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kbog comments on Impact Investing - A Viable Option for EAs? - Effective Altruism Forum

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Comment author: kbog  (EA Profile) 11 July 2018 12:32:16PM *  4 points [-]

If capital markets are efficient and most people aren't impact investors, then there is no benefit to impact investing, as the coal company can get capital from someone else for the market rate as soon as you back out, and the solar company will lose most of its investors unless it offers a competitive rate of return. At the same time, there is no cost to impact investing.

In reality I think things are not always like this, but not only does inefficiency imply that impact investing has an impact, it also implies that you will get a lower financial return.

For most of us, our cause priorities are not directly addressed by publicly traded companies, so I think impact investing falls below the utility/returns frontier set by donations and investments. You can pick a combination of greedy investments and straight donations that is Pareto superior to an impact investment. If renewable energy for instance is one of your top cause priorities, then perhaps it is a different story.

Comment author: Jamie_Harris 12 July 2018 07:51:06AM 2 points [-]

This point about the cause is very important, since cause areas can have orders of magnitude difference in their impact.

However, at times, it may be possible to invest in companies in high priority cause areas. See OPP's investment into Impossible Foods here

I've written about this topic elsewhere, to explore whether it would be worth EA Funds or another EA group setting up opportunities for smaller donors/investors to get involved in impact investing. I was focusing on clean meat and plant-based meat to reduce animal suffering, but briefly consider other cause areas in the piece. TLDR: there probably aren't good opportunities for doing this at the moment, but if the landscape changes and some areas become more funding constrained, then it could be a really useful intervention.

Comment author: Halstead 11 July 2018 01:28:23PM *  1 point [-]

If the solar company is offering below market returns, then an impact investment is equivalent to a grant to that company. This opens up some space for impact investing to have counterfactual impact, provided the investment opportunity stands a decent chance of success.

Comment author: Naryan 11 July 2018 06:54:09PM 0 points [-]

I agree that markets are inefficient, but believe that the inefficiency results in opportunities that are both worse than average and better than average. Since I suspect most investors under-value the social impact, this would result in impact investments that are more attractive than average to someone who does value the impact as well as the return.

Generally when was looking to invest, I looked for options that I expected to outperform market average at a set risk level, and I didn't assess social utility in that calculation (assuming I could donate the return more effectively, as you suggest). I'm not sure if this logically follows, but if my choice is between effective charity and impact investment, generally an effective charity would do more good. But if I'm considering my retirement fund, I believe the right impact investment could be better than a comparable equity investment - I just need to remember to include the social utility in my valuation.

Comment author: kbog  (EA Profile) 12 July 2018 03:04:22AM *  0 points [-]

Unless you assign relatively high priority to the cause that is addressed by the company, I think it's appropriate to suppose that other impact investors are over-valuing the social impact. Also, since other impact investors don't think about counterfactuals, they are likely to greatly overestimate the social impact. They may think that when they invest $1000 in a different company, they are actually making that company $1000 richer on balance... when in reality it is only $100 or $10 or $1 richer in the long run, due to market efficiency. I don't think markets are generally inefficient, just a bit, sometimes, it really depends on how you define it.