Integral Impact Investing (forum CSR international 2010-1)
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"Integral Impact Investing", by Mariana Bozesan, Ph.D.; published in forum CSR international 2010-1; This article introduces Integral Impact Investing as an evolutionary model for sustainable capital ...

"Integral Impact Investing", by Mariana Bozesan, Ph.D.; published in forum CSR international 2010-1; This article introduces Integral Impact Investing as an evolutionary model for sustainable capital management.

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Integral Impact Investing (forum CSR international 2010-1) Integral Impact Investing (forum CSR international 2010-1) Document Transcript

  • SOCIAL BUSINESS Integral Impact Investing Where the science of achievement meets the art of fulfillment by Mariana Bozesan, Ph.D. This article introduces the concept Planet’, Columbia University profes- person will rise by 400 percent of Integral Impact Investing as an sor, director of The Earth Institute, between 2005 and 2050. Ac- evolutionary model for sustainable and special UN adviser, Jeff D. Sachs 1, cording to current predictions and capital management. It argues that identified six major trends and chal- projections by the World Bank, the major collective threats faced by lenges that humanity is facing in the by 2050 the average income per humanity today are addressed only 21st century. person in developing countries will partially by the current development be at $40,000 and in the United strategies and investment schemes. These trends and challenges are the States, for example, it will be at It emphasizes the important role of following: $90,000. capital and business in alleviating today’s challenges and questions the 1. The Age of Convergence: The 3. The Asian Century: According to sustainability of current investment rapid economic growth especially Earth Institute studies, Asia’s share practices in all investment fields in the so-called BRIC states (Brazil, of global income will grow by 49 such as Venture Capital, Public, and Russia, India, China) leads to a percent by 2025 and to 54 percent Private Equity. Moreover, it provides much larger world economy of by 2050, thus taking the lead in an integral investing framework that a global world product of $420 the world. may fill the current void while poten- trillion by 2050 – or 6.3 times tially reducing the investment risk and higher than in 2005 – and a popu- 4. The Urban Century: For the first increasing the social, environmental, lation growth of 40 percent. That time in human history, more people cultural, and happiness impact. causes an economic convergence on earth will live in urban rather between the developed and de- than rural areas. To the benefits, What’s the problem? veloping countries. there are significant downsides that include the “urbanization of In his remarkable book ‘Common 2. More People at Higher Incomes: hunger,” health hazards, infectious Wealth: Economics for a Crowded The world’s average income per diseases, violence, and insecurity. www.forum-csr.net 1
  • SOCIAL BUSINESS Figure 1: Worldwide carbon dioxide emissions by region an per capita. (Schulz, 2009) 5. The Environmental Challenges What’s the proposed solution? dictates what is being traded. caused by the current trends are That includes the availability of enormous and include water, earth, In addressing the global concerns strawberries and other exotic fruits and atmospheric pollution with sig- outlined by the Club of Rome in its on Western kitchen tables in the nificant increase of carbon dioxide “World Development Program,” 4 the middle of winter or fish on every emissions per capita, raising ocean Copenhagen Consensus from 2008 5 day of the week. This is unsustain- levels, further ecological destruc- and the Millennium Project (Figure 2), able and must change. tion, reduction of biodiversity, and Sachs (2008) summarizes a successful increased depletion of natural re- strategy of sustainable development 4. The Sustainable Population sources. The human impact on the in the following way. Growth that includes the volun- environment is already unsustain- tary reduction of fertility rates and able 2. With the rise of China and According to the Earth Institute (Sachs, requires cultural transformation, India, the current carbon dioxide 2008), a strategy of sustainable de- the empowerment of women, and emissions per capita and year must velopment that creates global and increased education. be reduced significantly otherwise sustainable prosperity must address: the survival of our planet as we 5. The Ending of the Poverty Trap by know it is in danger. Thus, the rise 1. The Development and Adoption of 2025 by empowering the poor of ocean levels, habitat destruction, Sustainable Technologies such as with (a) high-yield agriculture increase disease transmission and clean-energy, drought-resistant seed such as improved seed varieties, natural hazards, changes in agricul- variety, vaccines for tropical diseases, fertilizers, and irrigation tools; tural productivity, water availability, as well as remote supervision and (b) educational technology such and ocean chemistry may not be preservation of biodiversity. as classrooms, bathrooms for the only consequence of climate girls, and Internet; (c) health care change (Figure 1) 3. 2. The Sustainable Harvesting of Nat- technologies; and (d) modern in- ural Systems such as the correction frastructure such as electricity, all- 6. Poorest Billion and The Pov- and reduction of the intensity with weather roads, and safe-drinking erty Trap: Roughly one billion which society uses natural capital water. people on earth, however, are and resources. For instance, the not touched by the convergent procurement of lithium that is However, within the context of the economic growth mentioned used in electric car batteries must current challenges such as climate earlier. In fact, they are trapped in not destroy the natural beauty of change, biodiversity conservation, a downward spiral of poverty that Chile that has one of the world’s and eradication of poverty we must presents great danger to political largest sources of lithium. look well beyond the social and envi- stability, is prone to violence and ronmental lens. If we think that these conflict, and contributes to mas- 3. The Overcoming of the Importance are the only things that challenge sive local degradation. of the Market. Today the market humanity today, we’re mistaken. The 2 forum CSR international
  • SOCIAL BUSINESS current problems are not only sys- decades since World War II has led to part is that while most people in the temic; they are integral. They are not greater democratization, more gender developed world are literally killing only related to the exterior/conscious equality, increased social tolerance, themselves with excess more than one dimensions of reality such as social and thus a higher happiness index billion people on this planet live on the and environmental, their true source worldwide 9, material abundance10 brink of starvation with one child dy- is related to the interior/unconscious ceased to be the ultimate goal in ing from hunger-related causes every dimensions of reality such as cultural, developed countries. Further research five seconds 16. moral, emotional, and spiritual. published in the Journal of Public Eco- nomics into 2002 by Blanchflower & Every time we turn on the radio, TV, What’s missing? Oswald 11 showed that the happiness read a newspaper, magazine, or at- index in the U.S. and the UK has even tend a conference, we keep hearing What is often left out within the decreased despite increased material the call for higher ethics and morals as context of current challenges is the prosperity. well as innovation and creativity. Gan- emotional devastation and spiritual dhi and Einstein seem to be the most deprivation along with their impact. Moreover, according to a 2005 paper quoted people these days. Through That often includes loss of self- by the American Heart Association 12 – their calls, “We must be the change esteem, depression, violence, addic- and the numbers are similar in other we want to see in the world” (Gandhi) tions, social isolation, and destroyed developed countries – one in three or “The significant problems we face relationships. To give one example, (actually 2.6) adults are currently cannot be solved by the level of think- according to Jennifer Baker of the For- dying of cardiovascular (i.e., heart) ing that created them” (Einstein), we est Institute of Professional Psychology disease. Furthermore, in keeping with are being encouraged to change our in Springfield, Missouri, 50 percent of a study performed in 2002 by the U.S. behaviors and come up with better first marriages, 67 percent of second Department of Health and Human solutions to the current problems. and 74 percent of third marriages in Services, the Center for Disease Con- Yet, the calls for change are loaded the United States of America end in trol, and the National Cancer Institute, with fear and desperation and those divorce 6. The numbers are similar in one in four people is currently dying of us who have ever tried to change Europe 7. of cancer 13. unwanted habits, know how difficult that is. Behavioral change occurs from Moreover, despite our wealth and Like Europe 14, 30 percent of U.S. within and fear is a good slave that abundance, Westerners are ironically American adults 15 are considered gets us quickly out of trouble but not among the unhappiest people on obese according to the scientific a good master. Earth with U.S. Americans being on definition of obesity and tragically the average unhappier than the people of prevalence in overweight and obesity Despite all of it, humanity has proven Bhutan, which is one of the poorest among children is rising significantly numerous times in the past that it can countries in the world 8. Although the with as many as one in four children collectively address some of the most overall economic growth over the past that are being affected. The sad challenging tasks such as ratifying Figure 2: The promise of the Millennium Goals (www.millennium-project.org) www.forum-csr.net 3
  • SOCIAL BUSINESS cessful by adding interior metrics such as culture, ethics, and emotional prop- erty to the exterior ones such as finan- cial, social, and environmental. They are driven by a happiness index. Traditional investors are profit driven and have the challenge to earn con- sistently superior financial returns on their investments. During the dot. com boom of the 1990ies, return on investments between 10 and even 50 percent have often been the case especially within the high-risk venture capital world. Yet, the traditional, Figure 3: Evolution of investing profit-only, and mostly rational driven decision criteria impeded even the the ozone layer protection act 17, the is expected to become mainstream in most astute investors to identify and eradication of smallpox and polio 18, 2015 with AUM of 15 to 20 percent invest in newcomers such as eBay, as well as fighting AIDS, tuberculosis, of total global AUM (USD 26.5 trillion) Federal Express, or even Google. For and malaria, some of which are still and total revenue of USD 53 Billion. instance, all these three companies under way. The keys to success in- What determines investors to put are on the list of missed opportuni- clude not only a clear objective, but more money into these markets in a ties of Bessemer Venture Partners 22, also, an implementation strategy, an way that changes the entire invest- one of the oldest VC companies in effective technology, financing, and ing paradigm from niche to main- the United States. On their website most of all trust, compassion, and the stream? one can read how David Cowan, ability to “celebrate what’s right with one of their partners, missed the op- the world” as the famous National Increased social and environmental portunity to invest in Google when Geographic photographer, Dewitt awareness along with growing prices his “college friend rented her garage Jones 19, would say it. for energy and natural resources, to Sergey and Larry for their first legislation changes regarding reduc- year. In 1999 and 2000, she tried Why investors put their money tion of CO2 emissions, and the avail- to introduce Cowan to “these two where their heart is? ability of new technologies such as really smart Stanford students writ- clean technology play the key roles. ing a search engine.”[He thought] 1985 is generally seen as the official However, various studies 21 including Students? A new search engine? In birth year of Responsible Investing a recent phenomenological research the most important moment ever (RI) also known as social responsible performed with top business leaders for Bessemer’s anti-portfolio, Cowan investing, program related invest- and investors, revealed a significant asked her, “How can I get out of this ing, or impact investing. That year, shift in consciousness at the leader- house without going anywhere near the Canadian Vancity Credit Union ship level in business and investing your garage?” This example shows introduced the first ethical mutual (Figure 3). These are called integral that the need for a new investment fund that allowed investors to have impact investors because they make lens with new success metrics became a social or environmental impact by their financial bottom line more suc- obvious. investing their money in companies that cared about addressing some of the challenges outlined above. By the end of 2007, the global assets under management (AUM) invested in the Responsible Investing market had reached USD 5 trillion 20 and represented already 7 percent of the total global AUM. While the total AUM growth remained globally at 10 percent per annum, the Responsible Investing AUM is growing since 2003 on average by 22 percent per annum. According to a study performed in 2009 by Robeco and Booz & Compa- ny, the Responsible Investing market Figure 4: Integral Businesses make more money than traditional ones. 4 forum CSR international
  • SOCIAL BUSINESS As we have seen, since 1985, a new ers it to be an Integral company, was exciting future if we are willing to trend of responsible investing was even more successful than all other grow and reinvent ourselves anew born through increased social and FoEs. Over a period of 10 years, Whole every single day. It is a future in environmental awareness of investors Foods returned 1800 percent to their which new paradigms are emerging along with new movements including investors and outperformed signifi- while we collectively move to higher Corporate Social Responsibility and cantly all of its competitors including levels of consciousness. There could various new criteria of measuring Wal-Mart, Albertsons, and Safeway. be too much at stake if we do not. success. In addition to bottom line/ Along with the shifting worldview in profit metrics, impact investors began Summary all areas of life, we must all awaken putting their money into investment the leader within whether we act as portfolio companies that used new Having been an integral impact in- an investor, an entrepreneur, or a metrics such as the Social Perform- vestor over the past fifteen years, I fisher. We all have the responsibil- ance Indicators, Environmental Per- can safely conclude that as investors ity to define and implement a new formance Index (EPI) 23, the ISO 14001 expand their investment metrics to worldview that is based on the es- Environmental Management Systems, include cultural, social, and envi- sence of all existence, the interior as or even Triple Bottom Line accounting, ronmental criteria in addition to the well as exterior reality. The time has which adds People and Planet to the financial ones, they will be able to come to move to higher levels of hu- Profit metrics. increase not only their return on fi- man existence at which we must let nancial investment, but also their deal our hearts speak much louder than We are still at the beginning of respon- flow, its quality, and their overall im- before. We must unify our brains sible investing and even the introduc- pact in a significant way. As investors with our hearts. This is where the tion of the Dow Jones Sustainability expand their selection lens to become science of achievement meets the art Index in 1999 has not stopped its crit- integral impact investors, they will of fulfilment. At this intersection we ics from claiming that the introduction be able to identify and invest much realize that the true light shines not of social, environmental, and govern- sooner in integral companies such as on us but from within us. ance metrics is reducing the profit Whole Foods, Aveda, and Patagonia. bottom line. In fact, the opposite is These companies are not only led true. Integral Impact Investors (Figure by what I call consciousness leaders, 3) and Integral Businesses (Figure 4) but are driven by integral teams with Profile are showing how the financial bottom a high level of integrity, passion and line can be significantly increased by love for people and the planet. Inte- adding cultural and developmental gral companies are driven by cultures metrics to the social, environmental, of inter-dependency that connect and and financial ones. respectfully honor all stakeholders equally from investors, to partners and In a recent study 24 published in the suppliers, to customers, to employees, book ‘Firms of Endearment: How to their communities 25. World-class Companies Profit from Because of that, integral companies Passion and Purpose’, one can clearly are able to maximize their long-term see what the key to success of these shareholder value by simultaneously An impact investor, venture philanthropist, companies is: namely, their biggest optimizing the value of all stakehold- and serial entrepreneur, Dr. Bozesan, is an competitive advantage, which can ers. Moreover, they create, support, international authority on Integral Impact be measured at the financial bottom and integrate new industries such Investing. Together with a worldwide team line, is their corporate culture. Firms as green buildings, organic and of impact investors, Dr. Bozesan is signifi- of Endearment (FoEs), as these com- sustainable agriculture, sustainable cantly reducing the investment risk and panies are being called, outperformed fisheries, or local manufacturers. increasing the social, cultural, environ- financially S&P 500 companies by 8 to Last but not least, integral compa- mental, as well as the happiness impact 1 over a period of 10 years. Under the nies care about their communities through her evolutionary Integral Impact premise that every exterior is driven and the environments and are on a Investment Model based on Ken Wilber’s by an interior, these companies such philanthropic mission. Whole Foods Integral Framework. Educated at Stanford as Timberland, Southwest Airlines, or for example, donates five percent of University and KIT (Karlsruhe Institute of Technology) in Germany, Dr. Bozesan holds Whole Foods are driven by a cultural their after-tax profits to nonprofit an M.S. degree (Dipl.-Inform.) in Artificial shift toward subjectivity, trust, inter- organizations. Their financial success Intelligence and Computer Science from dependency, integrity, transparency, shows that caring business practices KIT. She received her Ph.D. in Psychology caring, passion and fun in addition and conscious capitalism pays off in from the Institute for Transpersonal Psy- to profit. the long term. chology in Palo Alto, California. As a matter of fact, Whole Foods, Despite enormous challenges, hu- mariana@bozesan.com whose founder John Mackey consid- manity can look into a bright and www.forum-csr.net 5
  • SOCIAL BUSINESS REFERENCES 1 Sachs, J. D. (2008) Common Wealth: Economics for a Crowded Planet, (New York: Penguin). 2 Gore, A. (2006). An inconvenient truth: The planetary emergency of global warming and what we can do about it. New York: Rodale. 3 Schulz, T. (2009) Worldwide Co2 Emissions by Country, both Total and per Capita, http://www.slideshare.net/ tschulz/worldwide-co2-emissions-by-country-both-total-and-per-capita. 4 The Club of Rome official website http://www.clubofrome.org/eng/meetings/Vienna_2009/presentations/Final- CoR.GLOBE.Vienna.Statement.pdf viewed August 7th, 2009 5 The Copenhagen Consensus official website: http://www.copenhagenconsensus.com/The%2010%20chal- lenges-1.aspx viewed July 24, 2009. 6 Divorce rate in the United States http://www.divorcerate.org/ viewed July 23, 2009. 7 World Health Organization (WHO) Regional Office for Europe official website, http://www.euro.who.int/obesity viewed July 24, 2009 8 Veenhoven, R., World Database of Happiness, Distributional Findings in Nations, ?Erasmus University Rotterdam. Available at: http://worlddatabaseofhappiness.eur.nl 9 University of Michigan-News Service, “Happiness is rising around the world: U-M study”, http://www.ns.umich. edu/htdocs/releases/story.php?id=6629 10 Soros, G. (2004). The bubble of American supremacy: Correcting the misuse of American power. New York: PublicAffairs. 11 Blanchflower, D. G., & Oswald, A. J. (2004). Well-being over time in Britain and the USA. Journal of Public Eco- nomics, 88, 1359-1386. 12 “Heart Disease and Stroke Statistics – 2005 Update,” American Heart Association, www.americanheart.org/ downloadable/heart/1105390918119HDSStats2005Update.pdf downloaded July 24, 2009. 13 “United States Cancer Statistics – 2002 Incidence and Mortality,” http://www.cdc.gov/cancer/npcr/uscs/ pdf/2002_USCS.pdf downloaded July 24, 2009. 14 Obesity in Europe, A Case of Action, by the International Obesity Task Force and the European Association for the Study of Obesity, http://www.easoobesity.org/docs/report72.pdf downloaded July 24, 2009 15 Finkelstein, E. A., Trogdon, J. G., Cohen, J. W., William Dietz, W., (2009). Annual Medical Spending Attributable To Obesity: Payer- And Service-Specific Estimates, Health Affairs, The Policy Journal of the Health Sphere, viewed July 29th, 2009 at http://content.healthaffairs.org/cgi/content/short/hlthaff.28.5.w822. 16 Black, R., & Morris, S., & Jennifer Bryce, J. (2003). “Where and Why Are 10 Million Children Dying Every Year?” The Lancet 361:pp. 2226-2234. 17 The Montreal Protocol, http://ec.europa.eu/environment/ozone/international_action.htm 18 Smallpox: 30th Anniversary of Global Eradication. CDC Center for Disease Control and Prevention, http://www. cdc.gov/Features/SmallpoxEradication/, viewed March 6th, 2010. 19 Jones. D. (2010), Celebrate What’s Right With the World, http://celebratetraining.com/, viewed March 6th, 2010. 20 Robeco, Booz&Co. (2009) Responsible Investing: A Paradigm Shift from Niche to Mainstream, http://www.robeco. com/eng/images/Whitepaper_Booz&co%20SRI_final_tcm143-113658.pdf, downloaded March 6th, 2010. 21 Bozesan, M. (2009). The Making of a Consciousness Leader: An Integral Approach, http://www.sageera.com/ download/Mariana_Bozesan/PhD_Dissertation_Mariana_Bozesan.pdf 22 Bessemer Venture Partners, Anti Portfolio, http://www.bvp.com/Portfolio/AntiPortfolio.aspx, downloaded March 6, 2010 23 The Yale Center for Environmental Law, and Policy, http://envirocenter.research.yale.edu/ 24 Sisodia, R., Sheth, J., Wolfe, D. B., (2007). Firms of Endearment: How world-class companies profit from passion and purpose. Upper Saddle River, NJ: Wharton School. 25 Strong, M. (2009). Be the Solution: How entrepreneurs and conscious capitalists can solve all the world’s prob- lems. Hoboken, NJ: Wiley & Sons. 6 forum CSR international