July 31, 2015
05.06.2011 - 01:30PM
Review by CSRwire Contributing Writer Elaine Cohen
By R. Paul Herman
Published by John Wiley and Sons Ltd ISBN: 978-0-470-57521-3
In The HIP Investor: Make Bigger Profits by Building a Better World, R. Paul Herman - creator of the HIP methodology and a leading investment manager - introduces a systematic approach for investors that is designed for more attractive profits and positive human, social, and environmental impact. Based on comprehensive research of the S&P 500, HIP assesses and values measurable results over well-intentioned policies and philosophies, and shows how higher-performing companies can deliver both human impact and profit for shareholders. This HIP approach is shown to outperform the financial returns of the S&P benchmark in both up and down markets.
Written for investors of all types and their financial advisors, this detailed guide will help you construct a portfolio of firms that are boosting their bottom line by meeting five core human needs. Leading firms benefit customers, engage employees, and deliver sustainable, profitable growth for their investors through innovative products, measures, and decision making. Each chapter reveals a fundamentally strong analytical approach enriched with real-world case studies that show you how your portfolio can capture substantial financial returns and generate positive impact while also mitigating risks.
Whether you are an investor or not, The HIP Investor will teach you a lot about how businesses can make profit while having a positive impact on society and environment. The Hip Investor is not a theoretical discussion. It's a highly practical, well-researched, coherent encyclopedic guide, full of examples of how businesses have leveraged their capabilities to create better business and a better world. The proof is that the HIP (human impact and profit) investment portfolio outperforms multiple benchmarks , for example, the HIP 100 has done 4 percent better than the S&P 100 every year between mid-2004 and 2009.
The HIP methodology was masterminded in 2004 by R. Paul Herman, after he gained a finance degree at Wharton and worked at McKinsey & Co. on incentive regulation in the energy sector and advised Fortune 500 corporate clients on investments. The HIP method identifies five core dimensions of the way companies drive financial, social and environmental value through innovating new products that improve the quality of life, operating with higher environmental efficiency and effectively managing their social impacts. An analysis of the extent to which a company embraces the concepts and practices in these five dimensions can produce a HIP Scorecard with over 20 indicators whose value indicate positive results for society, thereby providing a useful tool for investors, because, "typically, the better the human impact performance, the bigger the profits". The HIP methodology overlap to a large degree with other leading rankings of corporate responsibility or sustainability practices, though it also offers a fresh way of looking at companies and their impacts, providing specific quantifiable metrics in each of the five HIP dimensions.
The five core dimensions of the HIP methodology are:
The HIP investor builds an investment portfolio using data collated and analyzed in these five categories to produce an overall performance scorecard, showing how HIP a company is, and how the company's HIPness stacks up against other companies in the same sector or in general.
The author has not been content to simply explain the methodology. The HIP Investor is one of the most extensive and detailed catalogs of corporate sustainability-related practices as I have read in the past few years. Examples abound from almost every company you can think of, from the leaders to the laggards, culminating in a persuasive argument which substantiates the need for a HIP mindset, HIP practices, HIP analysis and HIP investing. Additionally, the author presents a set of sector "face- offs" comparing the HIP scores of giants such as PepsiCo / Coca Cola, Procter and Gamble / Colgate-Palmolive, Dow / DuPont, Raytheon / Lockheed Martin, Verizon / Sprint, J.P. Morgan Chase / Bank of America, McDonald's / Starbucks, Microsoft / Apple, Walmart / Target and Chevron / ExxonMobil, which have also been published on Fastcompany.com.
In the final sections of the book, the author teaches potential investors how to build a HIP investment portfolio, maintaining that the HIP approach leads to more appropriate valuations than sector-weighted approaches as adopted by S&P 500 and others and providing insight on a wide range of investment options. Finally, R. Paul Herman ends up with his optimistic view that a HIP world is possible and that investors have the power to create it and reap the rewards, both in financial and non-financial terms. A HIP world is one where corporations compete in areas which add positive social and environmental impact. With $175 trillion in global financial assets available to investors, Herman maintains that there is certainly a sufficient supply of capital to make a HIP difference.
R. Paul Herman makes a convincing argument for HIP. Understanding companies from a perspective of the three core HIP investor questions (How HIP are the company's products? How is the company measuring its human, social and environmental impact? How do existing management practices reflect a HIP approach?) presents a novel way of evaluating companies' long-term sustainability and predicting their long-term financial performance. Using the 5 core HIP scorecard factors to assess companies provides a tangible framework for investment decision making. Even if you are not an investor, you are probably a customer, an employee, a supplier or even a community member and the HIP approach can help you decide whether to engage with a company in one way or another. I guess that to write a book about HIP investment, you have to be pretty HIP yourself, so I find myself compelled to round of this review with three cheers - HIP HIP Hurray - for the highly HIP R. Paul Herman and The HIP Investor.
About Elaine Cohen
Elaine Cohen is a Sustainability Consultant and Reporter at Beyond Business and blogger on sustainability reporting and author of: CSR for HR: A necessary business partnership to advance responsible business practices.
This commentary is written by a valued member of the CSRwire contributing writers' community and expresses this author's views alone.
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