Invisible hand with visible heart: How to use capital to reshape capitalism | Suwen Chen | TEDxESADE
foreign [Music] thank you so I'm really excited to be here to share a topic I'm really passionate about go back to Passion that's about impact investing so thanks very much for attending uh in the 1999 film The Matrix one of the most iconic scenes was Murphy's offering you a choice take the blue peel and go back what he thinks is his normal life or take the red pill to join the Rebellion against enslaving machines I was about 10 years old when I watched first watched the film and I had a really naive idea why does Neil have to choose why can't he have both makes the red and the blue and get a purple one so he can have the best of both words obviously this wasn't happening now fast forward the timing for 23 years now we're in 2022 Neo has another choice to make in a hypothetical situation imagine Neo has moved from the United States to Spain and participated the El Corto the Spanish Christmas big lottery and won 5 million euros being nailed he doesn't want to do some boring choice and just put the money in the bank savings account instead he was deciding between either invest in the stock market to get some money or donate to charity for some public good Which choice do you think Neo would make this time would it be possible you may wondering to combine the two as I was wondering 20 years ago to have the best of both words and do good and well at the same time fortunately this time we have this third option through what we call impact investing impact investing is a term coined in 2007 by Rockefeller Foundation meaning investing for positive social and environmental impact alongside the financial return philanthropic activities and financial investment were once thought to be incompatible at the end of the spectrum but impact investing has made it possible to combine the both it has been growing really quickly and is now topping 1 trillion US dollars as we speak today and it is believed to be one of the most powerful changes happening in the finance industry besides impact investing you may have heard other terms for this ethical investment approaches such as socially responsible investing short for Sri sustainable investing or ESG investing ESG stands for environmental social and governance and a common ESG approach is to exclude the companies that do harm in your Investment Portfolio for example tobacco companies weapon companies or fossil fuel companies and to simplify the relations between all these similar terms let's consider this analogy if we think ethical investment as an apple tree with different apples growing on the same Tree by multi-grafting just to us we may have gala apples Fuji apples Golden Delicious or pink lady apples on the same tree there are different sorts of ethical investment within the tree of this apple tree and impact investing is one of them if we follow this analogy and go down to the root of ethical investment we may find some basic principles of ethical investment can be found in some religious traditions for example Christianity and Islam have connected economic behavior with their belief and developed some guidelines on how to invest ethically besides religious Traditions impact investing also had some philosophical or intellectual background as someone coming from Scotland I always regard Adam Smith the father of economics as the first advocate for impact investing the concept of invisible hand is from his Masterpiece The Wealth of Nations on market and self-interest well visible heart is from another Masterpiece the theory of moral sentiment which he actually he actually liked it more about altruism and social well-being impact investing I would say is where the invisible hands hold a visible heart the reason why we are talking about impact investing today is because Finance industry plays a significant role in our society in many aspects just by looking at its mere size sheer size would illustrate the point today the asset under management is over 120 trillion US Dollars and in three years time it is estimated to be growing to 150 trillion US dollars even a bigger size and then the entire Global GDP the significance of the finance industry magnifies the male practices under the risks it can pose to society if something goes wrong the most recent example is the 2008 financial crisis the good news is because of its power it can also bring the society a lot of benefits if the capitals are managed properly and allocated rightly and the society is now facing a lot of challenges as illustrated by the United Nations sustainable Department goals many of you may have heard already according to a 2019 survey it is estimated that in order to fulfill the gap of the sustainable demand goals we would need at least 2.5 trillion dollars per year this may sound a lot 2.5 trillion dollars but if we remember the number I was mentioned earlier it's actually less than three percent of the total asset under management that is to say by mobilizing only a small portion of the capital available in the financial Market can help to solve some of the world's most challenging problems we have all of this sounds good but would impacting doesn't actually work is it too good to be true the answer is yes but with some caveats good intentions are not enough an impact label without action and accountability is of no use and it can also be dangerous for example there is a risk of impact washing and turning it into a marketing campaign if we do not have robust data to support what impact has been generated therefore we need a very robust and rigorous system to Monitor and manage the impact that is claimed to be generated during the process the topic of impact management is another billion dollar industry and I'm not gonna cover that in my very short Ted talked here that would probably take hours days if not months to uncover this topic however I would like to share with you some of my thoughts on this topic I have to admit when I Was preparing for this tell talk I struggled a bit to convey a simple message in several minutes without going into technicalities then I was chatting with my friend in Scotland Augusto who became the father last year and yesterday was his son's one year birthday and we were chatting away and he was sharing his babies sleep training processes and it all sounds very eye-opening and fascinating to me for someone without a child and then all of a sudden I had this aha moment thinking wow a baby's sleep training is actually very similar to the impact Management in at least three ways that's the picture of his cute baby in at least the three ways the first is you have to have faith in the process and Trust the trust the process and people as remarked by Augusto at the beginning we tried different ways and we thought no this is never gonna work he's never gonna sleep for the all night and what can we do now and then they stick to one pro one method and then adapt it to their reality and voila it worked in the end you just have to trust in the process and stop thinking and worrying about the result all the time if you have good process and practice the good result will come on its own it's all very natural and all his comments Echo so much from what I've learned from the impact investors based on my research and if I did not know the context of that conversation I would think those words are from a guru impact investor rather than a new Daddy the second similarity between the baby sleep training and impact management is that there will be hiccups just when you thought things about finally back on track there will always be something happening and you go back to square one or even worse in the case of baby sleep training when the babies start to grow teeth that's the Nightmare and those are the nights you will probably have to remember in your entire life those worst nights the same could also happen in Impact measurement and impact investing because the circumstances change all the time so what would you do when that happens refer back to point number one as we mentioned earlier last but not least same as baby sleep training there is no one-size-fit-all method in Impact measurement every baby is different same does every investment deals and you need to invest a lot of your energy time and to cultivate the baby same as investment deals it is a constant learning unlearning and relearning process full of Trials and errors the good news is it will pay back in the end and take Augustus baby for example he can now sleep 12 hours in a row that is really achievement for one year old and just as the Spanish poet Antonio Machado said path Walker there is no path you have to make your path as you walk so a final point about impact investing is that it may be natural to think it is the responsibility of the government and some big players in the financial Market what can we do as individuals with no money and we actually do not invest in anything well think twice before making that comment because we are investors to a certain extent for example by our pension fund and there are already some startups developing apps to let people know through which companies their pension fund or personal savings and investment are invested in so they can track the record and know which what their in what their money are doing and in addition as consumers we can always have the choice and vote by purchasing the goods and the services from those companies doing more and better social impact the great Norwegian playwright Henry Gibson once said one of those days the younger generation will come knocking at my door the future is knocking at our door right now perhaps more than ever in the history if we think the covet current covet crisis has exposed how inequitable fragile and unsustainable our existing system has been and one lesson we can take from this pandemic is to rethink the role Capital can play in our society let me conclude by going back to the metaphor of Apple so far there are three apples that have changed the world the first was the forbidden fruit mentioned in the Bible the second was the one following on Isaac Newton inspired him to discover gravity the third one was the Apple iPhone designed and created by Steve Jobs impact investing by leveraging the power of finance and shift in the Paradigm from return and in risk and return to risk return and impact has the power to transform our society as the fourth Apple Finance is not an enemy it's not a friend either it's a tool an instrument and we need Capital to reshape capitalism thanks very much foreign