Rise of social impact investing lays to rest the notion that greed is good
Andrew Sheng says putting money to work for benefit of society shows true entrepreneurial spirit
Do we really invest to make money? Yes, if you make money the old-fashioned way. You look at the trade-off between risk, return and liquidity and make the investment if it yields a return that you feel happy with, relative to the risk, with the liquidity you want.
There are, of course, two ways of investing. One looks at the fundamental value of the investment (the Warren Buffett way) and the other simply follows the crowd; the momentum play.
The biggest problem with the conventional way is that you assume your money will be used to do something useful for society and make a return for you. As we discovered during the last financial crisis, this is not necessarily so.
Sometimes, the most profitable companies are also the most polluting. A person may be investing in a company that acts against his or her religious beliefs or conscience. Investments can also have unforeseen side effects. During the Asian financial crisis, some large stockholders who lent their stocks to other shareholders to improve their yield and liquidity found these stocks were used to short-sell their stock prices.
Social impact investing arose because many enlightened investors decided they wanted to improve society or the environment without just donating to charity.
Utilising the entrepreneurial spirit of the marketplace can have a tremendous impact. The poor do not need charity - they prefer to be taught how to make money on their own and be given the chance to compete on an equal footing.