Unlocking the Human Factor in Sustainable investing
Earlier this month, Masawa hosted an event in Frankfurt that brought together investors, founders, and organizational development experts to discuss ways of unlocking the human potential in sustainable investing. The panelists came from varied experiences, ranging from current fund managers to an anthropologist who studies the ethics of venture capital, and an organizational transformation coach. They were connected in their shared concern and the opportunity they saw in nurturing human potential.
The event could not have come at a more opportune moment as environmental, social, and governance (ESG) considerations are increasingly gaining importance, if not taking heat in the media. By 2025, more than a third of the global AUM of $140 trillion will be ESG-related assets. While ESG is gaining a lot of positive and negative attention, there is scant focus on the most crucial element in investments — the humans. The S in ESG — the social factor that ostensibly focuses on people, is the least clearly defined of the three areas. For any organization, managing its culture is integral for it to flourish; yet this factor is often ignored in investment due-diligence processes and boardroom meetings.
The Human Factor: what is it?
The panelists began by discussing what the human factor meant to them. One panelist said that the core reason businesses exist is to serve humans, not to seek growth or profitability at their expense. Another panelist spoke about the qualitative aspects of human behavior, such as creativity and emotions, which are not taken into account in measuring financial performance today but can have a high impact if they are incorporated or ignored.
The experts acknowledged that there has been an upsurge in burnout and mental health issues globally during this decade. From the founders of startups to the employees of much bigger establishments, everyone is a victim, and many unintentionally are a part of the burnout culture that leads to diminishing human potential within organizations and society.
The discussion soon pivoted into the levers of decision-making in organizations and the role of investors to focus on the human factor. How do investors impact founder and organizational well-being? One panelist brought attention to the impact of hyper-growth, the search for unicorns, rapid scaling, and prioritizing numbers over people that have contributed to a crisis where one in three entrepreneurs is battling depression. Panelists agreed on the importance of investors to not only avoid causing harm but also proactively take charge of investing in their founders’ and team’s mental wellness.
Measuring the human factor
The panel noted that the measurement of the human factor in organizations is a crucial first step. While acknowledging that this is a challenging task, the panelists urged the audience to embrace the complexity of the process to unlock human potential. Looking at data from both quantitative and qualitative angles is essential. While the number of mental wellness measures adopted by the company is important, investors should draw on employee surveys to understand the pulse of the organization. A chat over coffee can reveal much more about an organization than a two-hour presentation with the human resources personnel. Smart investors will develop their frameworks to assess the human factor as a performance measurement and risk reduction metric and integrate these into their decision-making.
While it is vital for investors to take charge of data to measure and integrate the human into the investment process, the room had resounding convergence against making this a check-the-box exercise. Investors need to delve deeper into their portfolio company’s human capital management to ensure they nurture a positive organizational culture. Considering the well-being of the founders, organizational health, and team cohesion will not only enable higher return on assets but will build impactful organizations for society. At the same time, the panelists also highlighted the importance of investors walking the talk — and building measurable, positive cultures within their own fund teams.
A panelist concluded that investors hold the power to change the narrative from unhappy unicorns to wholesome zebras, ultimately leading us to question our individual and collective relationship with money.
Humans are at the center of not only any organization but also all burning issues our societies face today. One panelist’s final remarks perfectly summarized the topic: “If we, as humans, are not in balance, nothing else will be.”
For Masawa, “Unlocking the human factor in sustainable investing” was the beginning of a critical conversation needed to shift capital’s focal point to the human factor. How are you taking action to unlock the human factor in your portfolio or organization for greater human thriving?
Sourav Panda is Investment Associate at Masawa, contributing to fund strategy and fundraising. Sourav is a joint degree MBA/MA candidate at The Fletcher School of Law and Diplomacy and CEIBS. He believes in harnessing the power at the intersection of public and private sectors to drive change in society. Connect on LinkedIn.
