Conscious investing: A profitable force for change

​By Hattan Ahmed, Head of KAUST Entrepreneurship Center

Most of us consider our values to be central to who we are. Whether consciously or not, these values act as a moral compass that guides us in almost everything we do, i.e., in our relationships, how we raise our children, purchasing decisions, and work.

But investing seems to be an odd exception to this rule, because when it comes to making investment decisions, companies and private individuals too often overlook their values in the pursuit of one thing, and one thing only—maximizing shareholders' value.

One of the more visible examples of this in recent years comes from the social media industry. Many social media platforms were founded on community and togetherness values, with a simple mission to connect people online.

But somewhere along the way, that aim was eroded and eventually superseded by another, more pressing goal—appeasing shareholders. As the mindset shifted from fostering online communities to maximizing membership and increasing engagement, some social media platforms began to use our own psychological traits against us, dishing out dopamine hits and bombarding us with notifications to increase those all-important clicks that drive advertising revenue.

I've used social media as an example here, but we see shareholder- or capital-focused investment in almost every industry. Whether it's planned obsolescence among tech companies, or the offshoring of supply chains to markets with low workforce welfare standards such as the fashion industry and others, these investment decisions are not driven by values but by a desire to maximize profits, no matter the cost.

Old concepts, new perspectives

Conscious investing is attempting to redress the balance by placing values at the forefront of investment decisions. Importantly, it doesn't mean return on investment (ROI) is no longer a factor. Rather, it isn't the only factor, with the outcome being more funds allocated to ventures that seek to make a positive impact on the world.

The concept of conscious investing—also known as impact investing—is not new, but until recently, it's largely been viewed as something of a give-and-take strategy: the main driver for conscious investment is to leave an impact for preset goals and contribute to solving global or regional problems, or fulfill certain sustainable development goals. But the idea that conscious investors must accept concessionary returns is an outdated misconception and one that needs to change if values-based investment is ever going to become truly mainstream, which it absolutely must if we're going to address the social and environmental challenges facing humanity today.

Conscious investing doesn't have to be a compromise, and it can be every bit as profitable as its traditional counterpart, often more so. Considering the unprecedented market conditions we're experiencing in the Middle East and around the globe, that has never been more true than it is today.

Adapting to the paradigm shift

The COVID-19 pandemic has rocked the world in ways few could have imagined twelve months ago. In addition to the terrible toll it's taken on human lives, it's also had a hugely negative impact on many investment portfolios, particularly those with traditional investment portfolios. On the other hand, conscious investments are thriving in 2020, and in many cases, they're comfortably outperforming traditional bets.

This is partly attributed to the poor performance of certain key traditional asset classes during the last 12 months or so, but other dynamics are also at play. Talking in the broadest of terms, many traditional investments focus on life's "nice-to-haves," meaning they're the first to suffer during times of crisis or recession. Impact investments, on the other hand, tend to focus on the fundamentals—things like healthcare, education, social welfare, food provision and clean water, as well as environmental challenges like reversing climate change. These are universal human and environmental needs that we can't afford to neglect, no matter what else is going on globally.

Conscious investments as a force for change?

2020 has seen a huge increase in the issuance of social bonds—fixed-income financial instruments based on strict environmental, social and governance criteria. Morgan Stanley reports that 32 billion dollars of social and sustainability bonds were issued in April 2020 alone, despite an anticipated decline in overall issuance within the global fixed income market of some nine per cent this year. Earlier this year, Salesforce launched its $100 Million Impact Fund to invest in cloud startups with a social mission.

This kind of progress is truly encouraging, but make no mistake: we stand at the very beginning of what will be a long journey. In 2015, the United Nations (UN) outlined 17 Sustainable Development Goals (SDGs) that aim to unite the world in ending poverty, fighting inequality and tackling climate change by 2030. Five years into this quest, the latest progress reports suggest we're lagging in 15 of the 17 categories, and that was before COVID-19 stalled, or even reversed, progress.

We at KAUST are also committed to playing our part, not only by making impact investment a key theme in our teaching and research agendas, but also by nurturing startups and investing in them with a focus on impact objectives. It's an approach that's already borne fruit, and we're incredibly proud of the success of KAUST startups like Red Sea Farms for pioneering saltwater agriculture, and Edama Organic Solutions for revolutionizing waste management.

In September 2020, KAUST partnered with investment platform VentureSouq and New York University Abu Dhabi (NYUAD), and its partner Tamkeen, to launch the first Conscious Investor Fellowship in the Gulf Cooperation Council (GCC). The pan-regional fellowship is a six-week virtual program dedicated to enabling regional investors in the GCC to create sustainable change through high-impact investments.

It's for this reason that spreading the conscious investment message is more important today than ever before. When based on sound financial fundamentals, conscious investment is a no-brainer, offering similar or better returns than traditional investments while allowing investors to align their strategies with their own value systems. And if we scale that up—if every company and every investor simultaneously dusted off their moral compasses and shifted from a capital-first to an impact-first investment strategy—then we would easily achieve the UN's 17 Sustainable Development Goals by 2030, and much, much more.