Imagine a government has passed a law where it has made it possible to charge any person with a crime as long as he/she speaks against the government. Even though this statement is a highly simplified version of the law, the impact this law will have on the freedom of the people is unmeasurable.
Many of the other nation’s leaders could speak out against this reach of power, it is highly unlikely that that government will heed their opinions and requests. No matter how much political power, diplomatic “Kung fu” or criticisms from other countries it gets, that government will not bend to those forces as it could show a sign of weakness. However, impact investing (i.e ESG) could have an influence over their decisions as it is not the decision of one but many.
Large institutional investors can choose not to invest their capital in ETF’s or mutual funds that target companies that operate in that government’s country. This is the most peaceful yet powerful influence investors have in their power. Obviously, investors will have a wide variety of opinions on this subject, however, the impact of the popular opinion will be heard by these fund managers. If the popular opinion is not to invest in that country, this could trigger a domino effect in the financial institutions of that country. Imagine a $3 billion dollar fund started selling equity and bonds in that countries market. The political leaders that have large investments in those markets could think twice about certain laws. Now imagine a $100 billion dollar leaving that country in a matter of weeks.
Impacting investing is more than just investing in companies that support the sustainability of our ecology, but it could have a strong influence on social balance and freedom. It is a new yet powerful tool modern democracy has brought in our toolbox.
