but also to the investor, and that is exactly what I am trying to spread in Females in Finance, an organization I founded. The first Females in Finance branch started in my high school, Fieldston, where my team of 4 women decided to compete in the KWHS investment competition. We aimed to break down preconceived notions created by traditional investing, and invest at the intersection of profit, ethics, and sustainability to not only benefit our client but also our general community. Our portfolio included companies like AT&T, Microsoft, and most notably American Water Works, a water and wastewater utilities company. American Water Works ranks number 22 on Barron’s most sustainable list and are on the 2020 Bloomberg Gender-Equality Index with women making up over 50% of the Board of Directors. Facts like these make our selected companies fit our criteria of being profitable and socially responsible. With the articulation of our goals, we are now a region 3 finalist.
Similar to the mission of Stephanie McCaffrey, Females in Finance’s social mission is to help the next generation become financially literate one girl at a time, and to teach girls that there is no shame in making money for a good cause. This was also in part inspired by the mission of my high school which is to encourage “ethical individuals who aim to make the world more humane and just.” To spread this message, I created the second branch of Females in Finance in the Fieldston Middle School where I am currently teaching middle school girls the importance of socially responsible investing so that when they enter society, they can have their voice in the narrative of finance. In the future we plan on expanding to local community centers and other schools around New York City.
So for those who still have not gotten the message: yes, finance really can be for good, and furthermore, females will be the leading force for good.
First of all, I’d like to say I do agree with you in what you say. Finance was created more because of a necessity than anything else. This is, as you highlighted from the article, “to manage to transfer resources from where they are not needed as much, to places where they are needed.” However, I would like to add that until recent years, making money has had more importance than social causes. After all, the main goal is making money. Managing money, to make money.
Nevertheless, this has changed in recent years. I’m not really sure about why. I guess people are more conscious about the fact that you are able to make a difference, even if what you can offer isn’t much. It is not uncommon to hear stories about new start-ups or entrepreneurs that, apart from trying to make a profit, also help a social cause or have strong CSR Policies.
The message I believe you are trying to give is that impact investing is very important and can be done while also making profit. I would like to add that not only is it important because you are helping businesses that have a good social or environmental impact, but also you are somehow urging other business with no or a bad social impact to change. This is because with impact investing, you aren’t financing those businesses with a negative impact. This is equally as important. Supporting companies with good social impact and urging those with a bad impact to change.
I would like to finish by introducing a new issue: If impact investing is so beneficial, why is it that it hasn’t been as implemented as much?
I think this if two reasons. The first is that not taking care about social impact can be considered easier. You don’t eliminate options which, in terms of money, can be very interesting to take into consideration. And secondly because generally when people think about finance, they just think about making lots of money for themselves. That’s where the human greed comes into play. I’m happy to see this last point is changing lately, or at least it seems like it.
The key to good financing strategies lies in the utility- maximising allocation of the available resources. Financial literacy is an important skill to hold, regardless of gender. The initiative of teaching finance and the importance of impact investing to students in middle school is a great idea, however, it should not be limited to female students. Most students who go through the traditional financial lessons get little exposure to the important ideals of social impact in businesses. Having established the importance of this, these lessons should be available to both males and females, which done otherwise, will create a future divide between males who aim solely for profits ,and females who think on lines of social development when investing.
It is true that in the status quo, there are more men in mainstream financial jobs than women. However, the motive behind teaching students is inculcating a sense of social responsibility when investing in businesses. This phenomena is not a widespread one in the present times even for the male students in investment sector. Therefore, both male and females students should be taught about such investing values for a better future.
A better approach in this situation would be to encourage female students to join the high school investment clubs, which are currently male dominated. This will be a common platform where all the students together, could learn about social impact investing. This way, a larger number of people could be impacted using the same amount of resources- time and financial literacy knowledge.
Although I do agree with your thoughts on the false stigma–being only about money and personal gain– finance seems to have, when it comes down to one or the other, people are still primarily driven by financial benefit while doing good for the community serves as an added incentive. But really, it’s not all black and white, and it’s a lot more complicated than we think.
Adam Smith (aka the father of capitalism) states that “By pursuing his own Interest he frequently promotes that of the society more effectually than when he really intends to promote it.” Although this statement seems to embody the overfed robber baron sitting on mountains of cash that you mentioned, it actually does support your argument that there is much more to finance than money. The invisible hand Adam Smith refers to is the self interest of each individual. When people are motivated by their own desires, they are much more willing to make the necessary sacrifices to reach their goals. On the other hand, when the sole motivator is maintaining social responsibility, without the personal gain, the drive to work hard isn’t as strong. This is where the invisible hand comes in to reach the balance of ethical investments and personal gain that both you and Professor Goldstein deas necessary.
I agree with your points on how money isn’t the only aspect of finance. Financial incentives and social responsibility must work hand in hand together.
Just like you said, many people have the misconception that finance was originally created exclusively for the purpose of making money. However, your point on how finance was originally created to redistribute money, not to make money, strongly contradicts that delusion. Despite both sides providing differing views, either way, money is still at the heart of it.
This all relates to whether or not businesses are obligated to have social responsibility.
I find it incredibly inspiring that you have your own experience in impact investing with the Females in Finance organization you founded. Although it’s only been two years, I can assure you that the world of finance now has its fair share of women representation. The World Economic Forum stated that “Women started 49% of new businesses in the US in 2021, up from 28% in 2019.” Not only are more and more women getting involved in the business scene, but they are also changing it for the better. A 2022 survey by UBS Sentiment found that 71% of women take sustainability into account when choosing their investments. More than half of men (58%) said the same thing, but that’s still a sizable gap.
Your experience with Females in Finance has also led me to recall the company Interface Carpets. Although these examples seem completely unrelated, I can guarantee you that, just like Females in Finance, Interface Carpets is also a company striving to benefit the world. Interface Carpets was originally dumping over 5 billion pounds of carpet in landfills, since they would often replace every carpet in the entire building. After realizing this problem, and the environmental strain the carpets had on the landfills, Chairman Ray Anderson transitioned the company from selling carpets to leasing floor-covering services. Now rather than companies having to pay a great some every decade to completely replace all their carpet, they would just rent out the carpet, and then Interface Carpets would come every few months to maintain the carpets. By carrying out its social responsibility, Interface Carpets was able to not only reduce the number of carpets dumped in landfills but also able to reduce its own manufacturing cost while providing a more cost-saving method to its customers. This is a win-win situation, especially by your standards.
From reading your comment alone, I too agree that despite money being at the heart of finance, it isn’t necessarily a bad thing because finance is about redistributing resources/money, and with more education, it is going in a more gender equitable, sustainable direction.
A little over seven months ago—when things were normal and immune to the global conundrum of COVID-19—4 peers and I began a mock investment firm for KWHS’ annual competition, SocTech Investments. While our interests varied anywhere from astrophysics to acting, we bonded over one common, ubiquitous passion: a search for communal change. That’s right, our enthusiasm for asset management lagged our mere desire to give back to the community. Now a Region 3 Finalist, our final strategy was built on the merit of artificial intelligence algorithms and quantitative natural language processors, but, in our hearts, social impact surpassed any other motive.
Luckily, we aren’t alone. Much like Harry Xu, we seek to be social changemakers—high school students hawking development through the realm of finance. And, KWHS provided a means for this much needed (and highly sought after 🙂 motivation. Throughout the investment competition, we emboldened our outlook by swapping the conventional trader’s bullish lens for one of ESG, a bifocal rooted in concern for the environmental, social, and governance criteria for any prospective investment. As a result, our portfolio not only fostered fiscal growth exceeding the S&P 500, but social beneficence catered by each company that we were simulated investors in.
In the moment, we avidly participated in impact investing, without formally defining our interests as such—a common phenomenon in the finance sector where, per Wharton Professor Mutso, impact investing has endured in the absence of proper perception, until 2007. Now, when anyone seeks to “make money and pursue [something well-defined] as a social benefit” they readily nourish its roots. The overly optimistic forefront is reassuring, but wholly deceptive to naive students like both my peers and Henry.
Impact investing is certainly a frontline to its consequential counterpart: socially responsible investing, through venture capital or private equity. With the sector ballooning to a face value of over $5 billion, per the U.S. forum for Sustainable and Responsible Investment, a quest for stakeholding in socially-responsible corporations has quickly emerged in our nation state’s financial mass culture. However, it is problematic—primarily for us, the consumers and investors wishing goodbye to our dollars, for the sake of communal betterment. First and foremost, we’re too quick to jump the gun. For an investment to genuinely curate impact, it’s imperative for one to identify a business that will make the world a better place, when rewarded with success. Trust me, it’s more complicated that it sounds. Take solar panels, for instance; though their benefits are virtually universal, if one’s investment leads a solar panel company to displace other competitors, only to do a worse job, it’s success would eventually yield a net output of retrogression. Even if investors meet this criterion, they still need to pave the compound network of additionalities—a path by which his/her investment causes the business to be more successful than it would otherwise have been.
Simply put: socially responsible investing should be renamed to convoluted devotions of capital to an emotionally-driven social purpose. Just kidding, but, let’s be real: it’s more complex than it seems. And, following the advice of Professor Mutso, “[let’s] first build a strong financial foundation.”
Now, don’t get me wrong—investing for impact has seen sunnier days, especially when it comes to Fintech. While, “much of the fintech revolution is driven by thinking about social welfare, rather than just personal profit,” (Professor Goldstein) its true intrinsic benefit—and superiority to other conventional social investments—lies in its decentralization and expansion of stakeholders in the financial services sector. Tough to debunk, an investment in Fintech checks off both the boxes of identification and additionalities that plague the sustainability of other proclaimed impact funds.
Nonetheless, I will still be an enthusiast for communal change. While founding a business education nonprofit has guided my perspective, I seek to specifically delve into the power yielded by aspiring teen innovators, at a social entrepreneurship incubator that I’ll serve as an intern at, this summer. Of course, I’ll bring both Professor Muso and Goldstein’s advice to fruition to choose the teens that understand their finance and are poised to create viable change.
Hi Aditya! Your comment was extremely insightful and interesting to read. I found many commonalities between myself and the points that you discussed in your response to this article. Like you, I also have a salient passion for communal change.
I ruminate over methods I can give back to my community, and I believe that my enthusiasm for business and entrepreneurship, as you mentioned, lags this desire to give back. I feel the same way as you when I saw that social impact surpasses any other motive for creating innovating startups.
You are most definitely not alone in this journey of creating change; Harry Xu, my peers, and I are all seeking to become social changemakers, one step at a time. Although I did not participate in the KWHS competition, as you did, I have ventured through several other entrepreneurship events with projects aimed at social change. With start-ups concerning reducing the amount of plastic waste and providing more accessible education, I have been attuned to both the business/financial and social change aspects of my projects.
I have been part of my school’s debate team for roughly two years now, specifically in congressional debate, where we debate in a room of around 10-16 debaters on whether or not we should pass or fail a proposed piece of legislation. Each debater gets three minutes to give a speech on their view of the legislation: pass or fail. Within the first few weeks of practice on my team, we were taught the four main components of a speech: claim, warrant, evidence, and impact. The most important component, and what wins a debate, is the impact. Furthermore, the impact can be split into three different types of impacts: environmental, economic, and human rights/lives — the most important one being human rights/lives. This is very similar to the concept of investing for good mentioned in the article.
The article mentions how we can use finance to make the world a better place. Invest in companies that will help the world, whether it be environmentally or improving the lives of women, etc. It’s very similar to what I do in debate. When reading the piece of legislation and or bill, I have to think about its impacts on the world if and when it’s going to be passed, which is similar to what many investors mentioned in the article do, thinking about how their investments are going to affect the world in which we live. Let’s take a look, for example, at a bill I previously debated on. It was a bill to impose an additional tax on companies and factories that use fossil fuels instead of renewable energy, giving the companies a few years of time to transition over. If we pass this piece of legislation, it would be relatively costly and detrimental to a lot of companies and factories that are built on and rely on fossil fuels. However, by passing it, we are taking a huge step toward fighting climate change and global warming, which is beneficial to the entirety of humanity and its survival. For example, when I was debating this piece of legislation, 2 of the stock arguments that came up was the fact that if we fail this piece of legislation, we are continuously putting the planet at risk for global warming and climate change. Which means food supplies will decrease, animals will go extinct, habitable places for humans to live will be diminished and our own extinction will be closer than ever. If we pass however, it will be detrimental to a lot of companies. The most popular sources of renewable energy for factories are biomass, thermal systems and electrification. By doing away with fossil fuels, we are essentially doing away with decades of machinery and forcing companies to expend billions of dollars to abide this tax bill. So when we compare the two impacts it is evident that saving humanity is more important, no matter the cost it takes. This is similar to some aspects of investing mentioned in the article, which discuss how investors shouldn’t invest with only profit and money in mind, but also consider social benefit as well.
However, we can take this idea and concept to a higher level than just debate and financial investing — we can apply it to all aspects of life. If everyone carried on with their days and did things that not only would benefit themselves but also help others, the world can slowly become a better place.
This article was written in March 2020. That was the
beginning of the Pandemic when we hoped it would be a brief lock down. However, Covid has irrevocably changed our outlook on the world. Finance for good is the only direction our financial institutions must take. Since March of 2020, we have had year-round wildfires in Colorado. A fire in December of 2021 in the Rockies led to the loss of two thousand homes. All these extreme weather changes are due to lack of attention to the green economy. Let our generation be the ones that makes finance for good the norm and not a novel idea that a few pursue. The Millennials used their consumer power to demand retail goods have a social purpose, let Generation Z be the ones that make finance for good the only path forward.
I do not know a lot or any helping companies but maybe I should search a little