In between profiteering and starry-eyed do-gooding is a place where values can incur value. This is the place of Human Impact + Profit (HIP), a methodology created by R. Paul Herman that aims to help investors and businesses make money while solving key human needs. Companies that deliver human impact and profit can gain a magic combination of higher revenue, lower costs, optimal taxes and higher investment demand.
I invited Paul to Cause Capitalism to talk about how investors can use the HIP methodology to guide their investment decisions, as well as how entrepreneurs can apply it to create businesses that seek to deliver human impact and profit for shareholders.
Click the player to listen to my conversation with Paul or right-click and save for the MP3.
Paul’s new book, The HIP Investor: Make Bigger Profits by Building a Better World, shares how to perform a quantitative assessment of your company’s HIP potential, analyzes the products, metrics and decision-making practices of the most and least HIP companies in the S&P 500 and provides questions and tools to help you build a solid HIP portfolio across all asset types.
The HIP methodology uses 30 indicators to gauge a company’s output in the categories of health, wealth, earth, equality and trust (inspired by Maslow’s hierarchy of needs) and to measure how each can drive financial value. This approach prioritizes measurable results over policies and philosophies.
In the beginning of the interview I confessed to Paul that I thought socially responsible investing (SRI) did outperform traditional investing. The short answer is that SRI tends to lag behind traditional investing in up markets but can provide better cushion in down markets. Paul explained why this is:
“The SRI approach focuses on negative screening, which means that companies that are perceived as negative or have products with perceived negative impact are kicked out of your investment universe. This increases the risk of your portfolio and has tended to depress the return. The second thing that happens with socially responsible investing is that those who do it focus on policy evaluations and operating practices. But these factors don’t actually correlate with better financial performance. [The HIP methodology] focuses on quantifiable results–what are the true outcomes in the categories of health, wealth, earth, equality and trust? And how do these outcomes drive financial value? When you do this, you find that sustainability factors, the metrics of results, actually can drive financial performance in a way that can beat traditional investment.”
About R. Paul Herman
Paul created the HIP methodology and founded HIP Investor Inc., an investment advisor, to help investors realize higher Human Impact + Profit. He advises investors and manages portfolios (including the HIP 100 Index) using the HIP Scorecard featured in Fast Company magazine and in The HIP Investor book (John Wiley & Sons 2010).
Paul was part of the team that designed the sustainability scorecard for Walmart, which is now part of the Sustainability Consortium. He has worked with social enterprises Ashoka and Omidyar Network, and consulted with McKinsey & Co. He is a member of Investors’ Circle and an advisor to Net Impact. Paul earned a degree from the Wharton School. Paul has been quoted in the Wall Street Journal, Fortune, Forbes, BusinessWeek, and on CNN and CNBC. Grameen Bank founder Muhammad Yunus called the HIP Scorecard “a new yardstick for business” in his book, Creating a World without Poverty: Social Business and the Future of Capitalism.