Written by Paul de Havilland
Social impact investing isn’t just for bleeding hearts anymore. Investing in companies with strong environmental, social, and governance (ESG) credentials has grown from an idealistic niche to a highly profitable investment strategy.
A number of studies and data points suggest that an ESG investment portfolio tends to outperform one that gives scant regard to corporate ethics, environmental sustainability, and social impact.
However, those patterns have yet to play out in the cryptocurrency and blockchain market. Indeed, crypto’s best investment vehicle to date, bitcoin, is notorious for the power consumption required to process transactions.
But if the crypto market follows traditional investment patterns, investing in blockchain projects with strong environmental, social, and governance properties may soon bear fruit.
Social Impact Investing: A Growing – And Profitable – Trend
Social impact investing was once a feel-good buzz phrase to encourage ethical behavior among investors and money managers. Today, it is now rewarding those investors with real returns.
According to portfolio analysis firm MSCI, ESG investing has a clear demographic dimension to it. Eighty-seven percent of millennials regard ESG considerations as important in considering investment allocations. For Gen Xers and baby boomers, those figures are a respective 65 and 48 percent.
The firm’s research found a “causal relationship between ESG characteristics and levels of valuation.” They were cautious not to assert any blanket conclusions, in part because of studies excluding alcohol and tobacco producers and the relative scarcity of long-established trends. All the same, the company’s studies found that companies with positive ESG ratings were less risky and “… were more profitable and paid higher dividend yields, while controlling for other factors.”
More bullish supporters argue that ESG investing should overperform other investments in the long term, because ethical companies do not rely on morally dubious short-term habits, which tend to be unsustainable. Social impact investing, according to this reasoning, is less risky.
According to Morningstar, sustainable funds outperformed normal funds in 2018, and there is every reason to assume that the pattern will continue in the future. MSCI’s own World ESG Leaders Index has performed in line with its World Index over the past twelve years.
Oxford University published a study finding that “80% of the reviewed studies demonstrate that prudent sustainability practices have a positive influence on investment performance.” Of course, these findings could be skewed by a shift in investor tastes: as more money is seeking ESG compliant investment vehicles, ESG investments could ultimately outperform thanks to growing levels of investor interest.
Is Social Impact Investing Succeeding In Crypto?
The crypto and blockchain sector offers a number of ethical investment choices. Australia’s Power Ledger (POWR), an energy exchange platform, has struck up a number of partnerships and appears to be leading the race for a peer-to-peer energy exchange. Its ROI to-date is minus 6 percent, which still outperformed the altcoin market over the past two years.
Decentralized utility company ImpactPPA aims to create a platform where donors decide how to help renewable energy projects around the world. It has won its fair share of awards and plaudits, and returns could well follow.
The AIDCoin (AID) project began as a high-profile ICO with the aim of “developing multiple blockchain based solutions to bring back the trust to the charity sector by making donations trackable and efficient.” It has since lost almost all of its value, down almost 99 percent from its all-time high.
The SEEDS project is yet to be launched, but has a unique model of ensuring that “12.5% of all new Seeds are directed toward Local and Global grants to regenerate [the] planet.” It will soon launch on the TELOS network, which is quickly becoming a leading social impact platform.
So while social impact investing is currently a mixed bag for crypto and blockchain investors, the sector is only starting to germinate. As ESG investing becomes more popular among Millenial investors, the trend could start to bear fruit.
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