Adam Smith pinned the seed of modern capitalism. The world has seen a great advancement in technology and prosperity since. Though his theory is not the only reason for these results, it was the center of the wealth creation of nations today. And that seed has been nourished by many different economic theories and expansions; such as the Keynesian, Friedman, and most recently by behavioral economic theories. However, all these theories have valued growth by a single measure, money. Is it time to question the validity of this status quo?
ESG and impact investing need to be seen as a major part of the future’s economy and its principals. Because it will cover the ever-expanding threats that are about to hit the foundation of the world’s society and its self-destruction. One of the threats is income inequality.
The history of our planet has shown that nations fall and rise over time. There are many causes that initiates the fall of a nation. However, all of them have one thing in common and that is wealth inequality. Unequal access to resources could give unclear thinking and a muddled mind could give into violence easily, a hungry stomach could ignore healthy safety, and a child raised in poor conditions could lose self-respect. Not only it impacts the individuals, but it has also started to impact on a global scale.
It is hard to argue against the statement that income inequality between nations has gotten bigger in the last 50 years and it only looks to get worse. Due to globalization, income equality has no longer become a one nation problem, it is a collective problem that needs to be solved soon. Previously, income inequality was a problem to be solved between different classes of one nation. Now, there are drastic wealth differences between nations and it was not because of natural evolution. And this is the reason it could get even worse.
Some countries are becoming even poorer. In an ideal world, the advancing economy would help bring the struggling economy so that we can all grow. But Adam Smith’s theory didn’t consider the ailing effect of human’s dark side, pride, patriotism and hatred for one another just because of conflicts that involved someone who shares the same belief, race or even just opinion. The majority of us are still tribal in our core. And ESG and impact investing is the next step in developing the care for each other. As investors decide to select companies based on their impact on society, more entrepreneurs will come up with ideas to attract that capital. Hence, not only investors nourish the important values held by society, ESG and impact investing will indirectly tackle the increasing threat of wealth inequality.
How and what investors can measure to choose between investments in this ESG and impact investing market if not money? Humans have come up with ideas that allows us to fly and to visit other planets. If enough investors are interested, the solution will surely come through, though with many struggles. Or human society can struggle to decide which nation has the most wealth or which race and religion are better.
We have a choice today, to decide which path should we struggle on and hopefully win in the end.
