Translation from Kompendium:
Building a Better World for You and Your Money – with Technology
By R. Paul Herman, CEO of HIP (Human Impact + Profit) Investor
Do you like to travel through time? Watch Dr. Hans Rosling explain how 200 countries grew their GDP and life expectancy over the past 2 centuries in 4 minutes on YouTube (https://www.youtube.com/watch?v=jbkSRLYSojo) and you will get your wish – and understand how societies can flourish. In investing, the trend can be your friend – if you can see it ahead of time.
What do we see in the future? Several themes – new metrics of success and new technological tools to discover these trends and track results towards a better society.
New Metric: Value of Nature
When you breathe the air, smell the flowers, or pluck a fish from the ocean, the price is free. Yet Nature’s services, evolved over 4.5 billion years, are price-less. In fact, what Nature provides is worth at least twice the value of what is counted as revenue and Gross Domestic Product. That is right, for every revenue dollar of your company and our economy, Nature has granted at least twice the value of the top-line.
Back in 1997, a team of scientists estimated the value provided by 16 environmental ecosystems, from forests and trees cleaning the air as Earth’s lungs, to bees fertilizing flowers across gardens and farms. For that year’s global GDP at US$18 trillion, the total value of Nature’s services was $33 trillion, or nearly 2 dollars of ecosystem value for every 1 dollar of revenue we know how to count. ((http://www.nature.com/nature/journal/v387/n6630/abs/387253a0.html)
Until we properly account for the value of Nature, then we may be doomed to ruin her. French conglomerate Kering, which makes apparel and shoes, values land, water and air inside its company and all its suppliers. These new metrics are showing how balancing Nature with business can be more profitable. As an investor, you can use CleanCapitalist.com to evaluate your portfolio’s risk related to carbon emissions from oil, gas and polluting energy – and then select a portfolio that is reflective of future cleaner energy, which can be stronger for your retirement. Estimating a financial value on Nature can improve our life, our society and our bottom line financially.
New Metric: Valuing People
Many CEOs loudly say that people are the organization’s greatest asset. But if this is true, where are people accounted for in the financial statements? Today’s archaic accounting methods classify people as an expense to be spent in one year, not as assets that can appreciate over time (unless ignored, and then they could depreciate). Advisory firm Ocean Tomo estimates that in 1975 more than 80% of the value in the S&P 500 firms consisted of tangible assets -- like land, plant and equipment. By 2015, approximately 84% of the S&P500 market value is attributed to intangible assets, primarily people.
A key factor in the shift toward viewing people as an asset is recognizing that an employee's value can appreciate with training, engagement, and teamwork -- all investments that are essential for 21st century firms. Infosys, based in India, and Interface, based in the US, are two firms that value people as assets managerially and financially, which spurs more investment in skills and capability to pursue even more innovation. Our research at HIP Investor looks for all leading indicators of "human impact and profit" in our ratings and ranking of companies for portfolios that serve investors, advisers and fund managers.
New Metrics: Citizen Entrepreneurship
According to the World Bank, 500 million people living in poverty could benefit from a small business loan and only 1/3rd of the world’s population has access to any kind of bank account. Microfinance – which provides access to capital, including loans and insurance – brings a tangible path out of poverty to global citizens worldwide, especially women. More than 90% of loans go to women entrepreneurs, whose businesses relate to food, clothing, telecom and more. Microfinance loans generally have a payback rate of up to 98%, a much higher repayment rate than US credit card borrowers.
Microfinance reached global recognition when Dr. Muhammad Yunus, a Bangladeshi professor and economist, was awarded the Nobel Peace Prize in 2006 for building the Grameen Bank (a non-profit bank serving low-income) and “creating the conditions under which peace can exist.” In microfinance, successful entrepreneurs can scale with access to capital – via platforms like Kiva.org and Prosper.com. When businesses among low-income expand, their well-being improves, and they become more active economically too.
SAP AG has teamed up with PlaNet Finance to play a role in assisting microfinance organizations with technology software. SAP has made a commitment to provide financial, software, and expert assistance to PlaNet Finance, a leading international NGO that supports MFI across nearly 80 countries to benefit more than 8 million people.
New Metrics: National Well-Being and Happiness
The nation of Bhutan has implemented Gross National Happiness (GNH), tracking 72 metrics of health, education, culture, and environment – including asking citizens to keep a diary of their life for the past 24 hours to track quality of life.
The U.N. Human Development Index tracks human, social and environmental progress for all countries globally. Nearly all countries are showing positive progress over the past several decades. You can build your own “human development index” and peer group on its website.
You have now learned new metrics of success that can build a better world. Technologies are in place today to pursue these new metrics – read the Sidebar on 10 leading tools to improve society.
Creating the Future: There’s 10 Apps for That!
Prioritize Well-Being: Pick a goal, any goal. Actually, pick up to 17 of them. Businesses like BASF, Unilever, and Whirlpool are integrating the UN Sustainable Development Goals (SDGs) to solve human problems, eliminating poverty to cleaner water.
Be the Bank: Want to choose who gets your money instead of the bank? Prosper.com is an online market that lets any borrower describe what they want a loan for, and then enables any person to fund that loan – or a portion of it.
Citizens investing in citizens: You can enable a low-income mother of five to send her kids to school, and strengthen her family. Kiva.org connects micro-entrepreneurs to micro-investors for as little as $25 to fund businesses like selling home-made food to busy workers.
Invest in Nature’s Future: Today’s dirty fossil fuels are part of the past, not the clean energy future. To purify your portfolio, and position it for a carbon-efficient economy, try CleanCapitalist.com, a website that models the greenhouse gas emissions of stocks and mutual funds. You might find your retirement savings are safer by focusing on the cleaner energy.
Invest in your own neighborhood: Not all improvements are big enough or important enough to be funded by government, even in towns and cities. Yet citizens can pool their money to finance local solar energy, build an after-school center, or construct a local emergency room. Neighbor.ly is the place where citizens and communities get together to invest in local solutions.
Measure the true value of people: People are our most important asset is what many CEOs say. But accounting does not prioritize investing in people. Human Capital Value is a measure of worker productivity, and is used by Infosys and Interface, which spurs the focus on training, teamwork and talent development, and links more closely to the true financial value of a firm.
Look inside before you buy: Is your shampoo safe for your hair and body? GoodGuide.com rates more than 250,000 products on their health, environmental and society profile. A top-rated shampoo has only 5 ingredients while a low-rated product has toxins and other controversial components. GoodGuide enables purchasing from Amazon.com and links to all the certifications by experts and nonprofits rating and verifying promised claims.
Rate your workplace: You don’t know if your new job is great – or terrible – until you show up. With employee opinions gathered on GlassDoor.com, you can discover if you want to interview for a dream job.
Look upstream: Companies buy raw materials like cotton from suppliers that are four companies in between. Kering is a French conglomerate that measures how the impact of water, energy and land on their products. You can view Kering’s ecological footprint of all its suppliers interactively here: http://www.kering.com/en/sustainability/results
Include everyone: With nearly 200 countries, and 100,000 cities worldwide, there are many opportunities for corruption in elections. Yet high-tech voting company Everyone Counts enables citizens to vote from their phone securely and reliably. Count us in!
R. Paul Herman is CEO of HIP Investor Ratings + Portfolios (@HIPinvestor), an internationally recognized leader in impact investing, and his firm rates 18,000 investments globally on future risk, return potential and impact, including CSR, and manages strategies for Human Impact + Profit potential. Herman’s book The HIP Investor: Make Bigger Profits by Building a Better World is published in Polish and English, and is integrated into 24 university, MBA and MPA curricula world-wide. For more information, see www.HIPinvestor.com