This week we launched Util, an Oxford based company that is confronting a question that has challenged theorists and economists for centuries; how can you put a price on utility? In other words, our product seeks to measure company performance based on more than just its profitability. We have designed our methodology to be universal; this means that any company can take our assessments and start comparing the ‘value’ that they create with their competitors.
Our team came together out of a shared belief in the power of business and investing to solve the challenges of our time. These challenges, which have been articulated UN Sustainable Development Goals, present a once in a lifetime opportunity for businesses and investors to rethink how we define success. The below provides a brief background into the underlying theory behind Util. You can visit our website and check out our blog (util.co/blog) for more.
1. We exist because we believe that 20th-century capitalism is no longer fit for purpose.
Much has been said about the failure of neoliberal capitalism, little of which will be repeated in this article. However, we believe that unchecked globalisation, overly complex financial institutions and underweight regulatory frameworks have resulted in damaging outcomes for our planet and our people. We care deeply about global inequality, climate change, the continued exploitation of our planet’s resources and our species’ ability to survive under the weight of population growth — all of which have been shaped by 20th century capitalism. We exist to contribute to a 21st century capitalism; one that rewards closing gaps in income; one that rewards a decrease in environmental footprint and one that pursues innovation to raise the standard of living, across all people.
2. We exist because we believe that 20th century accounting techniques fail to account for and articulate company value.
Generally Accepted Accounting Principles lie at the heart of 20th century capitalism and corporate finance. These principles, while valuable in standardising financial performance, fail to account for the value a company creates, across stakeholders, from employees and the community to customers and environment. Again, much has been said on this subject which we will not do justice to in this short article, however, we believe that relying upon a simple Net Profit or Free Cash Flow result as the basis of company valuation paints a dramatically distorted picture of the value a company creates (or destroys) across its stakeholders. 20th century accounting techniques fail because they do not take into account a company’s utilisation of our natural commons, fail to appropriately account for intangibles (brand, culture, innovation), and disregard the value of the company’s role in its community (suppliers, customers, employees).
3. We exist because we fundamentally believe in the power and logic of capital and capital markets.
Notwithstanding the above concerns, we are all capitalists who believe in the power of regulated markets, the profit-motive and the benefits companies and their associated markets bring to customers and countries. We believe that the world’s biggest problems cannot be addressed without the weight of the world’s financial system in support. We support capitalism’s enabling of enterprise and innovation, its ability to allocate resources efficiently and the imperative it creates on job creation. Above all, we are realists, believing that the competitive, zero-sum nature of capitalism is deeply effective in its ability to inspire performance, in the form of economic growth and superior returns. Our mission is to channel the logic and expediency of capitalism towards a more nuanced understanding of the Value created by companies and through investments. We have created our methodology to mirror basic corporate finance techniques; by distilling value down to a single, comprehensible and comparable metric, we will help channel capitalism’s energy towards a more refined and inclusive understanding of company performance.
4. We exist because the only way to overcome the world’s intractable problems is through mainstream investment.
Achieving the United Nations’ 2015 Sustainable Development Goals will take a minimum $1.4 trillion of investment per annum, to 2030 . This estimate, although large, requires a relatively minor shift in the investment industry, which manages over $70 trillion of assets. Global philanthropy, government aid allocations and even Impact Investing cannot collectively address the financial requirement to overcome our planet’s intractable issues. Our mission, therefore, is to advocate a small recalibration in mainstream investing — only then can we contemplate reversing immediate and concerning global trends.
5. We exist to hold investors to account for their decisions, in an independent and transparent manner.
From Blackrock to Bono, Impact Investing is increasingly a focus area for individual and institutional investors. There is not, however, a tool or set of metrics by which we can monitor and assess company and investor performance. Much work has been done by institutions including Integrated Reporting, the Global Reporting Initiative and the Global Impact Investing Network to increase the tools available to Value oriented investors and companies, however, these frameworks fail to provide comparability and a ‘blended’ approach to company performance. We exist to improve the quality of investments by articulating company success in a simple, comparable manner, supported by universally applicable, detailed company analysis.
These five reasons for existence help to guide our products, our internal culture and our company mission. We would love to hear people’s views on what Impact Investing needs to move it to the mainstream.
For more information visit util.co