February 21, 2015 by Mark Anielski
According to January 27, 2015 column in the New York Times by columnist David Brooks a new era is dawning in the investment world, which has been termed ‘impact investing.’ According to Brooks “Impact investors seek out companies that are intentionally designed both to make a profit and provide a measurable and accountable social good. Impact funds are frequently willing to accept lower financial returns for the sake of doing good — say a 7 percent annual return compared with an 11 percent return.
”I believe there are an increasing number of investors, like myself, who are interested in investing their after-tax dollars in investments thatwill generate a reasonable financial return while also contributing to a net positive impact on the well-being on the community in which a business operates and on the environment.
I might call this new form of investment, ‘Well-being Impact Investing.’ This form of investment would require new tools for measuring what I call the Well-being ROI (return on investment).
A well-being-based approach to banking, finance and investment would make ‘well-being’ the ultimate bottom line and focus of our attention.
This will require that investors who are seeking a well-being return on their investments start to ask their financial and investment advisors, mutual fund managers, and bankers to help them identify companies and investment opportunities that are contributing to a genuine well-being impact. Verifying that these investments are in fact delivering a Well-being ROI will require a new generation of financial analysts, accountants and economists.
Having taught corporate social responsibility, social entrepreneurship and triple-bottom-line accounting for the past 10 years at the School of Business at the University of Alberta, I can attest to a new generation of business school MBA graduates who are also looking for more from businesses than simply making a healthy financial return on investment.
This shift will require a change in the legal DNA of corporations by defining the ‘best interest’ of a corporation or enterprise in terms of the well-being impacts on employees, the community and the environment. Currently corporate legal documents are silent with respect to ‘best interests’ including maximizing profits for shareholders. Therefore, corporations are essentially not responsible for anything.
What if companies and investments were rated based on their well-being impacts and a Well-being Performance Index that would include measures of performance including how the company is contributing to the happiness and well-being of their employees, the well-being of the communities in which the operate and their contribution to the ecological resilience and health of ecosystems in which they are operating? Imagine a Well-being Business Rating similar to Robert Parkers wine ratings on a 100-point scale to help investors like me to make wiser decisions on how to invest my TSFA or RRSP funds?
I believe measuring well-being impacts of our investment decisions is possible simply by changing the measures of success that we use to assess companies. The onus would be on companies to demonstrate a net positive financial return in harmony with their contribution to the company’s human capital assets (employee well-being), to the communities they impact (measured in terms of trust and relationships) and to the natural environment (measured in terms of their environmental footprint).
A new business model based on the notion of flourishing will be necessary.
The Flourishing Enterprise (a book co-authored by my friend Paul Werder and other business authors, including Peter Senge) is becoming the new model for business. These authors argue that the flourishing—the aspiration that humans and life in general will thrive on the planet forever—should be a key goal for every business today. This is a bold concept, like sustainability was a decade ago. Just as sustainability has become a matter of course, so too will flourishing become a cornerstone of business tomorrow.
I would like to suggest a new word: the Well-being Enterprise.
More companies are leading the way including Tony Hshieh’s Zappos (one of the largest online shoe stores and a model of the happiness corporation) and the new generation of B (benefit) – Corporations — a type of for-profit corporate entity that includes positive impact on society and the environment in addition to profit as its legally defined goals.
CEOs like the late Ray Anderson of Interface Inc., one of the world’s largest carpet manufacturers, was an earlier pioneer of the well-being enterprise adopting a new corporate mantra: ‘doing well, by doing good.’
Impact investing and impact funds are relatively new in the financial world having come on to the scene, seven or so years ago. According to Brooks, a 2010 report by the Rockefeller Foundation and JPMorgan projected that impact investing could see new capital inflows of up to $1 trillion by 2020. That lofty goal is unlikely to be reached with only $40 billion invested through these funds, to date. New impact funds and social impact bonds are being born. With interest-rates at all time lows, debt money is relatively inexpensive allowing more room for optimizing well-being impacts of investments.
New investment banks are being born such as the Usand Group (based on Winnipeg) which are leveraging low-interest debt to help finance a new era in First Nations economic well-being. I’m pleased to be advising this new First Nations investment bank that will empower First Nations to develop their own flourishing enterprises and economies of well-being.
One of the biggest challenges in this new frontier of well-being impact investment will be measuring and verifying companies who are actually contributing to the well-being and common good of society. We will need to develop more robust analytic and due-diligence tools to help us determine whether or not companies are actually contributing to the net positive well-being of their employees, their customers, the communities they serve and the relationship they have with the natural environment.
I believe we can and must begin to measure progress and assess our investment choices based on a well-being bottom line. I believe the path is not as difficult as what might first appear. This requires us returning to the original spirit and intentions of accounting, which originated in the 15th Century in Venice when Luca Pacioli (a Franciscan priest and mathematician) and Leonardo da Vinci developed the accounting system we use today. These fathers of accounting argued that a wise business person measured what mattered most to the flourishing well-being of the business enterprise, the family associated with the enterprise and the community.
I believe a new accounting system that measures the well-being returns on the human, social, natural and built assets of an enterprise or community is possible. I have called this new model Genuine Wealth. Genuine referring to measuring what matters most to a good life and Wealth which is a 13th century Old English word meaning ‘the conditions of well-being.’ I wrote about this new vision in my book The Economics of Happiness: Building Genuine Wealth.
I believe well-being will become the new bottom line for businesses, the financial world and economies. Corporations, banks and investment funds that can demonstrate a well-being impact will gain the competitive advantage in the 21st Century.