The ESG Initiative at the Wharton School
Turner ESG Student Blogs
Approaching Impact Investing in the TMT Vertical
Turner ESG Fellows Sapphira Ching (W’24) and Sofea Shaifuddin (W’25) explore impact investing in the technology, media, and telecommunications (TMT) vertical with insights from Greg Hershman, the Head of US Policy at the UN Principles for Responsible Investment.
Impact investing has been a very popular topic in the news as of late, with ESG factors in business becoming more and more mainstream. As impact investing’s spotlight grows, it is important to understand our current state in impact investing, how companies can best approach impact investing, and what the important next steps are to ensure the success of ESG finance. In this article, we specifically focus on how impact investors can take a further look at companies in the technology, media, and telecommunications (TMT) vertical, as well as address how impact investors can avoid climate hypocrisy risk (CHR). CHR is a form of risk branched from the concept of greenwashing, in which companies put up a façade of taking climate into account while actively engaging in or covering up non-ESG-compliant behavior behind the scenes.
From a conversation with Greg Hershman, the Head of US Policy at the UN Principles for Responsible Investment, we learned more about the importance of transparency and disclosures for impact investing. Hershman noted that having “disclosure is core of what investors are using”. With regards to impact investing, Hershman also pointed out that the “basis is transparency”. As disclosure is of paramount importance for determining which investments can actually be considered impactful, it is essential for firms to be transparent about how they are approaching impact in the first place. This highlights the importance of data in impact investing, as data is necessary for quantifying impact.
Turner ESG Fellows
Turner ESG Fellows are a group of 20-25 undergraduates across Penn who participate in a year-long program of speaker sessions, networking opportunities, and professional development across many ESG topics. Alongside their peers, they develop a working knowledge of real-world ESG topics and benefit from mentorship and community-building.
The overarching importance of transparency also plays a role in reducing CHR. In terms of avoiding CHR, Hershman suggested that besides explaining their ESG goals, investors can also discuss the processes they are implementing to reach these goals in actuality. Hershman also spoke about some trends within the impact investing space, which has shifted from the phase where investors and corporations realized ESG factors were important to the phase where investors and corporations are now putting forth a net zero target for themselves. The key to understanding whether their approaches may actually result in reaching net zero by the firms’ proposed dates – rather than just demonstrating that they are trying to jump on the ESG trend without taking action – is to break down these approaches into different parts and thoroughly understand each of these parts. There is also an open question about the credibility of credit offsets in the impact investing space, so we must pay attention to these in the near future to see if these credit offsets will actually constitute a meaningful impact.
We then discussed which impact factors played a role specifically in the TMT vertical. Hershman noted that privacy is in itself a governance risk for TMT areas such as cybersecurity. We must take a look at supply chain concerns, particularly when it comes to firms in the technology industry. Additionally, Hershman pointed out that media and telecommunications have concerns regarding fake news, privacy, and their support of democratic institutions. Given the ethical concerns within TMT, disclosure can help bring some of these concerns to light. Digging deeper into the various aspects of ESG, Hershman also noted how social and governance issues, such as the relationship between youth mental health and social media, as well as privacy, are tougher to address than supply chain issues. This is because supply chain issues can be more easily quantified.
It is, therefore, essential for impact investors to understand how to quantify the impact of a corporation they are thinking about investing in. According to Vaibhav Gowda, the Impact Program Associate at the ESG Initiative of The Wharton School, three key aspects are important in measuring the impact of any company: breadth, depth, and durability.
Breadth refers to the number of people in the population that are broadly affected by the company’s operations. Example metrics include the number of customers who are female, forcibly displaced, or historically marginalized. This can help provide a way for impact investors who are considering a corporation to understand elements of its stakeholder impact, which is of paramount importance when evaluating a potential investment into a corporation from an ESG perspective. One can also use the breadth aspect to understand whether a company is actually doing as it says and to see the degree to which the company is positively impacting stakeholders, especially if it is branding itself as being community stakeholder-oriented. Within the TMT vertical, understanding the breadth could include researching whether a corporation’s manufacturing facilities are displacing historically marginalized communities or if they have helped communities instead.
Depth refers to how much of an impact the company has created on the population group. In the TMT space, an impact investor could measure the extent to which a company’s technology platforms or services have increased the digital literacy of its users. Several relevant metrics include the percentage of users who reported feeling more comfortable using digital tools and services. Additionally, investors interested in environmental sustainability should track a company’s long-term commitment to reducing carbon emissions to ensure that the company’s stated values align with its actions and that they are not committing CHR. By assessing the depth of a company’s impact, investors can gain a more nuanced understanding of the company’s overall environmental and social value.
Durability, on the other hand, refers to how long the impact the company has created could last. A key impact metric that measures durability includes the longevity of the benefits provided by the company’s products or services to society. It also relates to whether the company’s effects are sustainable in the long run and can actually have a positive influence with regards to ESG factors. This is important when it comes to CHR. For instance, let’s say that a company has marketed itself as working towards certain goals to help mitigate climate change; however, in reality, its progress does not seem to be on track to reach these goals by a certain date but it is actively concealing this information in its marketing. This company is subject to CHR and would not make an effective impact investment.
Through our discussions with these experts, we have gained valuable insights into the key ESG factors that drive effective impact investing. As we embark on our careers in business, we look forward to being able to apply these learnings and contribute to a more sustainable and socially responsible world. We also hope that the aforementioned pointers will help impact investors ensure that their investments not only yield financial returns but also have a meaningful positive impact on society and the environment.
By Sapphira Ching and Sofea Shaifuddin
Views and opinions expressed here are those of the author and do not necessarily reflect the official position of the ESG Initiative at the Wharton School or the Wharton School.
Sapphira Ching is a junior studying Finance and Entrepreneurship at The Wharton School of the University of Pennsylvania. She is the founder/president of Penn Innovation Network and the Dell Women’s Entrepreneur Network@Penn, as well as the president/lead of the Google Developer Student Club@Penn. Through these student organizations, Sapphira is a student ambassador for Siemens and Bose; a campus liaison for Paramount, Y Combinator, Hewlett Packard Enterprise, and Pinterest; and the youngest Next Gen Leader for the Dell Women’s Entrepreneur Network by Dell Technologies.
Sapphira worked at the Manhattan HQs of both Soros Fund Management and MSCI (formerly Morgan Stanley Capital International). She won 1st place at the Morgan Stanley Future Asset Managers Simulation in 2021. She is also a Division I Student-Athlete on the University of Pennsylvania’s Women’s Fencing Team, a member of UPenn’s Ivy League Championship team, an Olympic qualifiers athlete, and a USA Fencing 3-weapons referee. She is a returning 3rd-year resident advisor at Gutmann College House.
Sapphira has been featured/quoted by Wharton Stories, Penn Today, Business Insider, Yahoo Finance, Alpha Sights, Merrill Edge, and The Daily Pennsylvanian. She has previously given presentations for Google and Siemens. In her spare time, Sapphira enjoys watching Formula 1 and exploring new restaurants with friends.
Sofea Shaifuddin is a sophomore at The Wharton School of the University of Pennsylvania, majoring in Finance and Business Analytics and minoring in Sociology at the College of Arts and Science. Sofea is passionate about the transformative potential of impact investing and connecting with early-stage startup founders. As an Investment Associate at the Wharton Impact Venture Associates program, she is gaining hands-on experience in the field and is excited to be interning with Khazanah Nasional Berhad, Malaysia’s sovereign wealth fund, under the impact investment team summer 2023.
In addition to her academic pursuits, Sofea is actively involved in pro-bono consulting through Wharton’s Social Impact Consulting Club and is a committee member of the Wharton Women and Wharton Asia Exchange Club. She has led a number of non-profit initiatives in her home country, Malaysia, including Projek Murni, Basic Aid for Your Scholarship Essentials (BASE) Initiative, and Project BAWE, all of which center on empowering young people to pursue their goals and connect with successful role models. In her free time, Sofea loves exploring new places, writing postcards to friends around the world, reading, running, and baking.
The support and vision of impact investor Bobby Turner, W’84, catalyzed the launch of the Turner Environment, Social and Governance (ESG) Fellows.
As a longtime supporter of social impact activities at Wharton, Turner – CEO of Turner Impact Capital – is an example of, as Joseph Wharton said, harnessing the power of business to “solve the social problems incident to our civilization.” He also helps inform the ongoing priorities and future direction of the Wharton School as a member of the board of overseers. The ESG Initiative is very grateful to Lauren Golub Turner, W’85, and Bobby Turner, W’84 for their support.