Most of us consider our values to be central to who we are. Whether consciously or not, those values act as a moral compass that guides us in almost everything we do — in our relationships, in how we bring up our children, our purchasing decisions, and our work.
But investing seems to be an odd exception to this rule. Because when it comes to making investment decisions, companies and private individuals too often overlook their values in the pursuit of one thing, and one thing only — maximizing shareholders’ value.
One of the more visible examples of this in recent years comes from the social media industry. Many social media platforms were founded on community and togetherness values, with a simple mission to connect people online.
But somewhere along the way, that aim was eroded and eventually superseded by another, more pressing goal — appeasing shareholders. As the mindset shifted from fostering online communities to maximizing membership and increasing engagement, some social media platforms began to use our own psychological traits against us, dishing out dopamine hits and bombarding us with notifications to increase those all-important clicks that drive advertising revenue.
I’ve used social media as an example here, but we see shareholder- or capital-focused investment in almost every industry. Whether it’s planned obsolescence among tech companies or the offshoring of supply chains to markets with low workforce welfare standards in the fashion industry and others, these are investment decisions not driven by values but by a desire to maximize profits, no matter the cost.
Old concepts, new perspective
Conscious investing is attempting to redress the balance by placing values at the forefront of investment decisions. Importantly, it doesn’t mean return on investment (ROI) is no longer a factor, simply that it isn’t the only factor, with the outcome being more funds allocated to ventures that seek to make a positive impact on the world.
The concept of conscious investing — also known as impact investing — is not new, but until recently, it’s largely been viewed as something of a give-and-take strategy: give up a little in terms of ROI to feel good about your investments or fulfill certain sustainable development goals. But the idea that conscious investors must accept concessionary returns is an outdated misconception and one that needs to change if values-based investment is ever going to become truly mainstream. Which it absolutely must if we’re going to address the social and environmental challenges facing humanity today.
Conscious investing doesn’t have to be a compromise, and it can be every bit as profitable as its traditional counterpart, often more so.
And considering the unprecedented market conditions we’re experiencing both in the Middle East and around the globe, that has never been more true than it is today.
Adapting to the shifted paradigm
The COVID-19 pandemic has rocked the world in ways few could have imagined twelve months ago. In addition to the terrible toll it’s taken on human lives, it’s also had a hugely negative impact on many investment portfolios— particularly those with traditional investment portfolios. On the other hand, conscious investments are thriving in 2020, and in many cases, they’re comfortably outperforming traditional bets.
Part of that is down to the poor performance of certain key traditional asset classes over the last 12 months or so, but there are other dynamics at play here, too. Talking in the broadest of terms, many traditional investments focus on life’s nice-to-haves, meaning they’re the first to suffer during times of crisis or recession. Impact investments, on the other hand, tend to focus on the fundamentals — things like healthcare, education, social welfare, food provision, and clean water, as well as environmental challenges like reversing climate change. These are universal human and environmental needs we can’t afford to neglect, no matter what else is going on globally.
Conscious investments as a force for change?
2020 has seen a huge increase in the issuance of social bonds — fixed-income financial instruments based on strict environmental, social, and governance criteria. Morgan Stanley reports that 32 billion dollars of social and sustainability bonds were issued in April 2020 alone, despite an anticipated decline in overall issuance within the global fixed income market of some 9 per cent this year. Earlier this year, Salesforce also launched its $100 Million Impact Fund to invest in cloud startups with a social mission.
This kind of progress is truly encouraging, but make no mistake: we stand at the very beginning of what will be a long journey. In 2015, the UN laid out 17 Sustainable Development Goals (SDGs), which aimed to unite the world in ending poverty, fighting inequality, and tackling climate change by 2030. But just five years into this quest, the latest progress reports suggest we’re lagging in 15 of the 17 categories, and that was before COVID-19 came along to stall, or even reverse, progress in many.
We at KAUST are also committed to playing our part, not only by making impact investment a key theme in both our teaching and our research agenda, but also nurturing startups and investing in them with a focus on impact objectives. It’s an approach that’s already borne fruit, and we’re incredibly proud of the success of KUAST startups like Red Sea Farms, who are pioneering saltwater agriculture, and Edama Organic Solutions, who are revolutionizing waste management.
In September 2020, KAUST has partnered with investment platform VentureSouq and New York University Abu Dhabi (NYUAD), and its partner Tamkeen, to launch the first Conscious Investor Fellowship in the Gulf Cooperation Council (GCC). The pan-regional fellowship is a six-week virtual program dedicated to enabling regional investors in the GCC to create sustainable change through high-impact investments.
It’s for this reason that spreading the conscious investment message is more important today than ever before. When based on sound financial fundamentals, conscious investment is a no-brainer, offering similar or better returns than traditional investments while allowing investors to align their strategies with their own value systems. And if we scale that up, if every company and every investor simultaneously dusted off their moral compasses and shifted from a capital-first to an impact-first investment strategy, we would easily achieve the UN’s 17 Sustainable Development Goals by 2030 — and much, much more.
About the Author
Hattan Ahmed currently leads the Entrepreneurship Center at KAUST, delivering the university’s entrepreneurship vision. He believes in young people as change agents of the future and that universities play a key role in creating national economic impact. In his role as an advocate for entrepreneurship, Hattan works across the entire entrepreneurship ecosystem in the Kingdom, delivering entrepreneurship training, creating corporate innovation programs, and accelerating startups that will contribute to the national transformation agenda.