I think all of this makes complete since if you look at this from the perspective of the marginal individual investor. However, when you think about the push that institutions are making towards esg, and the rise of impact investors in private equity, I think there's significant impact to be had, and as an individual, if you choose to be part of that industry, I think that's broadly impactful things to do.
As a venture builder, I've worked with quite a few impact investors. I recently recorded a conversation with an impact investor (working with Leapfrog Investments) to address some of these points, so feel free to give this a listen if this debate is of interest to you.
1. In public markets, big institutions (like Blackrock and Fidelity) taking ESG screening more seriously is a huge positive. These institutions often have a seat at the board and represent a large enough capital base that they can threaten to pull out if ESG targets are not met. It is not true in this case that "socially neutral" capital will flow in and replace these investors due to the market power they have. So pushing for more esg focus in big asset managers can be a very impactful career. However, this does mean in the short term, some return goes off the table, as the company might have to stray from doing the most profitable thing in the short term, if that's in conflict with esg standards.
2. In the private equity, venture capital space - you have to look at the effects of changing the supply of capital. If more capital , on average, is socially conscious and more geared towards renewable energy ,for example, rather than consumer internet, that's a great thing. Because availability of capital partially determines where entrepreneurship is incentivised. For example, it took risky venture capital bets for decades in the consumer internet space to help companies figure out which business models work and which don't. The availability of capital helped entreperneurs iterate on good business models. If this is done in broadly more productive industries and sectors that actually improve well-being, that's something we should welcome.
3. Having said the above, the impact investing space has serious issues to deal with - standards of impact measurement are pretty low, feedback loops aren't working properly and yes, people need to be more mindful of the opportunity cost of donating to a more effective charity. However, the assumption behind impact investing is that you at least get to recycle capital while spurring growth in an developing country and improving living standards. So comparing it to one time donations is not an apples to apples comparison. One has to prove that donating to the effective charities now is better than waiting to recycle capital, and then donating to charity, accounting for time value of money.
I think all of this makes complete since if you look at this from the perspective of the marginal individual investor. However, when you think about the push that institutions are making towards esg, and the rise of impact investors in private equity, I think there's significant impact to be had, and as an individual, if you choose to be part of that industry, I think that's broadly impactful things to do.
As a venture builder, I've worked with quite a few impact investors. I recently recorded a conversation with an impact investor (working with Leapfrog Investments) to address some of these points, so feel free to give this a listen if this debate is of interest to you.
https://podcasts.apple.com/sg/podcast/episode-1-impact-investing-what-is-it-good-for/id1487424474?i=1000456446152&fbclid=IwAR30nAzVl6MwiJIEFfSjI3qj9Ons-ai4kTXtHKyjJ2RH_EEGNIsS63_g4XM
Will summarise some of the key arguments here:
1. In public markets, big institutions (like Blackrock and Fidelity) taking ESG screening more seriously is a huge positive. These institutions often have a seat at the board and represent a large enough capital base that they can threaten to pull out if ESG targets are not met. It is not true in this case that "socially neutral" capital will flow in and replace these investors due to the market power they have. So pushing for more esg focus in big asset managers can be a very impactful career. However, this does mean in the short term, some return goes off the table, as the company might have to stray from doing the most profitable thing in the short term, if that's in conflict with esg standards.
2. In the private equity, venture capital space - you have to look at the effects of changing the supply of capital. If more capital , on average, is socially conscious and more geared towards renewable energy ,for example, rather than consumer internet, that's a great thing. Because availability of capital partially determines where entrepreneurship is incentivised. For example, it took risky venture capital bets for decades in the consumer internet space to help companies figure out which business models work and which don't. The availability of capital helped entreperneurs iterate on good business models. If this is done in broadly more productive industries and sectors that actually improve well-being, that's something we should welcome.
3. Having said the above, the impact investing space has serious issues to deal with - standards of impact measurement are pretty low, feedback loops aren't working properly and yes, people need to be more mindful of the opportunity cost of donating to a more effective charity. However, the assumption behind impact investing is that you at least get to recycle capital while spurring growth in an developing country and improving living standards. So comparing it to one time donations is not an apples to apples comparison. One has to prove that donating to the effective charities now is better than waiting to recycle capital, and then donating to charity, accounting for time value of money.