Lord Wei sits on Dot Investing's Advisory Board, he is a social entrepreneur, advisor, author and legislator with an interest in social reform. His background is in business, investing, technology, and social enterprise, which culminated in policy development and an invitation in 2009 to enter the House of Lords.
In recent years the world of impact and ESG investment has become increasingly mainstream as the climate crisis has risen up in the public’s awareness, and indeed with the covid pandemic highlighting the fragility of our life and our need to build greater resilience. As millennials also start to establish families and save for the future, a wall of money is about to supercharge this trend.
However, with the advent of war in Europe, and the invasion of Ukraine a new development has potentially put a spanner in the works, as traditional, “dirtier” stocks and alternative investments become more favoured, as part of a wider flight towards security and measures to tackle rising stagflation. Does this development and accelerating global geopolitical tensions more generally represent a U-turn for ESG and impact investment?
The answer is more subtle and nuanced than the headlines indicate. On one level it is true that more “frothy” activity is taking a hammering, you only need to look at Netflix’s share price collapse to see this evidenced as households tighten their belts. Conversely, Tesla’s performance highlights the potential for the energy transition underway, and the pursuit of greater resource security and resilience more widely, to underpin the rise of ESG/impact.
In many ways we are seeing the end of the first chapter of impact and ESG investment, which is one largely driven from the top-down, from the UN itself through the Sustainable Development Goals, from corporate and institutional investor board rooms, and from governments - both national and local. The rise of targets, initiatives, and gatherings, complemented by media activism and local campaigns, has created momentum but has not always tallied with the reality of people’s lives.
For ESG and impact initiatives and investments to continue to thrive today, they need to start to feel more pragmatic, more bottom up or middle out as it were, to both address the cost of living crisis and the need for security and resilience, whilst tackling the climate and other social and governance challenges the world faces today. Numerous examples of this more bottom up and real time approach to impact and ESG to secure our future exist whether in healthcare, food security, or in the energy transition, but I will use one example to illustrate the point.
Recently I had a birthday party during which I asked people to buy me a gift in the form of a tree from the social enterprise Treedom (see Treedom.net). Each tree once purchased is planted and tracked, with the co2 it absorbs being certified and added to your account. The ability to measure impact in real time using observation and sensors rather than just rely on spurious claims or estimates about how effective or green or social a business is points a way forward and enables the crowd to support the data collection and vetting process.
Because if the people who are affected by an impact or ESG initiative can participate in and benefit from it more, then the solution has a greater chance of success, and can harness local buy-in, by being more refined or accepted despite the medium term pain or disruption that might be involved. One recent example of this is Octopus energy’s move in the UK to introduce local onshore wind turbines. Onshore windpower is a controversial topic, but they have shown it is possible by getting local people to tap into cheaper energy if they support it in their area. Other similar opportunities exist in the world of car-sharing, community heat networks and bidirectional charging of homes using EVs. All of these impactful initiatives have not prevented Octopus from raising a large round of funding recently, despite the tough environment generally with the advent of the war in Europe.
This democratisation is no stranger to Dot Investing. As we open up routes for investing into sought-after ESG and impact funds for a broader pool of investors than simply the largest or most institutional kind, Dot is enabling a more integrated and holistic approach. One that helps investors to back positive impact profitably - moving away from top-down only approaches toward those that start to feel closer to the lives, lived experiences, and realities of citizens who both need new innovative solutions to challenges such as the cost of living and resilience but who also know that for their children and grandchildren to thrive we need to also steward the world’s resources to ensure they will have a secure future.
With greater inflation, there is going to be an ongoing demand for yield, on top of the pent-up hunt for returns following the 2008 crisis and the QE policy action that followed it. Let's make sure that yield goes towards cleaner, profitable, and sustainable alternative investment opportunities that will also help the world and local communities transition more smoothly and securely to overcome the present and next set of surprises and crises that are on the way.
Views expressed are those of Lord Wei alone.