If you had $1 trillion in your bank account, you could buy the Miami Marlins one thousand times. Now, imagine you have the power to purchase the Miami Marlins… thirty-thousand times over. $30 trillion is the amount of wealth that is likely to pass down from baby boomers to Gen Xers and millennials in the coming decade. In addition, nearly 87 percent of millennial investors believe investing should go beyond pure profits, according to one 2018 survey. However, not all of us have a plump enough purse to host grandiose competitions, such as Elon Musk’s XPrize carbon removal competition.
What opportunities exist for ordinary investors who want to put their money to good use? Luke Wilcox, founder of the fintech start-up Ethos, recently sat down with TriplePundit to explore the nascent world of impact investing.
ESG or impact investing?
Both ESG (environmental, social and governance) and impact investing are under same broad financial umbrella, but have key differences. ESG is about mitigating risk without measuring specific outcomes. Impact investing, on the other hands, directly quantifies societal impact and is value driven in its deployment of capital.
Big data can lead to big impact
Prior to this new fintech venture, Wilcox helped measure community impact while working for non-profits. He also served as a consultant using big data to help corporations solve ambiguous problems.
Wilcox said he began to question the impact of his own investments. Large institutional investors have access to research tools provided by MSCI or SustianAlytics, yet Wilcox failed to find any readily available tools for people like himself – ordinary investors. He wanted to combine the power of structured data with impact measurement to bring a new type of analysis to the average investor. He continues to build his platform, Ethos, with the vision of helping ordinary people make extraordinary investment decisions.
A world where impact investing works
If Wilcox were to construct a perfect world, where opportunities to invest with purpose were widely available, he would prioritize data transparency. Data is the key to accurately analyzing the impact your investment will have on local communities and the world at large. In today’s age, much of this data is available – for publicly traded companies with fat wallets. However, even this data is cluttered and hard to find.
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Wilcox envisions a world where impact data is easily accessible to all people and extends to organizations outside of the S&P 500. Imagine an integrated fund that blends affordable housing projects with a mix of corporate stocks. And he reiterated during his talk with 3p that he believes this world is possible and that culture will play a vital role in the process of change.
However, Wilcox cautions, “We need significant changes in the mindset of the entire investment community… to treat impact as an equal to risk and return.” Wilcox adds that he has an ambitious outlook on the future of investing and hopes to accelerate this movement with Ethos.
Ethos as a tool for effective impact investing
Ethos helps investors align investments with causes they care about – such as mental health, climate change, social justice, gender equality and healthcare. According to Wilcox, Ethos does the hard work of aggregating large amounts of data into a digestible manner. With easy to use software and a transparent methodology, Ethos is designed so investors can position their money with their values. While tools like Ethos are helpful, they are only one piece of the impact investing pie. What steps should you take, along the way, to put your money to good use?
A bit of advice for the impact investor
If you are searching for a more meaningful approach, Wilcox offers some advice. First, define what sort of impact you are trying to have: Do you want to make a difference on climate change, gender equality, racial justice or another cause or causes? Then, determine the risk you are willing to take with your money. If you seek low-risk strategies, focus on large publicly traded companies that behave ethically. If, on the other hand, you are willing to tolerate more risk, check for opportunities in your local community.
You may be wondering: how do I invest in my local community? Explore Impact Finance Center, a nonprofit academic center working to move money into social ventures at the community level. Alternatively, check in with your local bank to see if they offer any community-oriented investment funds. Lastly, reflect on your current positions. Can your money improve the world around you? Is your money improving the world around you? If you are ready… Ethos may be the tool to get started.
Image credit: Nattanan Kanchanaprat/Pixabay