Leadership, Greenwashing, ESG Frameworks & Biases in Impact Investing (Aug ‘20 Monthly Reads)
Welcome to the debut of the “Monthly Reads” article series, where I compile interesting articles I chanced upon in the previous month, covering the fields of impact, startups, venture capital and general business. Key takeaways are summarized into sub-headings, followed by additional commentary for each article. Content for this series is adapted from my article posts on LinkedIn.
Leadership is people-centric, not task-centric
I personally resonate with this article.
If you look at my school records, you would see a peculiar pattern: I held vice-president roles in multiple clubs, but never president. In retrospect, the reason why is clear.
I had a reputation of being task-focused and efficient. If you needed a team to get work done and to a high quality, you could count on me. This was probably why friends liked to have me on their team for graded projects. Knowing this, I doubled down on this trait and pitched myself in interviews with it.
This is the classic leader vs manager, CEO vs COO issue. Club presidents are the face of the club, liaising and working with all stakeholders. Vice-presidents generally work the background plumbing.
Since that realization a couple of years ago, I have been learning to become more people-focused. After all, relationships and people matter more than checking off a to-do list.
Standardization and education is needed for ethical investing to work
For the ethical investing (be it SRI, ESG or impact investing) industry to mature and be effective in benefitting society, there needs to be:
1) Increased investor education in the field (both retail and institutional)
2) Greater regulatory oversight and standardization with regards to terminology etc.
From my understanding the EU seems to be leading in this, with its green bond standard, though a lot more work needs to be done (both in Europe and globally).
ESG and financial evaluations of decisions should be integrated, not siloed
An interesting read on how frameworks like ROSI can produce better ESG strategies in companies.
Problem: a disconnect between ESG reporting and financial metrics inhibits effective evaluation of strategies (it is possible for sustainable strategies to boost the bottom line)
Solution: turn to frameworks to quantify and better understand the tangible/ intangible outcomes of these strategies to inform decision-making
Investors should actively work against biases affecting investment decisions
A great read on cognitive biases, its dangers to the efficacy of impact investing, and what we can do about it. Some of the biases pointed out in the article:
1) Warm Glow: where a company’s ability to create the “I’m doing good” feeling (eg. via storytelling) clouds the objective assessment of impact performance
2) Framing: being overly influenced by selected metrics of comparison
Such biases could adversely affect investment performance, both in terms of financial returns and impact. Therefore, fund managers should ensure that they are conscious of these biases and go on to build internal systems or processes to guard against them.
P.S. Have been a fan of behavioral economics (love the book “Nudge”) and social impact and I love how this article brings these two fields together:
