How to Evaluate the Unintended Impacts of Your Investments

The following is adapted from The Good Your Money Can Do.

Many impact investors begin their journey of conscious investments with the best intentions. They throw themselves into investments with companies that tout environmental friendliness, diversity initiatives, and other positive social impacts. Yet, as rewarding as conscious investing can be, it is not a quick-fix solution. Rather, it is a life-long experience of self-improvement and self-discovery that requires you to constantly evaluate the impact your money is making. 

At its core, conscious investing is about doing good. However, doing good successfully is another matter entirely. Considering the impact of our actions is essential, but just as important are the unintended consequences they might have.

The tragic experience of one friend working in the medical device industry illustrates what I mean. As part of his work, this executive traveled to Chiapas, Mexico, to see the company’s social responsibility efforts playing out firsthand. During this visit, he got the opportunity to meet some of those his company had helped, even assisting a child who had received a cleft palate repair surgery. He found the boy’s story particularly  moving and asked to take a picture with him for the company newsletter. 

A year later, the executive checked back in, asking the doctor if he could follow up with the child, take another picture, and share an update on the story for the company newsletter. The doctor explained that was impossible. Sadly, the child had passed away from septic shock not long after his surgery. Because the boy lived in a remote area, once he fell ill, he could not be treated. 

This story is an important reminder that, sometimes, doing good can have unexpected consequences. This executive and his medical device company had good intentions, but those intentions were not sustainable—they hadn’t considered the full picture nor all of the consequences.  Our impacts never lead to an isolated result. By not taking other factors into account a seemingly positive solution can even be detrimental.  Read on to learn how you can better evaluate the unintended impacts of your investments. 

Focus on Systems Change

A critical component of creating a positive impact is understanding the environment in which you are acting.Your actions do not exist in a vacuum. If you are not aware of this, then even the most well-intentioned efforts risk doing more harm than good from time to time. This is a core tenant of a concept known as systems change. Systems change is focused on first identifying the root causes of social and environmental problems and then addressing them in practical and holistic ways. Such an approach requires a certain degree of intersectionality. For instance, an issue that at first appears rooted in climate change may also involve issues of poverty and gender. . Recognizing the system that surrounds your impact area will widen your lens and lead you towards more holistic solutions. You’ll also come away with a better grasp of the various components and structures of the system and an understanding of why it behaves in a certain way.

Take East Africa Fruit Farms as an example.  This production, trading, and distribution business aims to minimize post-harvest losses in Tanzania by buying directly from smallholder farmers—increasing their average income—and delivering to major purchasers and local markets via cold chain logistics. As a business, East Africa Fruit Farms controls the whole value chain, from farming to grading and storing produce, and to selling to hotels, restaurants, and supermarkets. Rather than just giving their farmers input and telling them what to grow, the company helps farmers to generate knowledge on how to produce greater crop yield, and what produce to grow. East Africa Fruit Farms then will determine where to sell their produce and how to otherwise maximize their value chain. 

In doing so, East Africa Fruit Farms has helped to increase the annual income of the farmers the company works with to over $1,600 a year—a threefold increase for a community whose average earnings are a dollar a day. As of this writing, East Africa Fruit Farms has improved the livelihoods of 1,943 small holder farmers and increased their annual income by four times. 

 In general, there is a benefit for conscious investors that remain aware that their investments fit into a larger system, since it means they’re not creating another problem with a solution. 

Consider Sustainability and Ask Questions

At Beyond Capital, before we invest in a company, we are careful to look not only at their intentions but also at their business model to determine whether their efforts are (1) sustainable, and (2) do not inadvertently extract more value than they provide. While environmental, social, and corporate governance (ESG) factors can be a useful metric, ESG metric systems often do not measure deep enough. We are interested not only in the surface-level indicators highlighted by ESG frameworks but also the deeper aspects of the impact companies can have. 

With regards to sustainability, if you are investing in a company already listed on the stock exchange, then it is assumed that company has readily available access to capital. While this refers to financial sustainability, here we are talking about sustainability from the perspective of the social and environmental mission of that company. Will this business live up to its promise of putting women on its board of directors—for example, not just in a superficial manner but in a way that gives women meaningful roles, ensures their voices are considered, and fosters long-term change to the position of women in leadership.

In the simplest possible terms, the best approach is to ask questions. The more questions you ask, the more you will know. If an advisor, investment manager, or company founder has not done the necessary due diligence or is otherwise unable to provide a clear answer to your questions, then that is an indicator that this may not be the best opportunity for you to create the impact you are looking for.

Seasoned investors are already intentional about where they invest. In that way, conscious investing is no different; you are just focusing on factors other than profitability or returns alone. The more methodological you make your conscious investing practice, the more successful those efforts will be.

You’re Making Progress

Being as diligent as possible is the best way to avoid negative consequences in your conscious investing. But keep in mind that you are still making progress just by putting your resources behind an investment that meets your social goals.  I still believe that doing some good is a step in the right direction. For example, a vegetarian doesn’t save all the animals, but over their lifetime, they will have saved about seven thousand of them. 

Whatever happens, I encourage you to keep moving forward. As with many worthwhile endeavors, setbacks are just part of the process. Rather than feel discouraged in these moments, instead use them as opportunities to redefine and refocus your goals. In doing so, you will bring clarity to your efforts. Just remember that any time you can define what you do not want, you are a step closer to better understanding what you do want. Your voice, your actions, and your consumer choices also comprise your impact, and those are tools that can complement your investments. 

For more advice on the unintended impacts of your investments, you can find The Good Your Money Can Do on Amazon.