“Everything should be made as simple as possible, but not simpler” Albert Einstein
You may have come across impact calculators in your search for a sustainable fund to invest in. These neat tools usually take the form of a simple text entry box on a website that turns your £/$/€ invested into a precisely quantified reduction of bad things… and increase in good things.
They usually look something like this:
So what happens when you enter the amount that you want to invest? There are usually nice infographics which accompany the “statistics” combined with an array of feel good outputs – not to mention a surprising lack of disclosure regarding the assumptions or error ranges around the calculations. For example, it might tell you that you will save thousands of tonnes of CO2 or millions of plastic bottles by investing. It might claim your investment is the equivalent of taking thousands of cars of the roads or planes out of the sky. I might suggest that your investment provides millions of litres of clean water or provides treatment for hundreds of sick people. What’s not to like?
But perhaps I’m being too cynical. Aren’t these claims broadly accurate? Surely encouraging investment in such funds should be encouraged? I mean, they might be over-reaching a bit, but the ends justifies the means in this case. Right?
No, no and no. These claims are not fact. They are unsubstantiated and unverified. In fact, they are unverifiable! They are, to a large extent, unmeasurable. The impacts that companies have on the world around us via their products and practices are complex, multi-faceted, nuanced, highly variable across sectors and range from source materials or labour through to the second and third order impact of the products in use. The inter-relationships between the companies within a portfolio can offset each other. I genuinely don’t know where to even begin to think about how to reduce that down to a few simple numbers.
“Not everything that counts can be counted. And not everything that can be counted, counts.” Albert Einstein
All of which begs many questions.
Why is this allowed?
Who is regulating it?
Who can we trust?
Oh no not again (head in hands emoji, exasperated emoji)… do we learn nothing in this industry?
Very good questions. We’re asking the same ones on a regular basis, with the same level of exasperation. This sort of behaviour sows the seeds of future consumer mistrust. It (quite rightly) leads to regulatory clamp down which restricts everyone, including the best actors. It starts small with genuinely good funds with positive impact trying to capture a bit of market share and ends with some large cynical corporation taking it to extremes. If you think I’m being alarmist about this particular slippery slope, we don’t have to look far to see how quickly the terms “greenwashing” and “rainbow-washing” have gained traction. And it’s hard to argue that our industry doesn’t have form in terms of colossal, commercially motivated F&*& ups.
From the perspective of the retail consumer and the rise of the collective consciousness regarding sustainability, positive impact is one of – if not the – main reason retail investors will buy funds in the future. So the commercial motivation is clear… can we be sure that the organisational integrity is highly tuned? We should judge that on a company-by-company basis, but the general consumer perception of our industry is not good. Trust and goodwill are fragile. They take a long time to build and just one isolated scandal to destroy.
To sum this rant up, I believe this is worse than the standard forms of “greenwashing” which are fairly transparent in their disregard for genuine sustainable investing. Or “rainbow-washing”, that involves randomly attaching UN SDG badges to every company in the fund to prove how wonderful it is. We have internally coined the phrase ‘woke-ulators’ for these impact calculators. This is dark humour to help us deal with the seriousness with which we take this. It’s not good. Positive impact fund managers need cut it out before it damages all of our reputations.
But perhaps this is finally coming to a head. The 2 Degrees Investing Initiative (2DII) is beginning to resist the currently loose definitions of impact and has quit the Science-Based Targets initiative (SBTi) over how companies set ambitious and meaningful GHG reduction targets. The definition of impact must be the one understood by the general public and retail investors.
Yes. It’s complicated. Communicating what we do as impact managers to the public is tough. It can require patience. But no matter how commercially tempting it is and how important the end (you believe you are justifying) is, we need to resist the urge to compromise our integrity.
“Doubt is not a pleasant condition, but certainty is an absurd one.” Voltaire
For over 30 years we have ardently resisted green washing, rainbow washing and magic green buttons.… and for the last two years or so we have had to resist the “woke-ulator” too. We may have lost out on market share as a result. That’s not particularly pleasant to think about, but then the alternative is absurd.
Other soapboxes on closely related topics can be found below:
Positive (second-order) impacts
The carbon footprint of your investment
Supply Chains: Materially materialising
Everything is awesome
Why it can be good to look bad
About the author
Craig Bonthron is an investment manager in the Equities team, responsible for actively co-managing high conviction global equities portfolios. He focuses on analysing disruptive and sustainable investment trends within the technology, healthcare, industrial and consumer sectors in order to identify high conviction stock specific investment ideas. He joined us in 2014 from SWIP, where he was an investment director in global equities. Prior to SWIP, he was a portfolio manager at Kleinwort Benson Investors. Craig has a 1st Class honours degree in Building Surveying and an MSc with Distinction in Business Information Technology Systems from Strathclyde Business School. He has 18 years’ industry experience. *As at 30 November 2019.