MM Memo 05.12.18

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Each week, we compile and summarize the top articles on corporate social impact, impact investing, and conscious capitalism from around the world, and deliver it to your inbox every Saturday morning for you to enjoy and digest.  

Feel free to shoot us an email with any feedback, insight, tips or suggestions. If you like what you are reading, we would love it if you would share it with your friends.


IF INVESTORS REALLY LISTENED TO DATA, THEY'D BE INVESTING IN WOMEN

Investors like to extol their data-driven approach. But then how come they won’t invest in women-led companies, despite the clear evidence that they perform better? To figure out how investment decisions are being made, Wharton’s Laura Huang planted her research team for two years inside five investment firms and watched, blow by blow, how they made decisions. She discovered that investors consciously grouped their areas of attention into two categories. 

The first was data. This was the stuff they gleaned from the financials and strategies presented by the entrepreneur, a broader understanding of market conditions and any other numbers they were able to crunch in spreadsheets. The second area they focused on was their perception of the entrepreneur him or herself. Did they trust this person? Did the investment feel right? Here, investors unabashedly relied on emotion and intuition.


 
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BIG NEW PRIVATE-EQUITY FUNDS ARE ON THE HOOK TO DELIVER IMPACT OUTPERFORMANCE

The era of impact-washing is over. That statement may seem premature, given the daily announcements from big banks and investment firms of green-finance commitments, sustainable and impact funds and change-the-world startups. But as a stage of market-development, impact-washing no longer serves a purpose. If impact or, more broadly, environmental, social and governance factors, are indeed pointers to long-term outperformance and/or reduced risks, then it follows that you can’t just fake it through marketing. 

The opportunities and risks are what they are. You have to really reach those markets, deliver those products and services and improve those lives and ecosystems to grab the impact alpha. That makes impact-washing not just bad marketing, but bad investing. Driving that conceptual shift is particularly timely with the entry of the big private-equity firms into the impact investing space.



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