VWV Volumes #25: Analyst-in-Training Fuka Ikeda on Ethical Capitalism and what that means for Venture Capital ⚖️
Balancing ethics and profitability - Ethical Capitalism and VC
AI personal assistants can draft emails for us in a blink of a second. Stores track every step with countless sensors and monitors, making employee-less stores possible. These examples are two profound ways to show how our lives have become very closely linked with technology. However, this ever-changing advancement of these devices and services has sparked numerous conversations about the impact of technology on our day-to-day lives.
One danger many have identified as especially pertinent is the role of big tech companies and the effects of their products on our mental and physical health and social structures. Examples of this are illustrated in the 2020 Netflix documentary "The Social Dilemma," showing how companies use algorithms to maximize profit in exchange for the addiction of users or how its services can be used to manipulate perspectives and opinions. In conclusion, light has been shed on the need to reevaluate what is considered "good" for society.
Despite the controversies surrounding technology and its impact on society, the truth is that these technological advancements are often very profitable. One recent example is Microsoft's investment of $10 billion in OpenAI, which values the company at $29 billion. This presents a significant dilemma for investors, as they must find a way to balance their desire for profitability with ethical concerns. So as we begin to see the profound effects of these "controversial" technologies, it becomes increasingly important for investors to engage in socially responsible investing, focusing on companies making a positive social impact. This, in the long term, has the potential to lead to a state of ethical capitalism, a term suggested by German philosopher Markus Gabriel focusing on this very balance of profitability with sociality.
Socially responsible investing is a forward-thinking investment strategy that prioritizes companies that positively impact society and the environment. This approach to investing is aligned with the principles of ESG (environmental, social, and governance) investing, where investors evaluate a company's performance on these criteria to determine its long-term sustainability and impact. Companies that engage in practices deemed harmful to society, such as weapons production or the sale of addictive substances, are typically excluded from consideration for investment.
It's important to note that socially responsible investing is not simply a matter of making a charitable donation. Investors who engage in this strategy still carefully consider the financial performance of the companies they invest in. In fact, research shows that companies with strong sustainability practices are more likely to perform well financially. A review study conducted by Arabesque Partners found that companies that prioritized sustainability had an 80% positive influence on investment performance, making this an attractive sector for responsible investors. Venture capital firms play a critical role in determining which companies receive funding, and thus have the potential to scale and impact society in a significant way. By prioritizing socially responsible investing, VC firms can influence the trajectory of these companies and ensure that they are creating positive outcomes for society.
Creating a society where ethics is the most profitable is complex. Our society is still under the effects of mass production and mass consumption, where companies profit from 'humans' as the product. But what if VCs engage more with socially responsible investing and encourage money flow into ethical companies? This has already been seen with some mission-based firms such as Obvious Ventures, with its three pillars in sustainable systems, healthy living, and empowering individuals/small businesses, or Vital Capital Fund, a Switzerland-based private equity firm focusing on food, healthcare, sustainable infrastructure, and water challenges. If these types of firms increase in size and capital, ethical capitalism may not be merely an ideal, but will become more than just a theory.
It is crucial to remember that ethical capitalism requires a fundamental shift in how we approach investment and business, putting ethics and societal impact at the forefront of decision-making processes. By doing so, we can work towards creating a more sustainable and equitable world for future generations. 🕊️
About the author:
Fuka Ikeda is a freshman from Japan concentrating in Computer Science. She is passionate about using design to create innovative solutions while considering ethical implications. You can find Fuka going on photo walks with her camera, taking long naps, or swinging around on the static trapeze as part of Brown Aerial Acrobatics!🎪
The Social Dilemma, Netflix Documentary https://www.thesocialdilemma.com/
Techcrunch, Entrepreneurship and Investing as Social Good: https://techcrunch.com/2020/09/24/entrepreneurship-and-investing-as-social-good/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAIKjbWrbtlWZ_4rPkVb4tbwzoDNZVKskd9de-kl2o_9lSPPyZPkKAGZCxa2lRiUYhbnOOAxi_YPMtzHUmvSzUMT4yiiETIWZ5LA0xYyAJmHSakeeHu0Z6WdbRUAiXkmeXSTa0pxW6tQIYV-Ebciju-tn_Sb8mZg27AZxrIv1szxw
Daniel Halliday and John Thrasher, The Ethics of Capitalism: An Introduction https://ndpr.nd.edu/reviews/the-ethics-of-capitalism-an-introduction/
Nerd Wallet, What Is Ethical Investing and How Do You Do It?https://www.nerdwallet.com/article/investing/ethical-investing#:~:text=Ethical%20investing%20is%20a%20strategy,more%20ethical%20investments%20than%20ever