From OUR EDITORIAL STAFF we have gone in search of what are the keys to investments in the future, taking into account the impact that Business Schools have on investors. In other words, the role played by postgraduate training is essential in the contribution that investment (in general in any sector of the economy and society) can have, because academic institutions have the necessary critical mass (intellect and data) to explain the realities of each sector and its specific circumstances.
Comprehensive curricula and strong diversity policies will help in the fight against poverty and climate change, undoubtedly two of the central aspects for future investment.
Impact investing has moved from the fringes to the mainstream in recent years, fueled by the increasingly apparent effects of climate change and rising inequality. Let’s clarify what this expression “impact investment” means: they are investments aimed at producing both an attractive return and a positive and quantifiable social or environmental impact. Impact investors, after setting a specific impact objective, seek that their investments produce quantifiable socio-economic or environmental benefits.
The sector is now worth at least $715 billion. Yet as investors and fund managers focus on impact, many Business Schools and their curricula are struggling to keep up.
There are investment consultancies like that that have built their portfolio of impact-driven funds with non-traditional investment teams. Its success is the result of hiring professionals with excellent financial experience, deep technical knowledge, and localized knowledge of social issues.
In the formation of these teams are professionals who have postgraduate qualifications in different specialties. Business Schools can help fill the gap. Graduates who are not trained to understand the social impact of breakthroughs occurring in technology, biology, physics, and other essential areas are less likely to understand the risks and rewards of investing in these innovations to overcome poverty and climate change.
A second area of focus is diversity
Today there are international consulting organizations in investment matters, in which more than half of their teams and almost half of their partners come from non-European backgrounds. But with the addition that, in addition, a little less than half of the management team and the board of directors of these organizations, is made up of women.
We have verified that these types of global organizations hire people who have a cultural understanding of the markets of interest in emerging Africa and Asia. This allows them to appreciate the conditions in which the companies in their respective portfolios operate.
Business Schools with strong diversity and inclusion policies are much more likely to produce successful impact investors working to alleviate poverty and disadvantage. Some top Schools are taking the lead, including Harvard, whose admission has a high degree of diversity, and Oxford, whose majority of MBAs are international. Other institutions should do the same with measures such as extension programs and additional scholarships.
A third priority for schools is to establish metrics that can identify and measure real impact. Not only is that an ethical imperative, but it also requires a highly commercial skill set that all business students should acquire.
Once again, some leading schools have responded, including Wharton, Harvard and Chicago Booth, which are working with investors to conduct research on the characteristics and drivers of success in impact investing. Such approaches should become the core of MBA courses.
Business Schools shift their focus to people, purpose and the planet
If Business Schools can grasp this essential interplay between profit and purpose, they will go a long way in teaching their students that impact and a strong focus on environmental, social and governance factors are not just nice things to have, but the foundations of solid financial investments for the immediate future and especially to open this investment habit in the long term.
This is why three of the most reputable Business Schools have partnered on impact investing research, which has generated the recently launched Impact Finance (IFD) database, which is a collaboration of the Wharton School, Harvard Business School and Chicago Booth.
Impact investing, a strategy for generating positive social and environmental impact along with financial return, is a core focus of the Wharton Social Impact Initiative (WSII).
What is the finality?
They are working to grow the talent and evidence base to guide as well as strengthen the practice of impact investing. The Wharton Social Impact Initiative (WSII) has rigorously researched impact investing over the years, with a number of reports on the subject. Recently, they have partnered with the Rustandy Center for Social Sector Innovation at Chicago Booth and the Impact Collaboratory at Harvard Business School to promote their respective impacts and the overall scope of these graduate institutions. To do this, they have created a leading database for academic research on impact investing: the Impact Finance Database.
WSII Research Lead Maoz (Michael) Brown discusses the importance of this work and why this new collaboration will benefit and influence the field. When asked why is it important to investigate impact investment? says that: “Impact investing is growing rapidly. You can see this trend not only in the statistics on the growth of assets under management, but also in the students we work with every day. At Wharton we are seeing a lot of interest in impact investing and social enterprise among our student body. These are the business leaders of tomorrow and they provide a very clear indication that bringing finance and impact together is the business model of the future.”
But Maoz (Michael) Brown believes the importance of researching impact investing goes beyond its popularity. Given the seriousness of the social and environmental problems that countries are currently facing, it is logical that this focus on what the impact of future investments should be becomes critical for investors’ decision-making, for therefore, also for the rest of institutions, governments and of course, Business Schools.
It is that it is a mechanism that makes us available what can be done with the powerful financial tool, what are the necessary areas that must be addressed (invested of course) in order to combat racial and gender inequity, change climate and other important challenges that especially require the attention of postgraduate training.
What is the Impact Finance Database (IFD)?
IFD is a comprehensive database on impact investing operations and results. It is being developed by the Impact Finance Research Consortium, which currently comprises the Wharton Social Impact Initiative, the Rustandy Center for Social Sector Innovation at Chicago Booth, and the Impact Collaborator at Harvard Business School. Researchers from each of these institutions have been working together to build IFD as the leading data repository for academic research on impact investing. This data is collected through a rigorously designed survey and through a series of funding documents, including financial statements, term sheets, impact reports and other documentation, all of which are kept strictly confidential within the research team.
Why did Wharton, Harvard Business School, and Chicago Booth decide to collaborate on this effort?
Maoz (Michael) Brown believes that the value of this joint collaboration is greater than the sum of its parts. Working together allows for the cross-fertilization of ideas that is integral to good scholarship, and also allows them to share the important responsibilities involved in doing research that is up to academic standards.
Support professionals to find opportunities to optimize research work
In addition, Maoz (Michael) Brown affirms that this initiative also has an important counterpart, which is that they owe it to professionals to find opportunities, in order to optimize this joint research effort whenever possible. Instead of asking busy investors to fill out separate surveys, it makes perfect sense for the three schools to combine efforts and reach out to the professionals they want to learn from as a single initiative.
What kind of information does the database contain?
They are gathering all the information needed to understand how impact investors deploy capital to create impact. Whether it’s financial performance, governance mechanisms, due diligence practices, investor-beneficiary relationships, so the right questions are asked and documented with information as well as analysis tools that collect all the information needed to understand how investors of impact do their job.
What have researchers learned from the IFD data?
Maoz (Michael) Brown’s position regarding whether or not the IFD investigation has been useful so far is that he is a bit early to share findings and ideas of everything investigated to date. However, he notes that there is some of the work they have done since WIRED, such as the 2015 Wharton Social Impact Great Expectations report that showed there is no inherent trade-off between financial returns and impact focus. A more recent article titled “Contracts with (Social) Benefits” showed how the legal contracts drafted by impact investors reflect a serious commitment to achieving social and environmental goals. All of this creates a situation where Maoz (Michael) Brown says he is eager “to use this knowledge in our future work.”
What impact do you expect the IFD to have?
Maoz (Michael) Brown states that “as scholars, we believe that knowledge is power. We hope that the findings we share with the field will inform best practice and ultimately lead to greater and more sustained impact in the world. We also hope that this exciting collaboration between three top-tier Business Schools will bring more attention to this exciting, fascinating and increasingly indispensable sector.”
The role that Business Schools should play in future investments
Undoubtedly, the role is circumscribed to the decision-making mind of the investor, for which he either has the necessary training or depends on his advisers who are specially prepared for impact investments. To such an extent, this concept has been perfected in recent years, that it is the Business Schools that in their specific programs and also as part of their MBAs (a significant number of hours of training and learning) are the ones that have to facilitate both investors and their work teams, as well as external advisors, without neglecting the teams of financial consultants, investment banks and other investment institutions, the recommendations and expertise necessary for good decision-making.
This has a double effect: for the person (the professional graduated from a program who has perfected their knowledge and training in impact investments) and for any of the organizations and/or institutions mentioned in the previous paragraph.
That role to which we refer is the one that allows selecting individual investment instruments, evaluating the strategy and measuring performance, for each of the different situations and taking into account in which country it is being carried out.
Making Better Decisions
Requires a deep understanding of the investment process and exploring the latest techniques with real-world case studies. This must be provided by Business Schools, so that their postgraduates contribute to minimizing the effects of market volatility on their portfolio (in the company they are working for or for the company, consulting firm, institution, etc. for which they work). are doing an impact investing report).
This training will give them a better understanding of risk management and higher returns, exploring alternative asset classes such as real estate and commodities, while gaining an in-depth understanding of fixed income and derivatives.
Proper impact investing training is good for any organization
By exploring and evaluating different impact investment strategies with the proper information and expertise of your teams (internal and external), you can manage strategic impact investments that provide a good return on your investment portfolio and reduce risks. To ensure that this is conducted effectively, organizations want to have highly trained teams in this specialty, who obtain practical and effective investment theory and tools that are immediately applicable in their organization. And accelerating this development of high-potential senior management employees requires the essential contribution that Business Schools can make better than anyone else for this type of education and training.
This information has been prepared by OUR EDITORIAL STAFF