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Equity Crowdfunding: The Democratization of Startup Investing

3 min
27 Apr, 2023
By Sultan White

On April 5, 2012 President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act into law. Among loosening oversight and regulations on small businesses, the JOBS Act legalized equity crowdfunding to help drive technological innovation and high-growth enterprises in the United States.

Equity crowdfunding provides both a new method for raising capital for privately-owned businesses, and a new asset class for investors. It involves business owners selling a number of company shares to a pool of investors through regulated online crowdfunding platforms. This type of crowdfunding is different from donation crowdfunding (like GoFundMe) and loan crowdfunding (like Kiva). With equity crowdfunding, startups looking to fundraise have new opportunities to tap into sources of capital, while non-accredited investors can finally break into a small-scale form of angel investing.

Similar to the venture capital field, equity crowdfunding investors buy small shares of early-stage startups to hold for a long time horizon. This is generally due to the fact that crowdfunding investors only see returns in the event of an Initial Public Offering, acquisition by a larger company, reverse buyout, or some other qualifying event. However, this form of investing closely resembles venture capital investing, and chases the same goal of investing in the next high-growth tech company.

Of course, there is always the risk of not seeing returns for many years, or investments losing value. It’s important to keep this in mind.

Equity crowdfunding effectively democratized the venture capital and angel investing spaces, once reserved for high-net worth individuals based primarily in Silicon Valley, New York City, and other select cities. Paired with the widespread use of social media platforms such as Facebook, Instagram, LinkedIn, Reddit, and Twitter, equity crowdfunding has introduced a new generation of digitally-literate Millennials and Zoomers to the world of startup investing. In 2018, equity crowdfunding drove $74M in startup capital to companies, with an additional $100M raised the very next year. Then, while a portion of the financial sector struggled through the pandemic, equity crowdfunding accelerated, channeling a staggering $211M in 2020.

Now more people can participate in this new asset class for relatively small amounts (like $100 investment minimums) depending on the platform used. We have yet to see how much equity crowdfunding will influence inter-generational wealth creation in working and middle class families, nonetheless it is refreshing that access and opportunities in startup investing has increased for a wider array of investors from diverse socioeconomic backgrounds.

If you’re looking to try investing through equity crowdfunding, it’s important to know that each of the platforms have their own rules, investment minimums, and selection of startup companies. If you’re a startup founder looking to raise equity crowdfunding, be sure to review the deal terms. There are several equity crowdfunding platforms out there, including StartEngine, SeedInvest, MicroVentures, Wefunder and Republic.

While the equity crowdfunding space is still in its infancy, its meteoric rise indicates that it’s worth keeping an eye on. On top of this, there are many startups that have benefited from the new model. For example, startup company NowRx used an equity crowdfunding strategy to raise capital for both its official launch and an aggressive scale-up during the height of the COVID-19 pandemic. It raised a $750K seed round in 2017, then a $7M series A, and then an impressive $20M series B — primarily on the StartEngine platform.

Equity crowdfunding is expected to grow, with experts predicting almost $200B growth in market share from 2021 to 2025. Whether you’re a CEO looking to raise money or an investor trying to break into the private market, equity crowdfunding has proven itself as a viable alternative to traditional channels, some of which have been marred by gatekeeping and institutionalized bias.

Similarly, equity crowdfunding may serve as a boon for diverse founders. Despite the rhetoric from the VC industry claiming to support minority groups, a measly 2.6% of VC funding went to Black and latinx founders from 2015 to 2020. Meanwhile, only 2% of VC money in 2021 went to female founders. And on the investor side, white men represent 53% of all VC investors and control a whopping 93% of all VC dollars. In comparison, 33% of startups on StartEngine have a BIPOC founder and 44% of all funds raised on Republic went to female founders.

The “old boys club” may have historically controlled access to VC money but along came equity crowdfunding — both a technological and legislative innovation that has started to disrupt the system. Equity crowdfunding has the potential to knock down barriers, and provide both access to capital and investment opportunities to a wider variety of people, connecting diverse founders with diverse investors.

 

Crowdfunding also has significant risks to consider such as liquidity risk, risk of loss, fees and expenses, limited information and more. Crowdfunding offers are speculative and investors should be able to afford and be prepared to lose their entire investment. For more information, view Investor Bulletin: Regulation Crowdfunding for Investors.


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The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. This is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member FINRA, SIPC

Expand your knowledge further

<p><em>With financial markets around the world still reeling from muddled efforts to curb a global pandemic, one financial notion seems to be gaining fresh support: ESG. However, much about ESG remains unexplored. Are ESG and risk management practices related? How can ESG be used to benefit organizations and investors from a risk standpoint? Does one of the three ESG pillars play a bigger role in terms of generating financial returns, utility, and risk management?</em></p> <p>&nbsp;</p> <p>Some investors have a hypothesis that ESG investments generate stronger, more sustainable returns over the long term, and this has been exemplified in the past couple of years. ESG investments, indices, and companies that keep considerations of the three factors at the forefront of their culture have bounced back higher than unbothered counterparts; for example, the S&amp;P 500 ESG Index has beat the S&amp;P 500 Index <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">since the first market slump in early 2020</a>, sustainable bonds have seen <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">record issuance in the year 2021</a>, and organizations with good ESG ratings <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">have displayed strong financial resilience</a> since the economic downturn.</p> <p>How can this phenomenon be explained? The answer lies in the fact that <a href="https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html">ESG can work as a risk management strategy</a>; not just in financial terms, but also in view of management conditions and meeting regulatory requirements.</p> <p>A <a href="https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx">report published by McKinsey</a> tells us that good ESG practices could potentially lead to positive cash flows, as well as hedge financial and reputational risks due to the following reasons:</p> <ul> <li>ESG drives consumer preference as some customers are <a href="https://www.forbes.com/sites/gregpetro/2022/03/11/consumers-demand-sustainable-products-and-shopping-formats/">willing to pay a premium to go green</a>. McKinsey also found that companies that use sustainable practices in their supply chain are able to cut costs.</li> <li>Responsible reporting minimizes regulatory and legal interventions, which generates less negative publicity for an organization.</li> <li>Having generous social policies in place helps motivate and retain staff, as well as increase employee productivity, which has been found to <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869">positively correlate with shareholder returns.</a></li> <li>ESG practices help optimize investments and capital expenditures. One way to get ahead of the curve is to consider making investments into assets that take advantage of sustainability tailwinds. For example, China&rsquo;s efforts to curb air pollution is estimated to create <a href="http://www.chinadaily.com.cn/a/201804/18/WS5ad69dc6a3105cdcf6518f2c.html">over $3 trillion in investment opportunities across various industries</a> through 2030.</li> </ul> <p>&nbsp;</p> <h4><strong>Integrating ESG in business practices doubles as good risk management, which goes on to generate brand equity for companies and attract investors.</strong></h4> <p>Research has <a href="https://www.mdpi.com/2071-1050/12/1/254">found a positive relationship</a> between ESG scores and brand equity value of S&amp;P 500 companies. Good ESG incorporation mitigates reputational risks for an organization, and that is where investor confidence is built. In turn, investors manage financial risks by keeping exposures to ESG investments in their portfolios, which also helps them derive utility as they are inclined to feel that their investment decisions are part of a bigger movement to do better for the world.</p> <p>&nbsp;</p> <h4><strong>It's the Social and Governance factors that actually push away the risks.</strong></h4> <p>We constantly hear a lot of buzz surrounding the Environmental aspect which dominates sustainable investment allocations, but the value of the Social and Governance aspects which have a determining impact on sustainable practices, and as a result, risk management within an organization, are rarely ever given recognition.</p> <p>Taking a deep-dive into how the &ldquo;S&rdquo; and &ldquo;G&rdquo; areas are equally at play as the &ldquo;E&rdquo; in contributing to sound risk management within a company and yielding positive returns for investors, we delve into some research on how the three factors impact financial performance on an absolute basis.</p> <p>A <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=&amp;ved=2ahUKEwi9kr_i48b3AhWTQc0KHfB2DUAQFnoECAYQAQ&amp;url=https%3A%2F%2Fjournals.vgtu.lt%2Findex.php%2FJBEM%2Farticle%2Fdownload%2F12725%2F9980&amp;usg=AOvVaw1dAd8rRWX31GFeB0IY3x9v">recent study</a> examined the overall and individual influences of corporate E, S, and G conduct on economic performance of S&amp;P 500 firms. A breakdown of the scores for each aspect across companies from different industries and their correlation with the respective companies&rsquo; economic performances were looked at. The results may be surprising at first look: Corporate &ldquo;E&rdquo; conduct does not have any significant effect on firm economic performance, while conduct for &ldquo;S&rdquo; and &ldquo;G&rdquo; significantly influences firm economic performance.</p> <p>The Social and Governance components are key to the general practices of risk management; aiming to do justice to these elements in the day-to-day course of running a business ensures responsible and skilled management structures, risk ownership, and compliance with regulatory requirements.</p> <p>Here we covered reasons to explain these occurrences in the market &mdash; that ESG is an exceptional risk management tool for organizations internally, and also for investors in financial terms. More importantly, we saw that &ldquo;S&rdquo; and &ldquo;G&rdquo; are crucial to building optimal risk practices within a firm, which when combined with &ldquo;E&rdquo;, enhance the attractiveness of businesses and generate solid returns over the long term for investors.</p> <p>&nbsp;</p> <p><strong><u>References</u></strong></p> <p>Ajour, E. et al. (2020). <em>The Role of Sustainability in Brand Equity Value in the Financial Sector. </em>MDPI. Retrieved April 29, 2022, from <a href="https://www.mdpi.com/2071-1050/12/1/254">https://www.mdpi.com/2071-1050/12/1/254</a></p> <p>BNP Paribas SA Group (2021). <em>BNP Paribas recognized by EcoVadis and FTSE4Good extra-financial ratings. </em>BNP Paribas. Retrieved May 06, 2022, from https://group.bnpparibas/en/news/bnp-paribas-recognized-by-ecovadis-and-ftse4good-extra-financial-ratings</p> <p>Cek, K. &amp; Eyupoglu, S. (2020). <em>Does environmental, social and governance performance influence economic performance? </em>Scopus. Retrieved April 29, 2022, from <a href="https://www.scopus.com/record/display.uri?eid=2-s2.0-85087457813&amp;origin=inward&amp;txGid=4864f78cdc725470874f18fec147c309&amp;featureToggles=FEATURE_NEW_DOC_DETAILS_EXPORT:1">https://www.scopus.com/record/display.uri?eid=2-s2.0-85087457813&amp;origin=inward&amp;txGid=4864f78cdc725470874f18fec147c309&amp;featureToggles=FEATURE_NEW_DOC_DETAILS_EXPORT:1</a></p> <p>Cheasty, G. (2019). <em>Asset Management: Integrating ESG Risk into a Risk Management Framework.</em> Deloitte. Retrieved April 22, 2022, from <a href="https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html">https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html</a></p> <p>Dorobantu, S., Henisz, W. &amp; Nartey, L. (2022). <em>Spinning gold: The financial returns to stakeholder engagement. </em>Wiley Online Library. Retrieved May 09, 2022, from <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2180">https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2180</a></p> <p>Edmans, A. (2011). <em>Does the stock market fully value intangibles? Employee satisfaction and equity prices. </em>ScienceDirect. Retrieved May 09, 2022, from <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869">https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869</a><br /><br />Henisz, W., Koller, T., and Nuttall, R. (2019). <em>Five ways that ESG creates value. </em>McKinsey Quarterly. Retrieved May 09, 2022, from https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx</p> <p>Lawrence, E., &amp; Zlatkova, S. (2020). <em>Managing risk with ESG investing - CFA society chicago</em>. Northern Trust Asset Management. Retrieved April 26, 2022, from <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf</a></p> <p>Murugaboopathy, P., &amp; Dogra, G. (2021). <em>Global sustainable bonds see record issuance in Jan-Sept 2021</em>. Reuters. Retrieved April 26, 2022, from <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/</a></p> <p>S&amp;P Global. (2022). <em>S&amp;P 500 ESG Index</em>. S&amp;P Dow Jones Indices. Retrieved April 22, 2022, from <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview</a></p> <p>&nbsp;</p> <p style="padding-left: 440px;"><strong>∙ ∙ ∙</strong></p> <p><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member&nbsp;</em><a href="https://www.finra.org/"><em>FINRA</em></a><em>&nbsp;</em><a href="https://www.sipc.org/"><em>SIPC</em></a><em>.</em></p>
ESG
Investing
How Does ESG Relate to Risk Management?

Some investors have a hypothesis that ESG investments generate stronger, more sustainable returns over the long term.

Shivani Hemnani
25 Aug, 2022
4 min read
<p id="44d3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">I arrived at Harvard as a first-year student in the fall of 2018. I was passionate about climate justice even as an incoming freshman. So you can imagine my surprise when I found out that my own university was also a corporation actively investing in the destruction of the homes of me and my peers, and the future of our society.</p> <p id="1cd3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">This is not hyperbole. Harvard is governed by the <a class="au li" href="https://www.harvard.edu/about/leadership-and-governance/harvard-corporation/" target="_blank" rel="noopener ugc nofollow">Harvard Corporation</a>, which manages a $52 billion endowment fund that up until recently included holdings in the fossil fuel companies driving the climate crisis.</p> <p id="966c" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Like me, many students enter college with little to no idea of what endowments are or just how vast a social and political impact universities have through them. Endowments are large pots of money that universities invest to generate income. They are <a class="au li" href="https://www.insidephilanthropy.com/explainers/what-is-an-endowment" target="_blank" rel="noopener ugc nofollow">set up to ensure the financial future of a university</a> and enable it to provide for generations of students, faculty, and community members to come. But when invested in fossil fuel companies, the only futures these funds safeguard effectively are those of the extractive industries wrecking our planet, as well as the vested interests behind them.</p> <p id="3149" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Divestment, or the act of removing one&rsquo;s investment, <a class="au li" href="https://www.theguardian.com/environment/2015/jun/23/a-beginners-guide-to-fossil-fuel-divestment" target="_blank" rel="noopener ugc nofollow">works</a> to change that paradigm. It helps transform endowments from instruments of corporate finance into reflections of the needs, interests, and concerns of the university and broader community. Simply put, an institution of higher education cannot realize its espoused commitments to climate action, social justice, and preparing young people to be tomorrow&rsquo;s leaders while investing in a status quo that prevents this from happening.</p> <p id="911d" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Prestigious and wealthy universities have a unique responsibility to be leaders in divestment, and some have taken steps towards doing so. Harvard finally <a class="au li" href="https://www.thenation.com/article/activism/harvard-fossil-fuel-divestment-won/" target="_blank" rel="noopener ugc nofollow">moved</a> to divest in fall 2021 after years of tireless student organizing and massive public pressure. But other well-known universities, <a class="au li" href="https://www.washingtonpost.com/education/2022/02/16/college-fossil-fuel-divest-legal-action/" target="_blank" rel="noopener ugc nofollow">like Stanford</a>, have yet to divest.</p> <p id="b58c" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Fossil fuel investments and other ties to the fossil fuel industry also <a class="au li" href="https://www.teenvogue.com/story/fossil-fuel-divest-harvard-complaint" target="_blank" rel="noopener ugc nofollow">create</a> an inherent conflict of interest that <a class="au li" href="https://www.project-syndicate.org/commentary/institutional-investors-must-divest-from-fossil-fuels-by-bevis-longstreth-1-and-connor-chung-2021-11" target="_blank" rel="noopener ugc nofollow">jeopardizes</a> universities&rsquo; core academic and <a class="au li" href="https://fossilfreeresearch.com/" target="_blank" rel="noopener ugc nofollow">research missions</a>. Consider, for instance, how many universities continue to <a class="au li" href="http://www.unkochmycampus.org/rsc-report" target="_blank" rel="noopener ugc nofollow">accept</a> <a class="au li" href="https://www.theguardian.com/education/2021/dec/11/uk-universities-took-89m-from-oil-firms-in-last-four-years" target="_blank" rel="noopener ugc nofollow">vast sums</a> of fossil fuel <a class="au li" href="https://tinyurl.com/fossilfuelties" target="_blank" rel="noopener ugc nofollow">funding</a> for climate change-related research, despite a <a class="au li" href="https://pubmed.ncbi.nlm.nih.gov/9605902/" target="_blank" rel="noopener ugc nofollow">well-documented</a> <a class="au li" href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6187765/" target="_blank" rel="noopener ugc nofollow">pattern</a> of <a class="au li" href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1360-0443.1997.tb02863.x#references-section" target="_blank" rel="noopener ugc nofollow">distorted</a> research outcomes resulting from funding by companies with an oppositional agenda. <a class="au li" href="https://www.ft.com/content/16091645-98b3-4041-9ca2-053fb60181ba" target="_blank" rel="noopener ugc nofollow">No</a> major fossil fuel company is <a class="au li" href="https://priceofoil.org/2020/09/23/big-oil-reality-check/" target="_blank" rel="noopener ugc nofollow">truly aligned</a> with the demands of climate science or justice. Many continue to launch concerted campaigns <a class="au li" href="https://www.climatechangecommunication.org/america-misled/" target="_blank" rel="noopener ugc nofollow">spreading</a> climate misinformation and <a class="au li" href="https://unearthed.greenpeace.org/2021/06/30/exxon-climate-change-undercover/" target="_blank" rel="noopener ugc nofollow">opposing</a> climate action. So it is clear that the industry cannot be a trustworthy partner in the production of public knowledge and ultimately, policy, on climate. By <a class="au li" href="https://www.latimes.com/opinion/story/2022-04-03/climate-change-research-funding-fossil-fuels" target="_blank" rel="noopener ugc nofollow">allowing</a> fossil fuel companies to use their credibility &mdash; whether through investments that sustain these companies&rsquo; core business model or research partnerships that <a class="au li" href="https://www.thenation.com/article/environment/university-climate-research-fossil-fuels/" target="_blank" rel="noopener ugc nofollow">bolster</a> their <a class="au li" href="https://www.theguardian.com/environment/2022/feb/16/oil-firms-climate-claims-are-greenwashing-study-concludes" target="_blank" rel="noopener ugc nofollow">greenwashing</a> &mdash; universities make themselves complicit in climate breakdown and <a class="au li" href="https://www.timeshighereducation.com/blog/fossil-fuel-research-ties-undermine-universities-climate-change-response" target="_blank" rel="noopener ugc nofollow">undermine</a> their own potential for urgently-needed climate leadership.</p> <p id="3b5a" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Already, asset managers controlling nearly <a class="au li" href="https://www.stand.earth/advisory/divestment-40-trillion" target="_blank" rel="noopener ugc nofollow">$40 trillion</a> worth of funds have pledged to divest from fossil fuels because they recognize the need to align their financial practices with their principles. They also recognize the overwhelming <a class="au li" href="https://ieefa.org/major-investment-advisors-blackrock-and-meketa-provide-a-fiduciary-path-through-the-energy-transition/" target="_blank" rel="noopener ugc nofollow">evidence</a> that divestment <a class="au li" href="https://www.nytimes.com/2021/10/26/opinion/climate-change-divestment-fossil-fuels.html" target="_blank" rel="noopener ugc nofollow">works</a>. And they know that without taking a bold stance against fossil fuels and other industries undermining our sustainable future, they&rsquo;ll lose the chance to have young people like myself as potential customers, employees, supporters, and so on. Regardless of the reason, the choice to divest must be applauded. But to truly lead on climate, institutions like Harvard must take the next step of severing remaining fossil fuel industry ties, by doing things like banning fossil fuel research money and recruitment on campus, or <a class="au li" href="https://www.thenation.com/article/environment/harvard-yale-fossil-fuel-divestment/" target="_blank" rel="noopener ugc nofollow">reinvesting</a> in community-based and renewable energy solutions.</p> <p id="0bbe" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Still, some asset managers and fund trustees (unsurprisingly, some with <a class="au li" href="https://yaledailynews.com/blog/2022/02/24/four-yale-trustees-accused-of-conflict-of-interest-for-fossil-fuel-ties/" target="_blank" rel="noopener ugc nofollow">personal</a> <a class="au li" href="http://harvardcorplovesfossilfuels.divestharvard.com/" target="_blank" rel="noopener ugc nofollow">ties</a> to the fossil fuel industry) continue to make the same tired and bad faith arguments about the value of engaging with the fossil fuel industry as shareholders. We know that such engagement <a class="au li" href="https://impakter.com/harvard-from-apartheid-to-the-climate-crisis-the-limits-of-shareholder-engagement/" target="_blank" rel="noopener ugc nofollow">does not</a> <a class="au li" href="https://www.commondreams.org/views/2021/11/22/shareholder-engagement-fossil-fuel-companies-failure-climate-change" target="_blank" rel="noopener ugc nofollow">work</a> when the core business model is the problem. And it cannot work when the fossil fuel industry makes it <a class="au li" href="https://www.newsweek.com/fossil-fuel-companies-are-undermining-our-future-opinion-1609813" target="_blank" rel="noopener ugc nofollow">abundantly clear</a> that it&rsquo;s unwilling to let this model go so long as any potential profit remains &mdash; no matter the cost to the environment or human life. That is why young people must continue leading the way in calling for total divestment. It is not <em class="lh">an option</em> but the <em class="lh">only option</em> for moneyed institutions to play a positive role in combating climate change.</p> <p id="02bd" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Actions and dollars, too, speak louder than words. Ending fossil fuel finance and other forms of social license-giving to the fossil fuel industry is vital for remaking our energy and economic systems in favor of people and the planet. The case is as strong as ever: with Russia&rsquo;s war on Ukraine <a class="au li" href="https://www.newyorker.com/news/daily-comment/this-earth-day-we-could-be-helping-the-environment-and-ukraine" target="_blank" rel="noopener ugc nofollow">making</a> the instability of a global fossil fuel economy uniquely clear, we need to push our institutions to be champions of this remaking, instead of dragging their heels.</p> <p class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">&nbsp;</p> <p class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" style="padding-left: 440px;" data-selectable-paragraph=""><strong>∙ ∙ ∙</strong></p> <div class="ir is it iu iv"> <p id="48f3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph=""><em class="lh">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </em><a class="au li" href="https://www.finra.org/" target="_blank" rel="noopener ugc nofollow"><em class="lh">FINRA</em></a><em class="lh"> </em><a class="au li" href="https://www.sipc.org/" target="_blank" rel="noopener ugc nofollow"><em class="lh">SIPC</em></a><em class="lh">.</em></p> </div>
Environmental
Investing
Why Are Students Pushing Universities To Divest?

Some universities are using endowment funds to invest in the oil industry.

Ilana Cohen
06 Sep, 2022
5 min read
<p><span style="font-weight: 400;">Are you an investor who cares not only about the performance of your portfolio, but also how your investments affect the environment, society, or humanity as a whole?</span></p> <p><span style="font-weight: 400;">If you do, you&rsquo;re not alone. There are many investors who invest based on their own morals, what they think is ethical, or to achieve a certain social goal. In fact, this type of investing is so popular that there are a handful of different terms that refer to the practice of aligning your investments with your values.</span></p> <p><span style="font-weight: 400;">You may have heard of impact investing, sustainable investing, socially-responsible investing, or ESG, but what do all these terms actually mean? And how do they differ?</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">Let&rsquo;s define some of the commonly used terms:</span></p> <p>&nbsp;</p> <p><strong>ESG &mdash; </strong><span style="font-weight: 400;">Stands for </span><a href="https://fennel.com/fennel101/esg"><span style="font-weight: 400;">Environmental, Social, and Governance</span></a><span style="font-weight: 400;">. A framework for assessing companies beyond solely financial data, by looking at that company&rsquo;s impact on the environment, its impact on society, and how that company is organized. ESG is about better understanding a company by taking into account this information.</span></p> <p>&nbsp;</p> <p><strong>ESG investing &mdash; </strong><span style="font-weight: 400;">Involves incorporating ESG data in order to make investment decisions. Traditionally, ESG investing is </span><a href="https://fennel.com/blog/how-does-esg-relate-to-risk-management"><span style="font-weight: 400;">viewed as a form of risk management</span></a><span style="font-weight: 400;">, where ESG is used to identify companies that are managed sustainably and avoid those that could face regulatory scrutiny. However, ESG investing is often grouped together with socially responsible investing or sustainable investing &mdash; even though technically those refer to different strategies.</span></p> <p>&nbsp;</p> <p><strong>Ethical investing &mdash; </strong><span style="font-weight: 400;">Using your personal code of ethics to determine what to invest in. This differs from investor to investor. One person may think ethical investing involves divesting from companies that test on animals, while another person may not care about animal testing and instead focus on avoiding companies that benefit from child labor.</span></p> <p>&nbsp;</p> <p><strong>Impact investing &mdash;</strong><span style="font-weight: 400;"> According to the </span><a href="https://thegiin.org/impact-investing/need-to-know/#what-is-impact-investing"><span style="font-weight: 400;">Global Impact Investing Network</span></a><span style="font-weight: 400;">, impact investing refers to making investments &ldquo;with the intention to generate positive, measurable social and environmental impact alongside a financial return.&rdquo;</span></p> <p><span style="font-weight: 400;">Impact investing is a broad term, but in order to qualify as impact investing the investor should have the desire to create a positive, the ability to measure that impact, the evidence to inform that investment decision, and the goal of also generating returns in the end.</span></p> <p>&nbsp;</p> <p><strong>Socially responsible investing (SRI) &mdash;</strong><span style="font-weight: 400;"> Involves investing in something based on how that investment impacts the environment, society, or the greater good. The concept of SRI has been around for decades (at least) and is sometimes used interchangeably with ethical investing and sustainable investing.</span></p> <p>&nbsp;</p> <p><strong>Sustainable investing &mdash;</strong><span style="font-weight: 400;"> According to </span><a href="https://online.hbs.edu/blog/post/sustainable-investing"><span style="font-weight: 400;">Harvard Business School</span></a><span style="font-weight: 400;">, sustainable investing refers to &ldquo;a range of practices in which investors aim to achieve financial returns while promoting long-term environmental or social value&rdquo; &mdash; emphasis on </span><em><span style="font-weight: 400;">long-term</span></em><span style="font-weight: 400;">.</span></p> <p><span style="font-weight: 400;">Sustainable investing often is associated with investing in green energy or environmentally-friendly practices because the word &ldquo;sustainable&rdquo; is often used in that setting</span></p> <p>&nbsp;</p> <p><strong>Values-based investing &mdash;</strong><span style="font-weight: 400;"> Similar to ethical investing, values-based investing involves making investment decisions based on a person&rsquo;s own set of values. Sometimes those values reflect a person&rsquo;s morals or religion, and other times they reflect a more generalized set of beliefs. Regardless of what those beliefs are, a values-based approach depends on the individual investor.&nbsp;</span></p> <p>&nbsp;</p> <h4><strong>Which approach is best for you?</strong></h4> <p><span style="font-weight: 400;">After going through all of these terms, you may have noticed that there are a lot of similarities. Sometimes the differences between these approaches depend on the intention or end goal, other times it just comes down to semantics.</span></p> <p><span style="font-weight: 400;">Hopefully, next time you hear one of these terms get tossed around you&rsquo;ll have a better understanding of what it means. This understanding may help you make your own investing decisions going forward.</span></p> <p>&nbsp;</p> <p style="padding-left: 440px;"><strong>* * *</strong></p> <p><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </span><a href="http://finra.org"><span style="font-weight: 400;">FINRA</span></a><span style="font-weight: 400;"> </span><a href="https://www.sipc.org/"><span style="font-weight: 400;">SIPC</span></a><span style="font-weight: 400;">.</span></p>
ESG
Investing
ESG vs SRI: What Do All the Terms Mean?

There are a lot of terms used in the world of impact investing, what do they all mean?

Fennel
01 Nov, 2022
2 min read

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