John Halstead: Is impact investing impactful?

Im­pact in­vest­ing is an in­creas­ingly pop­u­lar ap­proach to do­ing good. In this talk from EA Global: Lon­don 2019, John Halstead, head of ap­plied re­search at Founders Pledge, dis­cusses whether, and in what con­di­tions, im­pact in­vest­ing might be thought to suc­ceed. John ar­gues that im­pact in­vest­ing is likely to have limited im­pact in large, highly effi­cient mar­kets such as pub­lic stock mar­kets. How­ever, im­pact in­vest­ing stands a bet­ter chance of im­pact if it in­volves VC or an­gel in­vest­ing, in­cludes com­pa­nies that serve poor con­sumers or pro­duce pos­i­tive ex­ter­nal­ities, and/​or ex­ploits an in­vestor’s in­for­ma­tional ad­van­tage.

We’ve lightly ed­ited John’s talk for clar­ity. You can also watch it on YouTube or read it on effec­tivealtru­ism.org.

The Talk

I’m go­ing to talk about im­pact in­vest­ing, which is in­vest­ing in for-profit com­pa­nies with the in­ten­tion of hav­ing so­cial im­pact. The ques­tion is whether it suc­ceeds in meet­ing that goal.

There are two ways to do im­pact in­vest­ing. One is re­mov­ing your cap­i­tal from harm­ful com­pa­nies. Another is in­vest­ing cap­i­tal into so­cially benefi­cial com­pa­nies. [Im­pact in­vest­ing is] get­ting more at­ten­tion from philan­thropists, and in the for-profit world there’s much talk of so­cially re­spon­si­ble in­vest­ing. So I think it’s worth­while for the effec­tive al­tru­ism (EA) move­ment to con­sider how im­pact in­vest­ing might do good.
JH2

It’s quite in­for­ma­tive to look at the his­tory of so­cially re­spon­si­ble in­vest­ing. [One of the ear­liest and] most visi­ble so­cially re­spon­si­ble in­vest­ing cam­paigns was the boy­cott, di­vest­ment and sanc­tions move­ment against apartheid South Africa. It’s of­ten held up as a suc­cess­ful case of so­cially re­spon­si­ble in­vest­ing. But if you look at the ev­i­dence, the di­vest­ment cam­paign didn’t have much of an effect. Although it was as­so­ci­ated with var­i­ous re­stric­tive reg­u­la­tions and poli­ti­cal pres­sure be­ing brought against South Africa, the to­tal funds di­vested were quite small rel­a­tive to the size of the coun­try’s funds [over­all].

In the 1990s there was a lot of at­ten­tion di­rected to­ward to­bacco di­vest­ment. The goal was to get in­vestors to take their money out of to­bacco com­pa­nies. But again, the to­tal amount of funds that were re­moved from to­bacco was quite small rel­a­tive to the in­dus­try’s mar­ket cap­i­tal­iza­tion, so it didn’t seem to have that much of an effect.

The most re­cent and promi­nent ex­am­ple is the fos­sil fuel di­vest­ment cam­paign. There are or­ga­ni­za­tions like 350.org ad­vo­cat­ing for wealth and petrol funds to take their money out of fos­sil fuels. This has gained a lot more mo­men­tum, and you can ar­gue it’s hav­ing a more di­rect effect on the in­dus­try.
JH3

You can see the growth in in­vest­ing that’s call­ing it­self “so­cially re­spon­si­ble.” A lot of it’s not very strict; I think some of the la­bel­ing is a bit mis­lead­ing. But nev­er­the­less, there has been quite a bit of growth.
JH4

This is the pro­por­tion of the to­tal stock mar­ket that I think is [strictly so­cially re­spon­si­ble]. The [SRI] as­sets un­der man­age­ment in the world are val­ued at about $100 trillion, and maybe around 20% of that is what I would call so­cially re­spon­si­ble. I’ll dis­cuss why that is in more de­tail in a bit.
JH5

When we’re look­ing at how im­pact in­vest­ing has im­pact, we need to get clear on the con­cep­tual back­ground. There are two as­pects to this. First, when you’re an im­pact in­vestor you’re think­ing, “How can I ac­tu­ally have an effect on so­cially benefi­cial prac­tices in the world?” You have to think about “ad­di­tion­al­ity” — the differ­ence your in­vest­ment makes in the perfor­mance of the com­pany that you’re ei­ther di­vest­ing from or in­vest­ing into. Another way your in­vest­ments can have im­pact is through non-mon­e­tary effects. You might be able to provide non-mon­e­tary sup­port to a com­pany that helps it suc­ceed, or there might be things as­so­ci­ated with your in­vest­ment that al­low you to af­fect the wider world. As I men­tioned ear­lier, in the case of apartheid South Africa, maybe the di­vest­ment cam­paign al­lowed peo­ple to suc­cess­fully cam­paign against the apartheid gov­ern­ment.

The sec­ond thing you must do as an im­pact in­vestor is find an im­pact­ful com­pany. That is harder than a lot of im­pact in­vestors think it is.
JH6

Those are the two ways you can have im­pact as an im­pact in­vestor. And for both, the coun­ter­fac­tual is key.

Assess­ing ‘ad­di­tion­al­ity’

You can see [the ac­tor] Gwyneth Paltrow [in the pic­ture above from the movie Slid­ing Doors]. She just misses en­try to a Tube car­riage [in the Lon­don sub­way sys­tem]. What would have hap­pened if her char­ac­ter had made it into that car­riage and met [the ac­tor] John Han­nah, who is in the car­riage? Similarly, that’s the cru­cial thing when you’re as­sess­ing the differ­ence your in­vest­ment can make: What would have hap­pened oth­er­wise, and what differ­ence does the com­pany [you’re in­vest­ing in] make in [that al­ter­nate out­come]?
JH7

Typ­i­cal EA wis­dom about im­pact in­vest­ing has been that in large pub­lic stock mar­kets, it’s very hard to af­fect the stock price of traded com­pa­nies. The rea­son? With large pub­lic stock mar­kets, there are a lot of traders try­ing to make money [based on] the same in­for­ma­tion. So if, for ex­am­ple, a di­vest­ment move­ment causes peo­ple to sell their stocks in a fos­sil fuel com­pany, then so­cially neu­tral in­vestors who don’t care about im­pact will just come in and ar­bi­trage away any effect on the price.

In the di­a­gram above, the price falls in the short run and then re­verts to the fun­da­men­tal value of the stock. [The time it takes for the price to re­vert] de­pends on how effi­cient the mar­ket is. If the mar­ket’s highly effi­cient, the de­mand curve for stocks is perfectly elas­tic, so it’s hori­zon­tal — and changes in the de­mand for the stock don’t have any effect on the price.

How true is this as­sump­tion? I think there’s a lot of ev­i­dence of short-term effi­ciency. You can test this by look­ing at what hap­pens to the prices of stocks that are in­cluded in an in­dex. If a com­pany is added to the Stan­dard & Poor’s 500 In­dex, a lot of in­dex funds (like those run by in­vest­ment com­pany Van­guard) are go­ing to buy that stock. That cre­ates a short-term in­crease in de­mand, and there’s ev­i­dence that this de­mand af­fects the value of that stock af­ter three months. Nev­er­the­less, there is also ev­i­dence that the stock re­verts to its fun­da­men­tal value, which is just the net pre­sent value of the fu­ture cash flows of the busi­ness. Ba­si­cally, stock prices prob­a­bly re­vert fully to where they were within about six months.
JH8

So if you’re run­ning a di­vest­ment cam­paign, though you do have a chance of hav­ing a short-run effect on cer­tain stocks, they will even­tu­ally re­vert to where they were. That be­ing said, if no one in­vested in fos­sil fuels, then the in­dus­try wouldn’t ex­ist. So there has to be some tip­ping point be­tween the time at which you, as a marginal in­vestor, make no differ­ence in the stock price, and when there is a long-run effect on the perfor­mance of the in­dus­try. It’s un­clear when this tip­ping point oc­curs.
JH9

Sup­pose that 20% of in­dus­tries in the stock mar­ket are harm­ful. You might think that in or­der to have an effect on the value of those stocks, 80% of the stock mar­ket would need to be di­vested from harm­ful in­dus­tries. Other­wise, there’d always be so­cially neu­tral in­vestors to move in and bring the stock price back to where it was. I think this is un­re­al­is­tic for var­i­ous rea­sons — namely, that there are con­straints on the ex­tent to which traders can move into differ­ent mar­kets.

Maybe di­vest­ment cam­paigns will start hav­ing an effect when the size of the to­tal di­vested funds is com­pa­rable to the mar­ket cap of the in­dus­try. So if fos­sil fuels are 20% of the in­dus­try, and 20% of the stock mar­ket is di­vested from fos­sil fuels, then that will start hav­ing an ap­pre­cia­ble long-term effect on the stock price of those com­pa­nies.

The tip­ping point may be some­where in be­tween. I think more re­search on this would be use­ful.

But to ex­plore this ques­tion fur­ther, we need to un­der­stand how much of the stock mar­ket is good and bad, and how much so­cially re­spon­si­ble in­vest­ing there is. How far away from any po­ten­tial tip­ping point are we?

About 20% to 30% of the stock mar­ket is in fos­sil fuels. And you must add in to­bacco, al­co­hol, and things of that na­ture. That’s how much of the stock mar­ket is harm­ful.
JH10

In com­par­i­son, this [slide shows] how much so­cially re­spon­si­ble in­vest­ing (SRI) there is. I think it’s im­por­tant to point out that a lot of so­cially re­spon­si­ble in­vest­ing isn’t very strict. The strictest form is shown in the bar chart at the bot­tom [of the slide], which [fac­tors in] nega­tive or ex­clu­sion­ary screen­ing. It ex­cludes an en­tire in­dus­try from your fund — fos­sil fuels, for ex­am­ple. And then as you go up this chart, the in­vest­ments get less and less strict. ESG in­te­gra­tion sim­ply means ac­count­ing for en­vi­ron­men­tal, so­cial, and gov­er­nance scores of differ­ent com­pa­nies. Those are of­ten not very strict. And then there are less im­por­tant things fur­ther up on the chart.
JH11

So best-in-class ESG, which is a rather small part of so­cially re­spon­si­ble in­vest­ing, just means that a com­pany’s ESG is the best rel­a­tive to oth­ers in its in­dus­try. If you’re the most en­vi­ron­men­tally friendly to­bacco com­pany, that can mean you get a best-in-class ESG score. And as ESG rat­ings are cur­rently calcu­lated at the mo­ment, they’re not a good guide to so­cial im­pact.

This in­for­ma­tion is from Ya­hoo Fi­nance. You can see the ESG rat­ings for Bri­tish Amer­i­can Tobacco and Lindt, the mas­ter choco­latier. The ESG rat­ing for Lindt is ac­tu­ally lower than the one for Bri­tish Amer­i­can Tobacco. So some­thing’s go­ing wrong with these rank­ings. And that leads to cer­tain funds that la­bel them­selves as so­cially re­spon­si­ble [de­spite] in­clud­ing com­pa­nies like ExxonMo­bil. [Em­pha­sis ours.]
JH12

Van­guard’s so­cially re­spon­si­ble in­vest­ing fund in­cludes ExxonMo­bil. And that’s quite a com­mon thing. There’s a lot of mis­lead­ing la­bel­ing. Also, I think it’s worth men­tion­ing that some so­cially re­spon­si­ble in­vest­ing firms ex­clude nu­clear power, even though I think nu­clear power is good for the world.
JH13

Where are we in re­la­tion to the tip­ping point? I think about 20% of in­vest­ing is strictly so­cially re­spon­si­ble and 20% of the stock mar­ket is in fos­sil fuels. So we might be near­ing the tip­ping point at the mo­ment. And I think that the value of the oil and gas in­dus­try is up­wards of $4 trillion. But ac­cord­ing to 350.org, about $11 trillion has been di­vested from the fos­sil fuel in­dus­try. So you might ex­pect this to start hav­ing a ma­te­rial im­pact on the stock prices of these com­pa­nies.
JH14

Another point that’s of­ten made is that in large pub­lic stock mar­kets, you’re deal­ing with equity in sec­ondary mar­kets, which means that [your ac­tions] won’t re­ally af­fect the ac­tivi­ties of a com­pany whose stock is traded there. It just af­fects their share­hold­ers, not their us­able cap­i­tal. For ex­am­ple, a big to­bacco com­pany gets a lot of its in­come from sel­l­ing cigarettes, rather than rais­ing cap­i­tal from in­vestors. In­vestors’ be­hav­ior would only af­fect you if you wanted to raise ex­tra cap­i­tal by sel­l­ing ad­di­tional stock.

Nev­er­the­less, there are rea­sons for these com­pa­nies to care about their stock price — namely that share­hold­ers care about mak­ing money, so they’re go­ing to put pres­sure on the com­pany to change. It’s also go­ing to be im­por­tant for new and grow­ing busi­nesses. A startup cigarette com­pany will find it harder to suc­ceed if a lot of in­vestors have di­vested from them. But I think this point is gen­er­ally less im­por­tant.
JH15

Another key thing to think about if you’re do­ing so­cially re­spon­si­ble in­vest­ing in the stock mar­ket is whether you lose out fi­nan­cially. If you lose out, then the op­por­tu­nity cost is money that you could have donated to some­thing effec­tive. The rea­son for think­ing that SRI in­volves fi­nan­cial sac­ri­fice is you’re ar­bi­trar­ily fore­clos­ing part of the stock mar­ket, and any ra­tio­nal in­vestor wants as many op­tions as pos­si­ble. Ac­cord­ing to mod­ern port­fo­lio the­ory, you want as big a port­fo­lio as pos­si­ble. That re­duces risk.

The op­pos­ing ar­gu­ment is that ESG rat­ings might cor­re­late with fi­nan­cial perfor­mance for other rea­sons. Maybe fos­sil fuel com­pa­nies are go­ing to face ad­di­tional liti­ga­tion and reg­u­la­tion, con­sumer boy­cotts, and the like in the fu­ture.

As you might ex­pect, the em­piri­cal ev­i­dence is mixed; it’s very noisy. When look­ing at the perfor­mance of SRI funds and other stan­dard in­vest­ment funds, there are a lot of differ­ent things go­ing on. It’s hard to tease out the var­i­ous con­founders. The analy­ses that ex­ist show that there is not much of an effect of SRI on fi­nan­cial perfor­mance, if any. And the benefits to di­ver­sify­ing across the whole stock mar­ket are ac­tu­ally quite small. If you own 50 stocks, you get 90% of the di­ver­sifi­ca­tion benefits that you would have re­ceived if you had ac­cess to ev­ery­thing. So it’s pretty mod­est.

There’s also ev­i­dence that “sin stock funds” — funds that only buy com­pa­nies in in­dus­tries like to­bacco, al­co­hol, and gam­bling — con­sis­tently out­perform the mar­ket. But again, it’s hard to say why. It might be be­cause they face a higher risk of liti­ga­tion, so there’s ad­di­tional risk [and the po­ten­tial for ad­di­tional re­ward].
JH16

I think it’s rea­son­able to think that if a so­cially re­spon­si­ble in­vest­ing cam­paign or pro­gram gets close enough to a tip­ping point, you could, at best, have a mod­est effect on the stock prices of tar­geted com­pa­nies. And you prob­a­bly don’t have to sac­ri­fice very much fi­nan­cially to do that. But the ex­ist­ing ev­i­dence is mud­dled — and it doesn’t sug­gest that you should do so­cially re­spon­si­ble in­vest­ing in­stead of effec­tive donat­ing.
JH17

Where you could have greater im­pact is in in­effi­cient mar­kets with fewer traders and im­perfect in­for­ma­tion — mar­kets like ven­ture cap­i­tal and an­gel in­vest­ing. If there’s a very small num­ber of in­vestors who know about an op­por­tu­nity, that means there’s less op­por­tu­nity for peo­ple to move in. This coun­ter­fac­tual fac­tor is not as big as it might ap­pear, but you still need to think about what your in­vest­ment could add, or what differ­ence it could make. A lot of im­pact in­vestors don’t re­ally do that. They just think about what the com­pany did. They also need to think about what hap­pens as a re­sult of their in­vest­ment.

There’s also some ev­i­dence that di­vest­ment cam­paigns have been cor­re­lated with re­stric­tive reg­u­la­tion of harm­ful in­dus­tries, but I would be sur­prised if that turned out to be the most effec­tive way to tar­get an in­dus­try. We ini­tially di­vest for other rea­sons, and then say it’s good be­cause it raises aware­ness. I think there are prob­a­bly bet­ter ways to raise aware­ness.

That cov­ers the con­cept of “ad­di­tion­al­ity,” or what your in­vest­ment can add.

Find­ing im­pact­ful busi­nesses to in­vest in
JH18

Also, you need to think about how to find an im­pact­ful busi­ness. Some­thing that a lot of im­pact in­vestors don’t con­sider is that calcu­lat­ing profit is very differ­ent from calcu­lat­ing so­cial im­pact. With profit, all that mat­ters is whether or not you win. With coun­ter­fac­tual so­cial im­pact, what mat­ters is what some­one else or an­other busi­ness would have done.
JH19

If I’m Face­book, I need to ask, “What would have hap­pened if a differ­ent so­cial net­work had taken con­trol of the mar­ket rather than me?” It might be that I ac­tu­ally do harm, even though a lot of peo­ple are happy to pay money for my ser­vices, if the busi­ness that had arisen in­stead of Face­book was bet­ter than Face­book. Just be­cause you take over the mar­ket doesn’t mean that you’re hav­ing a sig­nifi­cant coun­ter­fac­tual so­cial im­pact.
JH20

Find­ing im­pact for com­pa­nies is very difficult, and, from what I’ve seen, I think that’s of­ten ne­glected in the im­pact in­vest­ing space. It’s not just about ca­su­ally tot­ting up so­cial KPIs [key perfor­mance in­di­ca­tors] and con­duct­ing ca­sual im­pact analy­ses. In com­par­i­son, con­sider what or­ga­ni­za­tions like GiveWell do. They put hun­dreds of hours ev­ery year into eval­u­at­ing char­i­ties in a very rigor­ous way.

Over­all, op­ti­miz­ing for im­pact is hard. Op­ti­miz­ing for profit is hard. So op­ti­miz­ing for both is very hard. And as we’ve seen, ESG rat­ings aren’t much of a guide if you want to op­ti­mize in pub­lic stock mar­kets.
JH21

I think the best ap­proach to find­ing com­pa­nies that have en­ter­prise im­pact is find­ing those that pro­duce pos­i­tive ex­ter­nal­ities, serve very poor con­sumers, or provide prod­ucts that are un­der­val­ued by con­sumers. If you think about com­pa­nies that provide prod­ucts to con­sumers who are very well off — those served by com­pa­nies like Ama­zon and Uber — they have a high will­ing­ness to pay. And so the so­cial value that those com­pa­nies provide is re­flected in the share price.
JH22

That’s not always true be­cause com­pa­nies like Im­pos­si­ble Burger and Beyond Meat have ex­ter­nal­ities that af­fect an­i­mals. By re­duc­ing meat con­sump­tion, they re­duce an­i­mal suffer­ing. And that’s a type of benefit that’s not cap­tured in the trans­ac­tion. That’s the way a com­pany can have an im­pact that’s not com­men­su­rate with its mar­ket value. The same is true for Tesla, ar­guably.
JH23

The other fac­tor is whether a com­pany serves poor con­sumers — and by that, I mean the very poor­est con­sumers in the world. There’s greater value in serv­ing the poor­est con­sumers in the world ver­sus the wealthiest. You can see life satis­fac­tion rel­a­tive to in­come [in this slide], in­di­cat­ing that it’s much bet­ter to im­prove con­sumer welfare in In­dia than it is to im­prove con­sumer welfare in the United States, be­cause peo­ple in the United States are much bet­ter off.
JH24

Also, pro­vid­ing un­der­val­ued prod­ucts can provide so­cial value in a way that isn’t re­flected in the value of your com­pany — for ex­am­ple, by pro­vid­ing CBC [cog­ni­tive be­hav­ioral ther­apy] or some­thing like that.
JH25

In con­clu­sion, the best kind of im­pact in­vest­ing — the kind of im­pact in­vest­ing that I think stands the great­est chance of hav­ing a pos­i­tive im­pact — in­volves ven­ture cap­i­tal or an­gel in­vest­ing. It in­volves in­vest­ing in com­pa­nies on the brink of fi­nan­cial vi­a­bil­ity, where your fund­ing ac­tu­ally makes a gen­uine differ­ence in the sur­vival of the com­pany, and [in com­pa­nies which] pro­duce pos­i­tive ex­ter­nal­ities, serve poor con­sumers, or provide un­der­val­ued prod­ucts. Those are the key prin­ci­ples.
JH26

One big ques­tion that’s rele­vant for effec­tive al­tru­ists is: How does im­pact in­vest­ing com­pare to donat­ing? This is a ques­tion that philan­thropists are ask­ing them­selves, and ob­vi­ously there’s a lot at stake. It’s hard to make any gen­eral claims, be­cause the an­swer de­pends on each con­crete case. I can imag­ine cases in which im­pact in­vest­ing is bet­ter than donat­ing. But I can also imag­ine cases the other way around.

The gen­eral ad­van­tages of non­prof­its are that they can provide pub­lic goods. Public goods [typ­i­cally] can’t be pro­vided by for-profit com­pa­nies, or where the mar­ket mechanism isn’t set up in a way that would al­low them to do so.

That’s a pic­ture of Hilary Greaves [in the slide above], who does re­search for the Global Pri­ori­ties In­sti­tute. They pro­duce knowl­edge about how to [pri­ori­tize differ­ent is­sues in terms of their global im­pact]. There are no pri­vate in­cen­tives for any­one to do that.

Another ad­van­tage of non­prof­its is that they can provide goods to peo­ple who are very badly off when there’s no mar­ket vi­a­bil­ity. There are fa­mous stud­ies of charg­ing peo­ple for bed­nets, which causes de­mand for them to [sharply de­cline]. And if you give them away, peo­ple will use them. So there doesn’t seem to be [any rea­son, in this case, for a for-profit com­pany to provide bed­nets]. Also, non­prof­its are usu­ally more ne­glected be­cause there’s no profit in­volved. That’s one fac­tor in fa­vor of non­prof­its.
JH27

The main ad­van­tage of for-prof­its is they aren’t sub­ject to a prin­ci­pal-agent prob­lem. One ex­am­ple of this is the PlayPump [a de­vice con­nect­ing merry-go-rounds to wa­ter pumps in Africa, such that wa­ter is pumped into a stor­age tank when chil­dren play on them]. It looks good, but didn’t go well. And the rea­son why is that the peo­ple whom the pro­ject was try­ing to serve didn’t pay for the pro­ject. Donors did. As a re­sult, PlayPumps didn’t re­ceive the kind of con­sumer feed­back that [are in­her­ent to] for-profit busi­nesses.
JH28

I think [as­sess­ing this] de­pends on the cause. In the case of an­i­mal welfare, I can see it be­ing true that 30 years ago it would have been bet­ter if a lot of the an­i­mal ad­vo­cacy money had gone into meat-al­ter­na­tive re­search. Try­ing to cre­ate for-profit com­pa­nies like Quorn, Im­pos­si­ble Foods, or Beyond Burger might have been bet­ter than fund­ing non­prof­its. That’s an in­ter­est­ing test case of a situ­a­tion where SRI might be bet­ter than donat­ing. It’s prob­a­bly not true any­more, just be­cause it seems like a very crowded space. It’s hard to find un­funded op­por­tu­ni­ties.

In ad­dress­ing global poverty, you can fund things like re­mit­tance com­pa­nies. Again, you need to con­sider “ad­di­tion­al­ity” — whether so­cially re­spon­si­ble in­vestors would in­vest any­way if you didn’t do so. It’s hard to gen­er­al­ize. I think the gen­eral stan­dard of im­pact eval­u­a­tion by so­cially re­spon­si­ble in­vestors is not that high at the mo­ment. So there’s rea­son to be cau­tious.

In long-ter­mism, there’s the is­sue of the cli­mate. You can do a lot, such as fund clean en­ergy providers or elec­tric cars. You can also fund higher-risk ven­tures, but it seems like a lot of the best op­tions are pub­lic goods that are hard for the mar­ket to provide.
JH29

I’ll stop there. Thanks very much.

Nathan Labenz [mod­er­a­tor]: You cov­ered a lot of ground, but one thing that you didn’t ad­dress in your talk is the pos­si­bil­ity of do­ing more lo­cal so­cial im­pact in­vest­ing, such as be­com­ing a land­lord in a com­mu­nity that’s un­der­served, or some­where you think you could make an im­pact.

John: I’d be sur­prised if that was bet­ter than in­vest­ing in global de­vel­op­ment or some­thing along those lines, just for the usual rea­sons.

Nathan: The usual rea­sons be­ing?

John: Peo­ple here [in the United King­dom or United States] are much bet­ter off [than in de­vel­op­ing coun­tries]. There’s less con­sumer value [in do­ing some­thing like that].

Nathan: I was sur­prised to see that $20 trillion out of $100 trillion is des­ig­nated as strictly so­cially re­spon­si­ble. You cov­ered some prob­lems with that, but just to make sure I even have that cor­rect (and the au­di­ence does too), that’s ba­si­cally in­vest­ments ex­clud­ing to­bacco?

John: Yeah, I think so. It’s hard to get par­tic­u­larly good data on it, but it ex­cludes spe­cific in­dus­tries. Some [in­vestors not in­cluded in the strict por­tion] might have [clas­sified their in­vest­ing as SRI] for self­ish rea­sons, or be­cause they can see the way things are go­ing for the to­bacco in­dus­try. It’s go­ing to be leg­is­lated out of ex­is­tence.

Nathan: It seems like over­all you’re bear­ish on the con­cept of im­pact in­vest­ing. You had a bit more hope­ful tone around early-stage ven­ture cap­i­tal in­vest­ing, but oth­er­wise didn’t seem pos­i­tive. But do you think that there is some­thing to be said for tak­ing a con­crete stand and [us­ing im­pact in­vest­ing] to make a state­ment about money that goes be­yond speech, and is, in a sense, a form of more effec­tive ad­vo­cacy be­cause there’s money be­hind it — even if ul­ti­mately, the stock price re­verts to the mean, as you said?

John: Maybe. I still think that just fund­ing ad­vo­cacy di­rectly and think­ing about the best way to make that point through other kinds of fund­ing would be the best way to do it, rather than tak­ing a cir­cuitous ap­proach. Un­less you can ac­tu­ally have a ma­te­rial effect on the bot­tom line of the com­pa­nies you’re in­vest­ing in, [I don’t think im­pact in­vest­ing can make that kind of state­ment]. There still might be room for cases where so­cially re­spon­si­ble in­vest­ing is good, though.

Nathan: One last ques­tion (and I’m hear­ing my sopho­more year eco­nomics pro­fes­sor ask it, as well as one of the au­di­ence mem­bers): It seems like ul­ti­mately you’re recom­mend­ing that peo­ple in­vest for profit and then donate those prof­its. That seems to be, aside from a limited num­ber of cases, the recom­men­da­tion that you would make.

John: I wouldn’t say that defini­tively. I think it’s still a bit un­clear. There might be cases where im­pact in­vest­ing is a good thing to do. One needs to sit down and figure it out. This talk is more about lay­ing out the con­di­tions un­der which im­pact in­vest­ing could be effec­tive, and al­low­ing us to think about how to as­sess whether it could be bet­ter than donat­ing. It’s still an open ques­tion. I know there are a few peo­ple who are work­ing on that ques­tion, and I think it needs a bit more at­ten­tion.

Nathan: All right, awe­some. Thank you very much. Great job.