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Jeremy Balkin

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The Noble Cause

Posted: 12/05/2013 8:56 am

Last month Columbia University curated a TEDX event themed A Better Tomorrow.

The event hosted a select group of international experts showcasing their "ideas worth spreading" in front of a sold out Miller Theater, who each gave entertaining 12 minute speeches about how issues like social media, science and nutrition would make the world better. The twelfth and final speaker had the audacity to speak in biblical terms about finance and doing good in the same sentence. His talk was called The Noble Cause and has been viewed over 200,000 times on YouTube in less than a month. Whodathunkit?

Apparently there is a large silent majority of people who in fact agree that finance is a force for good. I believe the overwhelming majority of people in finance are honest and ethical who understand that finance is about matching ideas with capital and allocating that capital to fund productive investments for the economy. Hopefully those companies will become successful and employ people in turn paying corporate taxes and dividends on profits.

What troubles me is this new feel good term of impact investing somehow implying that only this new sub-segment of investment can have impact, or worse that traditional investments do not have impact or have adverse impact. I believe we need to rethink the paradigm of investments and their impact.

In my opinion every investment should be for impact. If we properly analyzed the full impact of an investment in Bank of America, Wholefoods, ExxonMobil or a water project in Ghana, then it is likely capital would be allocated differently.

Therein lies the opportunity to reshape finance and change the world because how we make money matters.

Let us not forget that profit is impact, or should be. Profit is an important measure of business viability and financial stability. Profits generated mean growth, employment, taxes and dividends.

But profit in isolation can have negative externalities and can be mispriced such as environmental or social factors. That is why it is my firm belief there needs to be a middle ground between pure profit seekers and wannabe impact investors because neither will be successful in the long run. Profit needs to be sustainable in a literal sense to continue in perpetuity, and negatively screening investments based on arbitrary non-economic factors has led to bad outcomes.

After dealing with this intellectual challenge for many years balancing my philanthropic responsibilities and professional investment experience, I've devised a proprietary new framework called The 6 E Paradigm as a revolutionary way of analyzing the true impact of investments and making decisions accordingly.

1. Economics -- Does this investment make sense financially?
2. Employment -- How many jobs will this investment create?
3. Empowerment -- Does this investment make people better?
4. Education -- How will the investment make people smarter?
5. Ethics -- Does the investment fit with our values?
6. Environment -- What is the impact of the investment on the Planet?

If the economics of a particular investment make sense then we proceed to the next stage and look at the other five E's and come up with an objective score to measure the full impact. We rate each E out of ten and generate a score that must be greater than forty before proceeding to commit capital. The highest score that can be obtained is 50.

This brings me back to my earlier point about reshaping finance and changing the world. This is how we will do it, by changing behavior and making money by doing good when we start positively influencing the allocation of capital.

The 6 E Paradigm would flunk trading on rumor, innuendo and inside information for ill-gotten gain and mindless numbers on a screen. But investments in vital infrastructure and micro finance most certainly would pass the test.

With all the focus on Wall Street right now, this is some food for thought. Values in finance today are more important than ever and by positively influencing the allocation of capital we can make money by doing good. Why consider any alternative?

This is why I call it The Noble Cause.

 

Follow Jeremy Balkin on Twitter: www.twitter.com/jbapex

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