I got into impact investment by pursuing my passions. In my first job in the financial services sector, I was offered a very linear career path: work hard, be promoted, manage a growing team, hope to become a partner one day. It was a safe bet and focused on doing pretty much what everyone else had been doing before me in the organization. It was a realization for me that I didn’t have to follow what others had done, but rather I could try and make my passions central to my career. At first, I didn’t know exactly where I was going, but my Master’s in Social Entrepreneurship at Hult gave me a year to explore and discover the best way to apply my passions to my hard skills, and it turned out to be impact investing, but it could’ve been starting a social enterprise or something else.
Why impact investing? Impact investing is a very interesting opportunity for anyone wanting to help drive impact at a greater scale than they could do on their own. It’s investing in companies and funds with the intention of generating a financial profit alongside specific and measurable social and environmental outcomes. It’s different from philanthropy because investors are expecting a financial return alongside a social or environmental outcome. The financial return element is essential because the returns on the investment can be re-invested in new impact investments over and over. These days, anybody can become an impact investor. Anyone can invest in the stock market in renewable energy and climate-smart companies by buying their shares or buying into funds that invest in them. My main focus at Toniic is identifying and analyzing impact investment opportunities that could be of interest to our global network of impact investors, presenting them to our community, and facilitating due diligence and the investments. I also curate the climate-, ocean-, and nature-based solutions working groups to educate our investors and share investment insights related to these important causes.
“As the problems of our society evolve, so our economy evolves to respond to them.”
Image courtesy of the United Nations
The recent outcomes of COP26 and the growing attention toward the challenges of our society will further push impact investing and environmental, social, and governance (ESG) investing. Issues such as global warming and its effects on our planet and people are hard to ignore without being oblivious to scientific consensus, and it makes perfect sense to invest in the companies that will contribute to solving these problems as opposed to perpetuating them. After all, every existing company focuses on selling products and services that solve a problem for their customers, and as the problems of our society evolve, so our economy evolves to respond to them. In May 2021, a small impact investing hedge fund called ↳ Engine No. 1 was able to nominate three board members to Exxon Mobil Corp, one of the largest fossil fuel companies, against the company’s wishes. Engine No.1’s goal is to change Exxon’s business strategy and increase its efforts to combat climate change.
As more and more conscious investors meaningfully engage with their portfolio companies, or invest in funds that are willing to engage, they will be able to drive corporate decisions from the inside. It’ll take time and effort, but it’s possible.
Still a way to go We could improve impact investing by enforcing mandatory disclosure of social and environmental impacts. Companies that pollute have an implicit subsidy because their actions create a cost for society in the form of negative externalities, such as greenhouse gas emissions or pollution. Yet they don’t pay the price, while the whole of society does. By mandating disclosure of social and environmental impacts, these externalities can emerge, and they could then be priced into the cost of investments. With such information, investing in environmentally and socially responsible companies becomes a no brainer. This is starting to become reality. On November 3, 2021, The International Financial Reporting Standards Foundation, the organization that curates the International Financial Reporting Standards, announced the formation of a new International Sustainability Standards Board ↳ “to develop—in the public interest—a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.” This is a major achievement because the IFRS is the most common accounting standard across the world. Governments are also pushing toward increased transparency and stricter social and environmental regulations. Everyone can play their role to make society a better place for all.