Impact Investing: Corporate Virtue is Often in the Eye of the Beholder

In recent years, a new generation of investors wants to put their money to work with purpose by ensuring that their investments reflect their social and environmental concerns. Society’s attitudes towards sustainability are changing, and more dollars are moving towards investments that support the energy transition, improve social well-being, and create more resilient economies. Environmental, social and governance (ESG) criteria evaluate companies’ environmental practices; social interactions with employees, suppliers, customers and local communities; and governance practices such as leadership, executive pay and shareholder rights. Mutual funds, early-stage venture firms, and robo-advisors alike are all jumping on the wave of socially responsible investing, and we believe the momentum is here to stay since the shift is largely driven by investors themselves.

This is our first article in a series about impact investing. If you are an investor who cares about the societal or environmental impact of your investments in addition to the financial return, it is important to keep in mind that many issues are subjective and impact is hard to measure precisely. Social and corporate virtue is often in the eye of the beholder and looking at investments through an impact lens can simultaneously promote a lot of good, while also resulting in trade-offs, contradictions and inconvenient truths.

Take the biotechnology firm Moderna, for example. Both values-conscious and purely financially motivated investors cannot deny the critical role that Moderna has played in combatting the COVID-19 pandemic globally:

  • Moderna’s breakthrough COVID-19 vaccine, developed in record time, has helped to protect roughly 1 billion people around the world from coronavirus disease. The novel mRNA vaccine appears to be the world’s best defense against severe COVID-19, proving to be remarkably safe and effective, and it was developed with remarkable speed due to the fact that the company had spent a decade building its mRNA platform before the pandemic outbreak.

 

  • Moderna is investing in global capacity to serve underdeveloped parts of the world that have lower vaccination rates than wealthier countries. The company has significantly expanded their manufacturing capacity to provide up to an additional 1 billion doses of their vaccine for low- and middle- income countries in 2022. According to Moderna’s 2021 Annual Report, they intend to build a state-of-the-art mRNA facility in Africa with the goal of producing up to 500 million doses of vaccines each year.

 

  • Moderna is uniquely positioned as a world leader in mRNA technology. Transforming the drug development process has the potential to revolutionize the healthcare industry and health outcomes. To quote Stephane Bancel, Moderna CEO, “This is just the beginning.” Their platform aims to address the “big four” killers—autoimmune disease, cardiovascular disease, cancer and infectious disease. They are developing treatments for diseases that are untreatable with existing technologies and improving disease management where treatments already exist.  

 

  • Looking further ahead, Moderna continues to invest in research and development. In early March, they announced a commitment to expand their global public health portfolio to 15 vaccine programs, targeting pathogens that threaten global health, including HIV, tuberculosis, malaria and neglected tropical diseases.

Moderna’s relative impacts on human well-being are seemingly clear—what could be of greater societal value than striving to preserve human life?

While there’s no doubt that Moderna and other vaccine developers such as Pfizer have been transformative for global health, no business is perfect and Moderna, too, has its controversial elements. The company has been in the spotlight for the last two years, with no shortage of criticism from global health and social justice groups related to corporate irresponsibility and profiteering in a time of crisis:  

  • While Moderna was a relatively small company before the pandemic, their 2021 financial results confirmed that their vaccine is one of the most lucrative medicines of all time, with the company bringing in $18.5 billion in revenue in a single year. They brought in over $12 billion in pre-tax profits—or $33 million a day throughout 2021—equating to a profit margin of nearly 70%.

 

  • Moderna sold its vaccines almost exclusively to wealthy governments, while there were still severe vaccine shortages in many of parts of the world. As of October 2021, the New York Times reported that the company had shipped a much lower share of doses to low-income countries than any other vaccine manufacturer. The company’s announcements about aiming to provide 1 billion doses to lower-income nations in 2022 and opening a factory in Africa came after executives were sent questions by the New York Times about the low share of Moderna doses sent to the developing world.

 

  • While Moderna opted not to enforce the patent on its COVID-19 vaccine, they did not freely or actively share their mRNA vaccine technology or data with the World Health Organization’s vaccine technology transfer hub or other overseas manufacturers to help boost global production.

While supporters can argue that the company is working to expand global vaccine access and point out that innovation is and should continue to be profit-driven to incentivize growth, critics believe Moderna should be doing more and profiting less.

Weighing the contradictions of social issues, particularly as it relates to investing, requires some flexibility and moral judgment. Even companies that make products or provide services that have extremely positive net impact can be debated. In one of our next pieces, we will dig into this complexity more as we talk about the inconsistencies among ESG ratings providers, given there’s no single, accepted methodology for calculating an ESG rating.

Sustainability and impact investing is not black and white. This area is nuanced and multi-dimensional, so it is even more important to ask the hard questions and think critically, considering the facts in light of your goals. What is your definition of corporate responsibility and creating a better world? The clearer you are about your values and the more you know about a potential investment, the better positioned you are to feel good about your portfolio’s impact on the world.

Article by Justine DeCoste, Director, Investment Research, Crestone Capital.

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