So many new online “impact investing” platforms were launched recently e.g Swell Investing, Open Invest and Motif. The premise is the same and a bit familiar by now: Millennials value impact and meaning in their investing decisions but no accessible solutions are available for them. Let’s forget for now about the existence of various crowdfunding platforms already enabling this (such as Trine, Lendahand, and Wiseed), and focus on the fact that Swell and others are supported by big groups- and millions of capital – and presumably offer highly customized and automated solutions helping you “solve big problems”. I decided to sign up to them and observe directly what they have to offer (I was also secretly suspecting that they are mostly “impact washing” stock brokers trying to differentiate a bit).
Swell is quick to turn out nothing more than a sophisticated broker of “responsible” listed “cleantech” stocks. Categories of stocks include “green tech”(e.g Edison, Philips) “healthy living”( e.g Whole foods, Unilever), “zero waste” (recycling companies), of course, “green tech” (e.g Tesla) and “renewable energies”. Open Invest, starts by asking you what you care about (reduced emission, gender equality, LGBT equality and..that’s it), then ask you to exclude a list of Industries: Tobacco, weapon and…. Trump-related; I liked the definition of Trump category so I am copy/pasting it fully here:“Many Americans feel upset, disenfranchised, and frightened by the election of Donald Trump to the American presidency, as well as his subsequent staffing selections. But you don’t need to wait four years to vote for change. Selecting this theme excludes companies whose executives supported Trump during his candidacy, and it overweights companies who openly refused to back Trump or removed their support for the Republican Party once Trump was chosen as nominee. The theme also takes the “strong” position of screening retailers who sell products with the Trump name”.
Ok, let’s do this. I try hard to be a good citizen, so I select all values, exclude all nasty industries, and end up with these stocks: American Airlines, Activision, Comcast, Cisco etc. Clearly, it is a broker where you are allowed to have an exclusion list and select companies who are making some (small) efforts with their staff to prevent discrimination and improve governance. Sorry, impact investing is a bit more than that.
Oh, I forgot about Motif. It is the same approach, unsurprisingly. However, you can select only one value. The one you care the most about. Yes, life is tough and you cannot have everything, so you need to prioritize: sustainable planet, fair labor or good corporate behavior. I go with fair labor and I get these stocks: Facebook, JP Morgan, Honda etc. I trust you got the story by now. So what?, you might think, It is better than nothing, at least there are some effort to do good.
Let’s take a deep breath, sit back and remind ourselves of the definition of impact investing. It requires intentionality of impact at the core of the investment strategy. Impact investing also require specific and demanding set of skills, affinities and investment mindset. Unfortunately, many players merely doing responsible investment (RSI), call themselves “impact investors”, adding more confusion to the market while removing any requirement of intentionality. I mean, are you seriously trying to solve world’s big problems by investing in Facebook and video games? In short, what I suspected revealed to be unfortunately true.
Nevertheless, after this world-changing investigative work, let’s stay constructive. Are there “real impact” alternatives out there? Well, I mentioned some crowdfunding platforms at the start, that are supporting honest and ambitious social entrepreneurs with clear impact mission. Something like Ethex looks really good to me, and I really hope it can be extended to other markets. An idea is to invest in making such platforms more user-friendly, adopting the same approach as the ones above, by sourcing more diverse (unlisted) projects and helping the investor filter out those that do not top her/his value list. When it is ready, I am happy to put back my investigator hat and do some tests!
Update: two months ago, this was launched, more in line with “real” impact investing
You can add to the list of SRI investment platforms / robo advisors : Grow Invest and Earthfolio.
There is indeed a big confusion between impact investing and SRI, and such confusion might harm the impact sector.
Couldn’t we imagine building financial indices based on impact achievement (for a specific SDG,…) as an intermediate solution between impact investing and SRI?
Solving big problems requires a scale effect. Attracting massive fundings requires taping into institutionnal investors (pension funds, …) and attracting ‘conventionnal’ savings from individuals. Crowdfunding is great but is focused on small projects, and is quite risky for individuals (seed stage, low diversification of risk,…).
Very good suggestion, thank you (and thank you for reading the post). The main problem with mobilizing huge capital is that tackling SDG problems will only be a side (positive) effect, and hence why calling them impact investments? nothing wrong with non-impact ones, but they have different standards and criteria.
Thank you anyway for this great article! I am interested in your point of view on such question
I was under the impression that Swell Investing requires the companies in their portfolios to derive revenue from products/services related to their portfolio theme, and that they select themes that align with the UN Sustainable Investment goals. I didn’t see any video games or Facebook in their portfolio – I can’t say the same for the others you mentioned. While Swell is not a traditional impact investment to be sure, those factors seems to smack of the intentionality you reference. I mean, that’s what it says on their site. I’ll have to go back and look at them again and check out the others to see how they differ.
Please tell me how it went 🙂
Thank you for this article.
There is a lot of ‘impact washing’, in the market. The real impact investors like a good return on investment, value for money. But the values they want to reach are multiple: economical, ecological, social and inspirational.
In my opinion the opportunities for real impact investments are rather small, so small impact. I prefer to participate in a group of impact investors aiming BIG projects, big impact, but they are not offered often.
Thanks Hatem. I appreciate your review here of some of the online marketplaces / referral sites for Social Impact Investing products. Would you mind sharing some of your thoughts on what would make for a good solution?
I think by not limiting it to listed companies who are not social entrepreneurs in the first place. Such platform should help cater social entrepreneurs (through “private” placements), such as Ethex for instance