In a previous blog article I discussed impact investing in our modern society and how it could possibly be the future of investing. However it is important to view both perspectives of this statement, which is why this particular blog will be touching upon the possible hurdles of impact investing.
As Chamath Palihapitaya discussed in his interview with NBC, many companies will take the label of ESG in order to borrow money from the ECB at outstanding rates. This means that if this certain company gets a loan from the ECB for a particular project and that project turns out to be unsuccessful the damage will be minal to the company just because it is labeled as an ESG. Later in the interview Chamath also points out that once a company is labeled as ESG, they are able to hide behind a wall and their true environmental impact cannot be measured. A great example of this is JP Morgan. JP Morgan recently announced that they would support the environment by restricting the funds they send to companies drilling in the Arctic. However as millions of civilians focus on this, what they do not focus on is how JP Morgan still has $317 billion invested in fossil fuel companies. As one can see, ESG labels are no longer something that companies who truly change for climate change can acquire, but rather a wall that wealthy investment firms can hide behind to distract millions from their true intentions.
Chamath discusses the true reason companies claim to have a positive environmental impact
Another great argument brought up by Christopher Ategeka, is that the idea of impact investing could ruin the idea of nonprofits. This point proves to be very significant because once investors realize that they can contribute to a good cause and possibly make a significant return, they would not see the good in donating money with nothing in return. Another valid point that Christopher brings up is that as an investor, the first thought in your mind would not be Did the money I put in the company truly help the cause, but rather, I really hope this investment can bring return. Even though some may argue that this investor is still putting his/her money to a greater cause, they must understand that the whole point of impact investing is to want to make a difference with the possible outcome of financial gain, and not for the sole reason of financial gain.
In the end, the future of impact investing is unknown as it is a relatively new concept with little to no data to support any side. However it is on us as a society to clear the greed from our minds and put the thought of impact before the thought of financial gain.
Sources:
https://www.cnbc.com/2020/02/26/chamath-palihapitiya-esg-investing-is-a-complete-fraud.html
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