One of several aspects of responsible investment is impact. As an investment approach, impact investing (the term first coined in 2007) aims to produce positive social or environmental benefits as well as economic benefits. More and more fund managers have investment teams dedicated to pursuing this.
When they do, they find:
Increasingly unacceptable focus on tangible objects
Comparing US Steel’s financial statements today with those 100 years ago shows little change. Please refer to. The end of accounting and the future path for investors and managers, Baruch Lev & Feng Gu, 2016. While many legal terms and risk and analysis disclosures have been added, there has been little innovation in financial reporting.
Despite this inertia, these reports are considered the gospel. The data from them is sent to models that generate valuations such as price-to-book value ratio and price-to-book value ratio. This could have worked 100 years ago, when most of the valuable things were concrete.
However, today’s businesses are often low in capital. Instead of investing in physical assets, they invest in things that we can’t touch, such as patents and brands.
However, these investments are never reflected on the balance sheet. Doesn’t it exist because you can’t see or touch it?
Incorrect accuracy risks missing opportunities
R & D and marketing spending is an investment in future growth, but the company’s income statement quickly costs money.
This reduces profitability and prevents intangible assets such as software and brand value from appearing on the balance sheet. This underestimates the asset base. These companies are physically the light of capital, not the light of capital.
They are not magic, they are just different. The resources they develop must be maintained and nourished in order for them to benefit in the future.
It’s a small surprise that revenue and book value have lost predictability of revenue.
Increasingly, impact investors are focusing on measuring value. This is not a short-term fluctuation in earnings. It is cash flow and profits that are earned on both physical and intangible assets, including those whose investments are not recorded on the balance sheet.
This provides a realistic, representative and consistent place to start thinking about the relative appeal of potential investments.
It is the intangible investment that companies make that creates value, and they spend a lot of money on R & D and marketing. The brands, products and services they develop may be holding back profits. However, investors may have to look at this for a more positive future.
History teaches investors that incumbent industries resist change and, as a result, change, if at all, reluctantly and progressively. Therefore, impact investors seek to buy stock in companies that can make a difference. And avoid sticking to the past.
This has a little more in common with the idea of ”disruptive innovation.” For simplicity, new entrants can adopt new, superior technologies or business models that existing companies cannot or do not imitate because they can damage existing businesses.
There may be a digital transition in garment printing. The main technology used today, rotary screen or automatic carousel printing, involves multiple time-consuming pretreatments. This consumes energy and water, often resulting in the discharge of dangerous chemicals into the waterways.
Digital printing requires less effort and physical space, can be done near the market, and can produce garments “on land” in areas where environmental and labor standards can be monitored.
The scale of the opportunity is huge. Can new technologies in garment printing eliminate the waste and impact of the fashion and fabric industries on their own? Absolutely not. But it helps to make bad situations much better.
This is just one example of a myriad of potentially profitable investment opportunities, with positive implications.
Matthew Beesley is CIO of Artemis Investment Management.
Sustainable Investment Festival, June 22-25
Investment week Parent company Incisive Media will host its first sustainable investment festival this summer with keynote speakers, innovative breakout events and sessions to allow investors to navigate this rapidly evolving market area. I will be able to do it. click here For more information.
Putting your money into a stock that has a positive impact will pay off
https://www.investmentweek.co.uk/feature/4032678/delivering-transformational-change-it-pays-to-put-your-money-into-stocks-that-have-a-positive-impact Putting your money into a stock that has a positive impact will pay off