This week: Big Tobacco gets a judgment, ending poverty in Africa, the rise of local impact investing in Latin America, emerging markets and ESG in Asia, and more…
This week’s anti conscious capitalism award goes to…Big Tobacco.
We’re going to see some ads on TV this year, paid for by Big Tobacco, admitting that smoking kills.
Text ads will also run in newspapers in 50 states.
A federal court has finally forced companies like Philip Morris USA, Lorillard, Altria, and R.J. Reynolds Tobacco to run year-long ad campaigns on TV and in newspapers in which they finally admit that they tried to make cigarettes more addictive. They must also admit that smoking kills more people than alcohol, murder, car accidents, drug overdoses and HIV/AIDS combined.
But it’s taken 11 years of appeals and delays to enforce this judgment.
In 1999, the US Department of Justice initially filed a racketeering lawsuit against tobacco companies. Finally, in 2006, US District Judge Gladys Kessler ruled that tobacco companies must pay for ads admitting wrongdoing. But years of appeals and delays delayed the judgment from being carried out. And since 2006, the way consumers receive information has expanded from TV and newspapers.
After decades of deceptive advertising in which tobacco companies have downplayed, and outright denied, the grave health risks of smoking, they finally have to come clean.
But will it make a difference? In the past 11 years, advertising has jumped from TV and newspapers to the internet.
The 2006 ruling may be a bit out of pace with the times, but it’s a start.
The myth that impact investing requires a trade-off between achieving financial performance and realizing social and environmental goals is being met with more and more evidence to the contrary.
Individual investors and institutions are consistently seeking evidence that they do not have to sacrifice financial performance when investing for good social or environmental outcomes like clean water or affordable housing. And that evidence continues to materialize.
The Global Impact Investing Network (GIIN)’s recent report Evidence on the Financial Performance of Impact Investments compiles more than a dozen studies that prove impact investing across asset classes can deliver returns just as good as any other market investment.
“We see from several studies that for investors seeking to generate competitive returns, the achievement of those returns is feasible in impact investing,” – Abhilash Mudaliar, Research Director, The Global Impact Investing Network
End poverty in all its forms everywhere
Great goal. But there is a problem.
Most poor people live in areas where investors won’t go.
To end poverty in all its forms everywhere means that someone has to find a way to help people with low incomes who live in places where it is very hard to make money.
And these places are usually high-risk countries, small markets, or remote areas with weak infrastructure and low populations densities.
Rachel Keeler, associate head of impact at KPMG East Africa’s International Development Advisory Services (IDAS) mentions that, although KPMG has built a wide network of impact investors and development finance institutions that have completed successful deals with companies, investors have suggested that most of the companies in the portfolio were “nearly uninvestable.” Whether due to small market size, operations in high-risk states, or early-stage companies working on low margins, long payback periods or insufficient returns, investors were getting cold feet.
However, KPMG feels that strictly aligning to investors’ expectations could prevent KPMG from working on projects in places like Somaliland, the Democratic Republic of the Congo, or Sierra Leone, or with companies serving poor rural communities on low-profit margins, or in high-risk sectors like farming.
According to Keeler, impact investors’ expectations have so far failed to match much of the market reality across Africa.
“So how do we reach people in the dozens of other countries and thousands of communities where many investors won’t go?” – Rachel Keeler, KPMG, East Africa
This is where private sector grants can step in and help companies solve social problems across 33 African countries. Entrepreneurs who have received pilot grants are doing amazing work in remote areas such as off-grid solar services and livestock productivity.
KPMG has published a report on how private-sector development grants have several essential roles to play in solving this problem.
- Private sector grants foster competition and industry growth.
- Grants can incentivize established businesses in Africa, that may have been difficult for investors to work with, by redirecting their activities to those with a social impact.
- Where foreign investors won’t go, funders can use grants to stimulate economic growth by working flexibly with the local private sector.
- Grants can cover the early stage costs of innovation and market entry.
- Funders can use grants to leverage commercial capital through guarantees, or by taking a first loss.
- Grants can kickstart sustainable business development industries that help companies grow and raise funds.
“Our hope is that strategies like these will move us closer to a world where impact investing can work everywhere for everyone.” – Keeler, KPMG
20 years ago, Asian markets took a nosedive. Since then, emerging-market economies in Asia have become a major driver of the global economy while interest in Environmental, Social and Governance (ESG) has exploded.
By viewing emerging Asian economies through an ESG lens, investors can unlock growth opportunities and avoid risk in specific areas:
Investing in solutions
ESG analysis helps to identify companies that provide solutions to sustainability challenges.
Beijing Enterprise Water Group, for example, has benefitted from China’s water pollution issues by providing sustainable wastewater treatment.
ESG as a proxy for good management
An ESG viewpoint provides critical insights into a company’s management and potential risk exposure which is particularly more volatile in emerging markets.
Bank Rakyat, an Indonesian bank with a strong micro-finance model, has an average return on capital of 25 percent, one of the highest globally. Bank Rakyat lends to the same community where it raises deposits and provides mentoring to small businesses and women in the community. It also has a recruiting and talent training program.
Identifying the winners
Strong corporate governance and sustainability practices, as well as a diverse leadership, are key for emerging-market companies in Asia.
Investors using an ESG lens to view both the products and processes of these companies can help identify those best placed to compete in an increasingly crowded field.
Until recently, most impact investments in Latin America have come from foreign investors. Now there is a steady rise in local impact investment funds bridging the gap between the social entrepreneurs and the resources needed to grow their ventures.
According to a study by the Aspen Network of Development Entrepreneurs, Latin American Private Equity & Venture Capital Association, and LGT Impact Ventures, the number of impact investment funds in Latin America is growing and there are now more than 40 local impact investment funds.
When impact investing converges with startups and innovation, change happens.
Mexico – According to The Impact Investing Landscape in Latin America report, there are now 42 impact investing firms in Mexico, 15 of which are exclusively investing in Mexico.
Brazil – According to The Impact Investing Landscape in Latin America report, the number of active impact investors in Brazil increased from 22 to 29 between 2014 and 2016. The key impact investment sectors include health, agriculture, education, and finance.
Columbia – According to the same report, international funds still dominate impact investing in Colombia. There are only three local firms focused solely on the Colombian market. However, although the private equity industry in Colombia is still in its early stages, impact investments have assisted the industry’s quick development, and have helped change the economic landscape into a stable space for investing activities.
The creation of a new generation of entrepreneurs is generating positive social change, better work cultures, and tech-driven services for the vast majorities of the people in Latin America.
The FTSE Global Climate Index Series is designed to reflect the performance of indices incorporating climate change considerations.
The FTSE ESG Index Series is designed to help investors align investment and ESG objectives into a broad benchmark, whilst maintaining industry neutrality.
“Responding to demand from clients we are expanding our range of climate change and ESG benchmarking tools to help align sustainability considerations with specific investment objectives.” – Tony Campos, Director, ESG Product Management, FTSE Russell
Wanna learn more about impact investing?
Every dollar you send into the world makes an impact. What do you want your impact to be?
On December 7th, you can join in on a free webinar to learn how investing consciously with impact can help you align your investment portfolios with your values, ultimately helping to realize your vision of a better world.
The webinar will be given by Eric Hayes, Senior Vice President, Chudom Hayes Wealth Management Group at Morgan Stanley. The stated focus of the webinar is to help you:
- Better understand the companies you own through your current investment portfolio – do those companies reflect your values?
- Learn about some of the common myths of investing with impact – such as having to sacrifice performance in order to invest with impact.
- Understand the steps of defining your values and aligning your investments to invest consciously and with positive impact.
This webinar is for anyone curious about gaining insight into where their individual investment money is directed, and what types of initiatives it supports.
Minimal previous investment knowledge is suggested by the host.
image source: Annie Spratt