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private capital & the public good

All Things Impact for Feb 17: Robo Advisors for Good; Fossil Fuels are 'Legacy'; Funders are Like Teenagers; When Facts Fail

Brian WalshComment

Hi friends,

Welcome to All Things Impact, a newsletter of interesting things I've seen from across the spectrum of impact: responsible investing (in the public markets),  impact investing (in the private markets), effective philanthropy, and a wildcard topic. For previous posts, to subscribe, and for more information, please visit All Things Impact.

Here are four links worth your time (plus items of note, job postings, and a calendar of upcoming events):

1. Responsible investing: Building Portfolios Tailored to Investors' Values
I'm very interested in the intersection of two mega-trends: the rise of robots in managing capital, and the rise in demand from capital owners (people who have money to invest) for investments that align to their values. Simone Foxman writes in BloombergBusinessweek about OpenInvest, one of the new startups operating in this "robo advisor for good" space:

"For many people, passively managed index funds have a powerful appeal: Buy one fund and be done. The 3,500-company Vanguard Total Stock Market Index Fund, for example, beats most funds in its category by owning essentially everything. But everything can also be a problem for those who want to put their money only into companies that are consistent with their values... 

There have long been mutual funds that include social factors among their stock-selection criteria. The difference is that OpenInvest allows customization. Similar to so-called robo-advisers Wealthfront and Betterment, OpenInvest allows users with at least $3,000 to invest to pick a mix of stocks and bonds based on their age and comfort with risk. The portfolio is periodically updated and rebalanced to stay on track.

But instead of buying stocks through index funds, as the other robos do, OpenInvest uses individual stocks. Users click through a series of menus to create an “issue profile,” checking boxes to select investment themes—such as gender equality or reduced carbon emissions—as well as groups of companies to exclude. The preset screens lean left. Users can nix weapons manufacturers, tobacco companies, and even those whose executives have backed Donald Trump.

Based on those preferences, OpenInvest creates a basket of more than 60 stocks that both jibes with its customers’ wishes and should, the company says, track the broader market. It balances factors such as size, sector, and each stock’s sensitivity to the market’s ups and downs. OpenInvest says it’s still passive because beating the market isn’t a goal."

Here is my running list of other "robo advisors for good" (know of more? please let me know):

2. Impact Investing: the Great Energy Transition
Writing in Medium, my friend David Bank, Founder and Editor in Chief of ImpactAlpha, writes about the massive transition underway in the energy sector, arguing that "renewables are no longer 'alternative' and fossil fuels are 'legacy'":

"[A]s the energy story becomes, solidly, a technology story, policy is no longer the driver. Instead, renewable energy is showing the same kind of network effects, increasing returns to scale and virtuous circles that have powered the tech revolution...With 60 percent of new utility-scale electricity generation in 2016 coming from wind and solar resources, renewable are no longer ‘alternative.’ Rather, fossil fuels are increasingly ‘legacy.’...

It will be a lumpy transition, to be sure...

The real signal to watch is the oil companies’ “capex” or capital expenditure budgets for drilling and production, where they reveal what they really think about future prospects....It’s not just activist college campuses that are divesting from the fossil-fuel economy. It’s the fossil-fuel producers themselves.

When the history of the 21st century is written, we’ll see that by 2017 the inflection point in the global energy rebuild had already occurred. We’ll see the new energy economy was just the next stage of the the larger technology transformation obviously well underway.

We’ll see that the energy revolution of the next 20 years looked a lot like the Internet revolution of the last 20 years...

This is no longer just about values-driven investing, important as that is for pointing our money toward the kind of future we are hoping to live in. Values are a weak lever to pull. Pension and sovereign wealth funds, are not much interested in aspirational, wishful thinking or, even worse, do-gooder advocacy.

Such big asset owners — those with assets of, say, more than $100 billion or so — are interested in risk. They are so broadly diversified that they “own the market,” if not the world. Forces that affect the market, up or down, will inevitably hit their portfolios. Unlike a day trader, they can’t just make bets on individuals winners and losers. And they can’t duck the coming dislocations. Social unrest, political instability, environmental catastrophes, wars — bad for long-term asset values. Owning the world means institutional asset owners have a stake in its viability. For such “universal owners,” there are no externalities, positive or negative."

3. Effective Philanthropy: Funders are Like Teenagers - They Learn From Their Peers
According to the Foundation Center, there are over 86,000 foundations in the US, with $715 billion in assets and $52 billion in annual giving. Do the people who help allocate that $52 billion - the board members and staff of large foundations - use knowledge to inform and improve their work? If so, how do they acquire that knowledge?

Those are some of the questions that the Effective Philanthropy Group at the Hewlett Foundation set out to answer. Writing in SSIR about their new research, my friends Fay Twersky and Lindsay Louie found that "knowledge does indeed influence funders’ practice. Funders primarily use it to question or affirm current practice, and to compare their foundation to the field." They found that funders are actually much like teenagers, whose primary source for knowledge is peers.

"Funders’ primary source for knowledge is peers and colleagues (92 percent), followed by conferences, email/newsletters [ahem], and grantee interactions. It is crucial for knowledge producers to understand that peers and colleagues play a central role in information sharing, because it means research findings are likely filtered and interpreted as they move from peer to peer. Over time, this could lead to the misinterpretation of research or shifts in emphasis. Knowledge producers and disseminators should also keep in mind that people may actually use and cite something in their work without necessarily reading the original source material(s).

Other key findings:

  • Curation is important. ("[F]oundation staff feel overwhelmed by the volume of information coming at them, regardless of whether or not they “opted-in” to receive it. Similarly, foundation boards say they face their own firehose of information and generally look to staff to curate knowledge about philanthropic practice; it rarely reaches them directly.")
  • Grantees are an important source of knowledge. ("[W]hile power dynamics between funders and grantees may sometimes inhibit candor, it’s clear that many funders recognize grantees’ valuable expertise. Nonprofit leaders have the ears of their funders, and can influence a funder’s thinking and decision-making.")
  • There are no ubiquitous trusted sources. ("[T]rust in and loyalty to specific knowledge producers and disseminators seemed relatively low. No specific knowledge producer was cited as a trusted source by substantially more than 25 percent of respondents.")
  • Knowledge alone is insufficient for making practice change. ("[F]or a knowledge product to catalyze or contribute to change, it must be part of a larger process that includes trust, accessibility, peer support, organizational readiness, and leadership support and interest. Change is a complex process, and knowledge is but one piece of the puzzle. Knowledge can spark or help catalyze change, but it’s rarely sufficient on its own.")

4. Wildcard: How to Convince Someone When Facts Fail
Writing in Scientific American, Michael Sherman writes about the psychological concepts of cognitive dissonance and the backfire effect:

"Have you ever noticed that when you present people with facts that are contrary to their deepest held beliefs they always change their minds? Me neither. In fact, people seem to double down on their beliefs in the teeth of overwhelming evidence against them. The reason is related to the worldview perceived to be under threat by the conflicting data...

In the classic 1956 book When Prophecy Fails, psychologist Leon Festinger and his co-authors described what happened to a UFO cult when the mother ship failed to arrive at the appointed time. Instead of admitting error, “members of the group sought frantically to convince the world of their beliefs,” and they made “a series of desperate attempts to erase their rankling dissonance by making prediction after prediction in the hope that one would come true.” Festinger called this cognitive dissonance, or the uncomfortable tension that comes from holding two conflicting thoughts simultaneously....

[P]eople spin-doctor facts to fit preconceived beliefs to reduce dissonance....

In a series of experiments...researchers identify a related factor they call the backfire effect 'in which corrections actually increase misperceptions among the group in question.' Why? 'Because it threatens their worldview or self-concept.'

If corrective facts only make matters worse, what can we do to convince people of the error of their beliefs? From my experience, 
1. keep emotions out of the exchange, 
2. discuss, don't attack (no ad hominem and no ad Hitlerum), 
3. listen carefully and try to articulate the other position accurately, 
4. show respect, 
5. acknowledge that you understand why someone might hold that opinion, and
6. try to show how changing facts does not necessarily mean changing worldviews.

5. Items of Note

6. Job Postings

7. Upcoming Events
Feb 24 Yale Philanthropy Conference (New Haven, CT) Effective Philanthropy
March 14-15 Confluence Philanthropy Practitioners Gathering (New Orleans, LA) Impact Investing
March 21-22 Impact Summit Europe (The Hague, Netherlands) Impact Investing
March 23-24 Impact Investing World Forum (London) Impact Investing
March 30 Impact 2 (Paris) Impact Investing
April 4-6 Center for Effective Philanthropy (Boston) Effective Philanthropy
April 7 Wharton Social Impact Conference (Philadelphia) Impact Investing
April 18-20 Conscious Capitalism Conference (Philadelphia) CSR
April 25-26 Impact Capitalism Summit (Chicago) Impact Investing
May 9-10 Shared Value Summit (NYC) CSR
May 10-12 US SIF Annual Conference (Chicago) Impact Investing
May 23-24 CECP Summit (NYC) Effective Philanthropy
May 31 - June 1 Grantmakers for Effective Organizations (Chicago) CSR
Setp 28-29 TBLI Nordic 2017 (Stockholm) Responsible Investing
Oct 10-13 SOCAP17 (SF) Impact Investing
Oct 24-26 BSR Conference (Huntington Beach, CA) CSR

That’s it for this week. Help me spread the word about #AllThingsImpact to your friends and colleagues, who can sign up to receive this newsletter at All Things Impact. Please also send me any job postings, items of note, upcoming events, or compelling links you discover in your own journeys across the web (even things like this cat and dog learning how to live in peace).

Until next time, thanks for reading!

Brian Walsh
Head of Impact at LiquidnetFull Bio.