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Steps Towards An Egalitarian Society?

The jargons impact investing, socially responsible investing (SRI) and environmental social governance (ESG) may sound synonymousTo one’s surprise there is an extremely thin line between them, the root may be the same of creating a positive social and environmental impact but they branch out as three different types of investing. These words have attracted traction since the last decade or so. Booming consumer culture around the world not only exposed different parts of the world with consumerism but led to resultants such as global warming, climate change, accumulation of e-waste, pollution, violation of human rights, health and safety concerns at work, inequality between haves and haves not, corruption, governance issues, digital divide, inefficiency ofseamless health care services. Concepts of ethics and morality have become a revelation by individuals and the same is expected by businesses thus highlighting responsible investing such as impact investing, SRI and ESG. Fostered by the plight of the environment, disrupted ecosystems, animal extinctions and increasing disparity in society. So, what differentiates impact investing, SRI and ESG? How do investors and businesses view them? Are they really impactful?

Impact investing, SRI and ESG advocates the intent to establish both positive social outcomes and financial outcomes. The predecessor to the millennials usually were proponents of profits maximization and generating maximum yields based on their invested capital. Consumerism was on its peaks, only a handful of individuals were environmentally conscious and familiarized with its ill effects (landfills, incineration, pollution, climate change, global warming, pandemics, natural disasters) taking a toll on the environmental and society as a whole. Environmental activists and supporters commenced spreading awareness, holding rallies and challenging corporate businesses and governments. Eventually environmental studies carved a part for itself in school and university curriculums. Gradually successors such as millennials based on their academic backing and experiences (Gen Y) brought to light the idea of responsible investingThey either choose to invest in companies that are environmentally and socially friendly and transparent, or provide funds to social entrepreneurs (having an hands on or hands off approach) or merely invest in companies that reflect their values, beliefs and personality. Millennials state that their ultimate reason for espousing responsible investing is reflecting their beliefs, values, personality, social, political and environmental views.

Millennials and the budding Gen Z are extremely thoughtfultowards protecting the environment for the future generations, having being exposed to and cognizant of the dire impacts of corporate businesses on the environment and society. For instance planned obsolescence a strategy employed by major tech giant firms to upsurge demand for their products by creating products that carry a short life span. Thus leading to massive amounts of e-waste being generated, pollution due to incineration, pollution of nearby waterways and rising number of fatal cases such as cancer or asthma amongst people living nearby such sites or who deal with the waste. The collapse of the Rana Plaza garment factory (in Bangladesh) took lives of numerous workers producing clothes for brands such as H&M, bringing in headlines of poor working condition and dearth of health and safety provision. The infamous BP oil spill in the gulf of Mexico (2010)/ Exxon Valdez spill (1989) created a precarious situation for the marine life. The Volkswagen emissions scandal deceived public on emission testing. Consumer demands for data protection online/social networking websites propelled the introduction of GDRA regulation in EU, enforcing other countries to create and adopt similar frameworks and regulations. 

Investments in small social enterprises and backing social entrepreneurs/innovators is in short, the aim of impact investing. Impact creation is the first and foremost criteria for investment while profit maximization is weighted second.However, the balance between the two differs, grounded oninvestment approach of the investor. Impact investing can take the form of funding projects such as affordable housing, clean energy/ clean tech, education provision, affordable health care services and microfinance. It is relatively a risky investment congruent to investing in a startup as financial returns are uncertain and also the impact creation may not sustain due to scalability issues. Impact investing is at a nascent stage and only a handful of investors have the inherent ability, passion and enthusiasm to get on board.Usually enormous VC funds or investment funds don’t mind dipping their hands in tricky waters, and in fact they and NGOs together are majorly supporting social enterprises. In agreement that any manifestation of responsible investing will steadily proliferate in the comes years due to changing societal mindsets.

Valuing corporate business lacks complexity due to abundance of financial informationHowever impact investing just like a startup encounters scarcity of valuation metrics. As an investor ascertaining multiple facts such the actual impact created, relevant audience being targeted, the number of people impacted, effective and efficient business model and frameworks for valuation purposes can be challenging. Besides some mind churn and research is essential to determine that the problem targeted is practical and so is the solution.

One needs to have clear picture and approach in mind before becoming an impact investor. 

What is their purpose in life?

What do they want to achieve/ outcome?

What change would they like to create in the world? 

Hence identify a small social enterprise which shares concurrent beliefs, meet with the founders and understand their perspective, their mission and vision, their ability to scale up and create as much impact possible. Akin to startups others risks involve scalability, liquidity issues and exits avenues. Impact investors can additionally form club deals with VC and PE investors to continue their support to the enterprises as their backed social enterprises scale.

ESG essentially refers to an array of environmental, social, governance factors a commercial corporate firm should possess and abide by to attract investments from the socially/environmentally conscious investorsTo delve deeperlet’s have a look at the factors one considers before investing in a company:

Environmental factors:

  • Harmful Emissions from factories 
  • Pollution 
  • Biodiversity 
  • Waste management
  • Cradle to Grave
  • Circular economy 
  • Animal Welfare 
  • Energy use (carbon neutral organization)
Social factors:
  • Health and Safety of employees and workers
  • Child Labour
  • Human Rights
  • Employee rights 
  • Supplier relations
  • Customer relations
  • Data protection and privacy
  • Gender diversity 
  • Transparency
  • Auditing 
  • Shareholder Rights
  • Conflicts of interest  


Firmthat integratetarget and administer ESG factors/guidelines will certainly reap the benefits with regards to yield generationprofit maximization and social change.Incorporating a mix of the ESG expectations create manifold benefits such as minimalize any regulatory or legal difficulties, increase employee motivation, curtail costs significantly and accelerate topline. An argument or alternative perspective arises, ESG can be deliberated as strategic intent for both the parties. The company that complies to ESG standards can undoubtedly attract a pool of new age investors (millennials, GenZas the company enhances its reputation and is celebrated in the limelight. Accumulating funds to grow and prosper producing phenomenal financial outcomes (for themselves and the investors) and simultaneously social change. 

SRI (Socially responsible investing) is embraced by investors who wish to support a company that conforms to their beliefs and personal, ethical or religious values post conducting a negative and positive screening of industries and companies. For instance, one investor may take an oath not to invest and collaborate with companies producing and selling alcoholcigarettes or weapons. It is indeed an interesting outlook to investing as the investor feels a sense of satisfaction versuscreating returns yield. Whilst valuation for impact investing maybe a tedious path, albeit investing in companies conforming to ESG standards or accepting socially responsible investing have chances of easier valuation as they are listed equites and have adequate data to analyzeMoreover ESG companies can be ascribed better valuations for the goodwill they create nonetheless fundamental strength is key to curb risks. While firms claim to follow EGS standards or have in place a whole CSR department it is absolutely necessary for an investor to conduct due diligence to reckon their genuineness or is imerely a green washing propaganda. Today usually investors don’t want to associate with firms that are seen in bad light or have the potential to degrade their image.  

All in all, whether it is impact investing, ESG or SRI, they are all in a nascent stage, destined to proliferate in the coming decade as the social norms undergo metamorphosis. The future generations are admired for their passion and zeal to bolster the environment and society, by preferring to make investments wisely but also morally. Due diligence is of utmost concern to ensure the right firm is selected for the right reasons, initiating a positive impact for all its stakeholders. So which one would you like to choose?


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