Transparency Will Drive Impact Investing in the Next Few Years
Investing is not just about risk and return any more. Investment and business decisions are increasingly being made to also reflect societal values. Factors that will drive this change in the coming years include technological advances that enable the measurement of impact, and will drive transparency and accountability.
Those were among the key messages delivered by Sir Ronald Cohen at Citi’s recent “Sustainability, ESG & Alpha Conference,” held on May 17-19. A pioneering venture capitalist and philanthropist, Sir Ronald is also known as “the godfather of impact investing.” He serves as Chairman of the Global Steering Group for Impact Investment among other commitments, and is the author of the book “Impact: Reshaping Capitalism to Drive Real Change.”
With ESG investing growing at 20% to 30% per year and “huge leaps in technology, we are able to measure and monetize the impacts of companies through their operations, their environment, and their product,” he said.
Now, because of supportive leadership in the Biden Administration, the European Union and elsewhere, Sir Ronald foresees a “big breakthrough for capitalism, which will lead to the publication of impact-weighted accounts.”
Impact transparency is critical
He predicts that this “impact transparency” will soon allow us to see the positive or negative impact that companies have, and they will be held accountable.
Companies that have a measurably good impact will be rewarded by “attracting the talent, attracting the consumers, and attracting the investors.”
Mandatory publication of impact-weighted accounts will help to confront and control greenwashing, or impact washing, and other false claims so as to ensure that investors receive reliable information. Importantly, it will also enable investors to compare the impacts of companies in a similar manner as their profits. And that, Sir Ronald said, will lead to “a correlation between greater impact and greater profitability in the future.”
“Values have changed,” he said, “and management’s values have to change. Management has to realize that the goalposts have moved.”
Transition plans and cultural change
A critical step will be for companies to prepare transition plans towards goals such as zero carbon emissions and proper levels of diversity within their management.
In addition to the important role government can play in encouraging change and providing incentives through regulation, Sir Ronald says visionary corporate leadership is vital.
“In my experience, it’s all about leadership,” he said. “It’s all about leaders who have the vision to understand where the world is going, what I call the second bounce of the ball. Everyone can see the first bounce, but the second bounce is where the world is going. Companies that are espousing ESG are typically led by people who are better managers, have understood where the world is going, and they’re taking their companies in that direction. They are able to bring change about and to do it in a way that enables the company to thrive. It’s all about leadership in the end.”