The crisis of capitalism
Sustainable investment or investment influence (Impaсt Investing) — the growing power of the movement, based, on the one hand, authoritative public and expert organizations, and other institutional investors of different levels: from the world’s largest funds to small companies, national or regional scale.
The concept of investment impact is very close to the other now actively developing the movement for responsible investment based on ESG factors (Environmental, Social, Governance). We are talking about value-oriented investing to make a difference to the economic, social and environmental situation. In other words, in the framework of “investment impact” investors to invest only in companies whose activities are focused on improving the surrounding world.
The concept of social and ecological values is spreading rapidly among the “sharks” of the financial market. Last year, Larry Fink, Director of the world’s largest management company BlackRock, which manages more than $6 trillion, wrote a letter in which he recognized that capitalism, based only on yield and profitability of crashes.
“Today society is interested in seeing private and public companies solve social problems, — has written the investor. — In order to succeed in the long run, any company must not only improve their welfare but also to benefit the entire society. The companies should go to benefit all business owners, shareholders, employees, customers, and society as a whole”.
And it is difficult not to agree. The key to sustainable development integrated social and environmental transformation of the business, including investment.
The market of high values
At the end of the 2017 total capital impact investments under management 229 financial institutions, amounted to $228 billion (growth in two times in comparison with the year 2016). The total number of deals in this sector amounted to about 11 100 in 2017, which is 58% more than in 2016.
According to a study by GIIN, industry investment of influence has significantly increased in the world over the last few years and has significant prospects for future growth. The volume of funds invested 225 organizations in transactions on this market amounted to $35 billion by end of 2017 and estimated to grow by 8% this year.
The remarkable structure of transactions of the investment market impact: last year, about 41% of the funds were invested in the debt instruments of private capital, for instruments of direct investment accounted for 18% and listed shares — 14%. Thus, the giants of the stock market were not the main recipients of money “investment of influence”.
According to the GIIN study, 64% of investors intended to receive income at the market interest rate risk, 20% were ready for a rate below market, though close to it, 16% were focused only on preserving their investments.
New fashion trend
More and more investors and politicians in developed countries are proponents of a social and “green” (environmentally responsible) companies. For example, in 2014, only took then Prime Minister of Japan Shinzo Abe made a concept of the “three arrows”, which later became known as abenomics.
These three arrows — the fight against deflation, “green” infrastructure, the growth of welfare and quality of life. One of the objectives in the framework of the third “arrow” — increase the role of women in the business environment and providing opportunities for career growth.
State retirement investment Fund in Japan — the largest in the world, it should be noted — by the order of the Prime Minister, ordered a special Agency, the development of indexes on the three “arrows”. Through this policy, Abe transformed into a set of criteria on which the Japan Fund and conducts investment activities.
For example, the Japanese have developed an index to assess the self-actualization of Japanese women in the corporate sector. “The index, says Shinzo Abe. will allow us to achieve our goal: we want to make women Shine”.
Investments according to conscience
In October this year, the American non-profit organization Social Finance announced the decision to create two investment funds of the total $2 billion, aimed at financing of educational institutions in India to improve student achievement, and the achievement of sustainable development Goals of the UN, including providing affordable housing and improving the quality of health care.
In September 2018 the international conservation organization Rare, was formed by investment Fund The Meloy Fund I LP in the amount of $22 million for financial support of companies in the field of coastal fisheries in Indonesia and the Philippines. It is expected that the Fund will have a positive impact on the lives of 100,000 households fisheries, and improve the condition of coastal ecosystems.
Also in September of this year the Fund investment influence Health & Wellbeing Challenge Fund, under the administration of the British non-profit organization Resonance, has provided funding in the amount of £150 000 Bluescreen IT company specializing in educational seminars in the field of computer literacy and CyberSafety for young people having difficulties with learning due to different mental characteristics, for example, hyperactivity or autism.
Companies and projects subject to investment, are required to adhere to the highest standards of environmental and social requirements.
In addition, businesses need to develop the infrastructure of the cities in which they live, and to solve the social problems of their employees. In the area of corporate governance, there are requirements on the presence of women, as well as representatives of national minorities in the boards of Directors of companies.
Back in the USSR?
These new approaches are similar to what is familiar in Soviet times, isn’t it?
The Parallels are quite obvious. In the Soviet Union, there were rules by which businesses must have their own social infrastructure to ensure staff apartments, trips to resorts, have their own rest houses, pioneer camps for children of employees. Enterprises supported the settlements, which were — still company towns are serviced by factory power plants.
In 1990-e years we were told that all this is the wrong thing to care only about their own interests, on net profit. But after a quarter-century, the world returned to values which were close to our society.
Unfortunately, in Russia in 1990-ies became widespread different ideology: to think only about profits, “dumping” from the balance of social programs and let people think about themselves. In many ways, this economic philosophy, we have distributed today, although many businessmen understand that it is a road to nowhere.
In countries with Mature economies through the thorns of financial capitalism is now sprouting a new social system: sustainable development, mass welfare, elimination of social conflicts. It’s time for Russia to follow the new guidelines in policy in investment activities.