Hip Investing: Delivering Positive Human Impact AND Profits
Paul has a past as a McKinsey consultant, financial entrepreneur, innovator at social-entrepreneurship central Ashoka and more recently financial strategist with the Omidyar Network (the organization of eBay founder Pierre Omidyar). This trajectory has led him to develop the concept of "HIP investing " (Human Impact + Profit). From San Francisco, he has started reviewing companies, funds and other investment vehicles for their HIP quotient, and suggesting ways to improve it. Recently he co-developed a HIP Scorecard, to evaluate and rate companies "looking beyond good intentions and focusing on concrete results". The Scorecard's first iteration, evaluating 21 US large companies, was published in Fast Company magazine in April 2007. Interview.
Paul: what's HIP?
The world has more than $140 trillion dollars available for global investment. Huge positive societal benefit could result if we required all that capital deployed to return both Human Impact and Profit. HIP was born from a new measurement strategy that allows companies, entrepreneurs and investors to measure and maximize both their Human Impact AND their Profit (HIP).
HIP's research and analysis tracks public companies' quantifiable impact on society and transforms the traditional view by Wall Street and investors that "doing good" and "doing well" are incompatible. Rather, the research shows that in many cases, these are symbiotic. When companies innovate to serve four human needs - heath, wealth, earth and equality - they actually create new markets, products and innovations, at higher margins and revenues and hence, increase their profits. At the same time, HIP also demonstrates to individuals how they can make choices that create positive benefits for customers, employees and society. We are seeking to transform the way investors and shareholders make decisions, the way companies operate, the way consumers make their purchasing choices and the way our world will look, sound and feel.
How can investors up their HIP quotient?
Today, "socially responsible investing" is the fastest growing group of managed assets in the United States, growing more than 258% over the last ten years. More and more investors are looking for a way to align their values with their investments while making a profit. But while the number of socially responsible (SRI) funds is growing, and their returns are measuring up to those in the traditional sector, their measurements for human impact and profit are not developing fast enough. The majority of SRI funds still use "negative" screening - or merely remove "problem" industries and companies (like tobacco) from their lists. Even "positive screen" funds cannot systematically define the impact their investors have on the world - investing in a company that offers health care for its employees does not necessarily result in a clear long-term societal benefit -- aside from "just being better than investing in one that doesn't."
Investors need to step up their HIP quotient by demanding clear measures for both human impact and profits. They can and should be able to track these impacts -- on the world and in their portfolios. If a company hasn't declared their goals and established metrics for each, demand it! As a shareholder, you are an owner.
Give me three real examples of HIP investors/investments, and possibly not all American.
Here are four examples: three multinationals and one small venture.
General Electric, one of the world's largest companies, launched a new business strategy in 2003 called "Ecomagination", centered on meeting customers' demands for more energy-efficient, lower-emission products and to drive reliable growth for GE -- growth that delivers for investors long term. In addition to linking profit to impact within their core business structure and strategy, over the past year, GE has made the following progress:
* Increased revenues from Ecomagination (GE reported $12 billion in revenues from Ecomagination-related products and services in 2006, targeted $20 billion in sales for 2007, and CEO Jeff Immelt recently boosted that estimate to $50 billion).
* Doubled its investment in clean research and development (GE invested $900 million in cleaner technology research and development in 2006, drawing closer to its $1.5 billion annual Ecomagination R&D target by 2010).
* Reduced its greenhouse gas (GHG) emissions and improved the energy efficiency of its operations (since 2004, GHG and energy intensity have been reduced by 21 percent and 22 percent respectively compared to 2004).
Novo Nordisk, based in Denmark, defines itself as "part of the global movement to raise awareness of diabetes." Today, over one-tenth of the world's population has diabetes. The company's aspiration is to defeat diabetes by finding better methods of diabetes prevention, detection and treatment. Novo Nordisk has made a formal commitment to sustainable development and balanced growth that is built into its corporate governance structures, management tools and individual performance assessments. Their Triple Bottom Line (financial, social, environmental) is a broad business principle that ensures decision-making balances financial growth with corporate responsibility, short-term gains with long-term profitability and shareholder return with other stakeholder interests. The results of this unique HIP business structure have been extraordinary, delivering solid and growing financial and social results, with clear measures outlined for the upcoming 10 years based on a 20-year forecast of diabetes that allow the company and its investors to track their Human Impact + Profit.
Infosys, Inc is a multinational provider of technology and outsourcing based in India with offices world-wide. At home, the demand for talent is fierce -- yet Infosys maintains 13% employee turnover, one of the lowest in its industry. In seeking higher quality talent, more prepared new hires, and improving the education system, Infosys has chosen to invest heavily in helping Indian universities, high schools and primary schools in learning the skills of the 21 st century, including teamwork, presentation skills, and system-wide problem-solving. Infosys's annual report (nearly 200 pages) posits a new type of balance-sheet asset -- human capital. Infosys calculates financial ratios and returns based on its largest asset: the power of innovation, creativity and productivity of its world-wide staff.
Used Cardboard Boxes, Inc. (UCB): This small and innovative company launched in 2006 acquires quality used boxes that have minor printing defects for free from businesses and producers, then resells them as a low-cost and earth-friendly alternative to new boxes. For businesses and consumers, the company provides an ideal way to save money, reduce their environmental footprint and get quality boxes for moving, packing, shipping or storing. In just a year, UCB has grown to service 40 states in the US with guaranteed 2 business day delivery and is on pace to serve every residential address in the country by mid-summer 2007. This small HIP company has identified a high-growth green market, saves materials and greenhouse gases, and is money-saving for customers.
What about a global HIP label for companies and funds etc?
That's exactly why I began HIP Investor, Inc. Our vision is that within 10 years, we will have an established and popular ratings and rankings process that includes products, processes and profits, for global organizations and their products and services, starting with businesses and including non-profits and governments.
In the same way that JD Power and Associates put customer service ratings on the map, a HIP ratings system enables investors and consumers to examine how HIP their investments and purchases are. By establishing a standard HIP measure (and versions adapted by industry) companies will innovate and compete for higher ratings. Investors and consumers will have the insightful information they need in order to make their purchasing decisions, and the human impact of these organizations will be quantified and tracked.
Interview by Bruno Giussani