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Welcome to October and the spooky season! Here’s something that’s scaring American businesses – The Great Resignation. It’s the term being used to describe the large number of folks quitting their jobs this year as we emerge from the crippling pandemic and economic crisis. In July alone, four million people resigned and the number of job openings climbed to a record 10.9 million. The reasons for this are many and complicated (we dive into child care below), but it has brought a sharper focus on the relationship between the wellbeing of the employees and the wellbeing of the business.
As organizations struggle to retain their employees, investors are also keen to know more about their policies, as it directly affects business performance. Even though executives may consider revealing such internal data risky, a willingness to be transparent and show progress or efforts to improve could draw more shareholders, customers and workers.
Unfortunately there’s some way to go before shareholders can make well-informed decisions. Our friends at JUST Capital recently analyzed the disclosure habits of the 100 largest U.S. employers across 28 key human capital metrics, like turnover, minimum wages, and hiring rate by gender, and found less than 20% of firms reporting on the majority of metrics. Despite the raging minimum wage debate nationwide, just 1 in 5 revealed theirs, and although there were commitments to diversity and inclusion during last year’s Black Lives Matter protests, only 13% revealed the share of new hires who were people of color.
But changes are afoot. In August the head of the SEC, the federal agency meant to protect investors, indicated new disclosure rules are on the way. Until then, we’ll keep sharing other resources you can use, like Fortune’s latest ranking of best places to work based on employee surveys conducted during this difficult time. To no one’s surprise, the findings revealed that “workplaces that put employee health first – both physical and psychological – enjoyed record jumps in employee experience scores” and raves on many fronts. You can also look at how companies pay their median worker compared to the CEO here.
The invisible heart of the markets
If you tune into business news on the television, listen to your friends in finance talk shop at a bar, or even watch the latest season of Showtime drama Billions, chances are you’ve heard a mention of sustainable investing. It’s a tectonic shift for Wall Street and the sustainability space is exploding with new products, research, data, and terms. In fact, there are so many terms that we’re building a glossary.
And we must confess a pet peeve of ours – commentators and casual market watchers sometimes using these terms interchangeably despite them having different meanings. Take, impact investing.
Some concepts that ≠ impact investing –
- Corporate social responsibility (CSR)
- ESG scores
- Positive/negative screening
- Sustainable investing
- Socially responsible investing
- Carbon neutral/ Net zero carbon
- Venture philanthropy
While all of these may speak to varying degrees of aligning your investments with your values, impact investing has a pretty specific meaning: impact investing is the practice of investing in a company or fund that seeks to generate positive social and environmental impact along with financial returns. This dual goal, pursued by both the investors and investees, is what sets impact investing apart from other forms of sustainable investing or charity. For those looking to grow their money and make a difference, it’s the proverbial killing of two birds with one stone (or more fittingly, rehabilitating two birds with one warm, recycled cardboard box).
Proponents believe if private capital is directed toward such businesses, financial markets can become a real force for good, driving much-needed innovation and helping where governments and social sectors fall short. One of the movement’s pioneers, Sir Ronald Cohen, called impact investing the “Invisible Heart of Markets,” in a reference to economist Adam Smith’s famous “Invisible Hand” metaphor for the role of self-interest in capitalism.
So how do you spot an impact investment in the wild?
The company must derive a majority of its revenue from products and services that have a positive impact OR it must be purpose-driven. For example, EV manufacturer Tesla and sustainable footwear company Allbirds are considered impact investments since their products help us transition away from fossil fuels and plastic. Warby Parker, on the other hand, is one due to its mission to increase access to prescription glasses. Funds in this space are growing and individual investors have more choices than ever to invest for impact. Some examples include Calvert Impact Capital, Bridges Fund Management, and SDS Capital Group.
A real impact investment should fulfill the following three conditions:
- Intentionality – Clearly defined and articulated financial and social/environmental objectives.
- Transparency – Insight into the organization’s decision-making and reporting on performance and results.
- Measurement – A system and use of metrics to accurately describe the mission and progress made.
I am not a woman, I’m a god
“I am not a woman, I’m a god.” It’s not just the title of Halsey’s new song. It also describes what a lot of working moms had to tell themselves as the pandemic exacerbated the job-kid juggle.
Even before COVID-19 closed daycare centers and launched at-home Zoom school, finding affordable child care was an uphill battle for most parents, especially those without the flexibility to work remotely. Keeping a kid from touching the stove while assessing last quarter’s sales data is a recipe for all kinds of burnout; for women working in restaurants, retail, or other service delivery, remote work isn’t even an option.
That’s why for many women, participation in the workforce is predicated on child care—and, as numerous studies make clear, there are significant competitive advantages for companies and the economy in general when more women are hired and working. Now, with women leaving the workforce in the wake of the pandemic’s parenting pressure-cooker, there is what McKinsey called "an emergency for corporate America." The good news? Companies are sweetening offers for new hires with child care benefits. Etsy and JP Morgan are among the companies now offering backup child care options to employees; finance giant Synchrony launched virtual learning opportunities for the children of their employees.
While not new, stipends for sitters and tutors, or a guaranteed spot at onsite daycare, can be key to hiring and retaining employees. Some investors also see it as a proxy for the company’s ability to attract and retain the employees they need to gain an economic advantage. The annual “Best Workplaces for Women” lists from Fortune and Forbes could be a good resource on this front since they factor in child care benefits.
The SPAC-tacular ride slows, but continues
After a blockbuster 2020 and first quarter of 2021, the SPAC craze has cooled. Increased regulatory scrutiny and lackluster returns post-acquisitions threw a wet blanket on the mania. A handful of startups still opt to go public this way every week, but it’s a far cry from the dizzying torrent of over two dozen per week at the start of the year. Still, SPACs account for more than 50% of the IPOs and IPO proceeds so far in 2021. They’re part of the landscape now and it’s worth considering what that means for sustainable investing.
What’s a SPAC (special purpose acquisition company)? They’re shell companies that get publicly listed and raise capital from investors based on the promise of acquiring a private company. They’ve been around for decades, but billionaire Richard Branson’s space tourism startup Virgin Galactic being bought by one in 2019 and the unique market conditions of 2020, kick-started the trend.
The good news is SPACs have transformed fundraising for small, high-growth startups with big ambitions but insufficient cash. Compared to the traditional IPO route, it’s faster, cheaper, and doesn’t include as much due diligence.
ESG or impact-focused SPACs have been pinpointing socially conscious companies that may spur change. In 2021, we’ve seen firms taken public this way in sectors like EVs (Lucid Motors, Joby), EV batteries and infrastructure (Chargepoint, The Metals Company), sustainable agtech (AppHarvest), and biotech (Ginkgo Bioworks). SPACs also give retail investors a chance to bet early on exciting new firms and technologies, maybe the next Google or Tesla, something that was only possible for large investors like venture capitalists before. Retail investors could also find this an affordable path to buy shares since the typical IPO share price for SPACs is $10.
Next, the bad news.
SPACs lower the bar for tapping public markets, and sponsors facing a two-year deadline generally buy firms with urgency and early in their development. If a company with poor oversight and inadequate disclosures is picked, retail investors may get burned if they don’t pull out before the merger. Regulators have warned about the excessive SPAC-ulation, and at least three EV makers (Nikola, Lordstown Motors, Canoo) bought by SPACs are being investigated by the Feds. Such controversies are raising awareness about the risks, triggering more rules and don’t seem to be scaring all investors away. There’s no turning SPAC now.
Before you go -
It’s not just you, the global economy is desperate for more energy right now. Natural gas prices are at record levels in Europe, China is shuttering factories for a lack of coal, and Britain has mile-long queues for petrol. More on this next week.