Wu Bofan: Social Value Investment Is Real Smart Investment

Why innovation must be open? Why investment must be a social value investment, must put people first, and must balance the interests of different parties? If we make some self-styled smart investment and developed some technologies, it is foolish indeed. 

Editor’s note: 

On the morning of 17 November 2013, Wu Bofan, director of YouChange Board and spokesman of the organizing committee of The Impact Fund delivered a keynote speech on social innovation and social value investment during the 15th Hi-tech Fair. 

Mr. Wu stressed that we can judge an innovation, an initiative, a project or a service is smart only from the perspective of social value. For the first time, YouChange, The Climate Group and Green China Lab proposed the social innovation solution in the investment field and, on this basis, jointly launch The Impact Fund. The fund is committed to encourage visionary investors in the capital market to adopt the perspective of strategic philanthropy and discover investment opportunities with long-term social value. The fund will invest in firms who provide products and services to address needs and challenges in sustainable social development during China’s transition. 

The Impact Fund is the first social-value-oriented equity investment fund in China. It plans to raise 500 million RMB yuan in the first round. In making investment, it will give primary attention to the most urgent needs and greatest challenges in China, such as the environment, food safety, healthcare, the aging population, as well as cultural, education, and creative industries.

The following is Mr. Wu’s speech (excerpts with the speaker’s approval)

What is real smart investment?

Just now, a speaker mentioned that sound waves caused by wind energy are harmful to human health. We just know a small part of it. Experts told me that as China’s eastern region is lower than its western region, if a large number of wind power facilities are installed at corridor areas in the west, it will be very difficult for moisture to move from China’s coastal region to its northwest and China’s northwest will consequently become drier. We may get more energy and another ecological disaster. In fact, it has already occurred. For example, eagles are helpful for the balance of the ecological system. However, eagles are fearful of landing and they even left some places where forests of wind mills are erected. As a result, the number of mice and rabbits increased significantly, which has made the fragile ecological system even worse. 

The environment has three parts. The first is the atmosphere. This has caught much attention due to global warming, but it is just part of the environment. The second is soil and water conservation; and the third is bio-diversity. Soil and water conservation is very important to the atmosphere and the climate. For example, we may describe hydropower stations as environment friendly because the energy they generate is clean and renewable. However, they have harmful impact on soil and water conservation as well as bio-diversity. Take the Three Gorges dam for example. People in the next century may consider it as the most foolish project in the Chinese history as it may cause unpredictable disasters. We may be smart on the surface or in some areas, but foolish in general. In late 1950, China launched a campaign to eradicate “four pests”—flies, mosquitoes, rats and sparrows. In that campaign, people throughout the country hunted for sparrows. It looked absurd today, but smart at that time. We thought grain production would increase with sparrows eliminated, but we were unaware that pests and disasters would come when sparrows were gone. 

Let me give you another example. In Inner Mongolia, legend has it that wolves are the guardian of grasslands. During the Cultural Revolution in 1970s, some young students from Beijing and soldiers considered wolves as the curse of grasslands as these beasts ate sheep, horses and even human beings. They mobilized everyone—herdsmen, soldiers and students to hunt wolves down. Even military helicopters were used. Wolves disappeared very quickly. Those Beijing students went to wolf dens and killed all the cubs. The grasslands were without wolves and they believed consequently China would be without disasters. However, grasslands were hit by disasters one after another. Those students and soldiers could not help but recall what elderly people said, “Wolves are the guardian of grasslands; if you kill them, you will be cursed.” In the following year, rabbits overran grasslands to eat grasses. The grasslands were dotted with rabbit hutches which sprained horse ankles and made them useless. The worst things are marmots which used a lot of grasses to warm up their tunnel homes, comfortable places for mosquitoes in winter as well. As a result, with more marmots, mosquitoes multiplied exponentially and blanketed horses in the following year. Many horses died of mosquitoes. Those students and soldiers came to realize that they had done a very foolish thing. 

Why investment must have social value, put people first and strike a balance between different interests? If we fancy some smart investment and technological development, we are foolish indeed.

Recently, I was invited by Mercedes-Benz to attend its auto show in Frankfurt and shocked to learn its cutting-edge technology—S500 “Intelligent Drive” car. Its CEO arrived at the podium in a self-driving car and he himself sat at the back seat. In his speech, he spent much time on “smart”. S500 is an electrical car, very fashionable. It is not just a new product, but also a new business model.

Why? Daimler AG will build a lot of parking lots, or base stations in another sense. Cars are connected with the Internet. Once a car is parked in any base station, we can find it through a car-borne mobile phone. If you are a Daimler AG member, you can swipe your membership card and drive the car away. The car belongs to you in this moment. For example, you will be punished if this car breaks traffic rules. Then, you arrive at your destination, park the car in a parking lot there and swipe your membership card again, indicating your have used this car. Other members will detect there is a vacant car in this parking lot for their use. Base stations are also about battery charging, so all the cars’ batteries are full when you begin to drive it. Parking lots are not big as cars parked there will be driven away soon. Once a car becomes vacant, it will be detected by SNS or App on your mobile phone and driven away in a moment. This system is also very conducive to car pooling. 

If scores of such base stations are built in a city, very few cars will stay idle and parking lots will be used very efficiently in most time. This model has been introduced to 39 cities in Germany. I have found that we may follow different criteria in driving a car from owning a car. Personally, I don’t like a small car like SMART, and prefer a bigger one such as S series. But, I may need a SMART car in case of emergency. SMART cars can even build a virtual village or a social network. A group of people may become an interesting community and do many things, such as e-commerce and even finance. Anyway, it is an interesting and new. 

I was very excited about my experience in Germany and made a TV program. After this program was broadcast, I received a telephone call from my friend and was told that this was nothing new. Geely was promoting such a project in Hangzhou. Not long ago, when I met Mr. Li Shufu, Geely boss, I expressed my admiration for this project. Mr. Li felt embarrassed and told me that it was very difficult to push this project forward as the government didn’t support it. For this project to proceed, a number of base stations must be built and the land for these base stations need be allocated by governments. These base stations will reduce traffic, increase the use of individual cars, cut emission, including PM2.5. What is the downside? Car sales will decrease, governments will get less taxation, and oil companies can’t make profits. As a result, a project that can benefit the environment, the public and the city can’t move forward due to unwillingness of governments and some interest groups.

Therefore, we can judge an innovation, an initiative, a project and a service is real smart only from the perspective of social value. An innovation is a real good one only when it puts people first, stays committed to opening-up, has in-depth dialogues with stakeholders, and brings long-term benefits to the environment, the public and the business. The Impact Fund will invest in such innovations. 

I work in the media. I am also a practitioner in philanthropy as I am a director of YouChange Board. I am also an independent director or advisor of some companies. I understand that only when all three major stakeholders—the government, the business and the NGO work together for innovation can this innovation create value. Innovation driven by a single stakeholder may turn out to be foolish. For us, we must distinguish between innovation, creativity and invention. For a one-dollar creativity, it will take 100 dollars to make it into an invention and 10,000 dollars into an innovation that is commercially viable and can create commercial, social, and environmental value. 

Sometimes, we take some useless creativity and invention as innovation. To change the world, we need integrated innovation. Steve Jobs is not a technology man. Apple’s R&D is less than 3% of its sales while Nokia is 12%. But, what has happened? Multi-touch technology doesn’t belong to Apple. However, Apple can integrate the needs of various stakeholders, particularly that of consumers, and offer the best experience design which can benefit everyone. With this design, it can integrate different technologies and come up with the most innovative and competitive products.

Innovation is never just about technology. In the eyes of 3M, many innovations come from technological failure. Post-it® notes are one example. A 3M engineer invented an adhesive, but the adhesive’s grip was not strong enough, so it was consigned to a shelf indefinitely. One day, another 3M staff was frustrated by the fact that, when he stood and opened his hymnal to sing, the paper bookmarks that he used in his hymnal to mark the songs on the program would slip out of sight or even onto the floor. He wondered whether there was a bookmark that provides such temporary anchoring. He checked the records and found this adhesive—a technological failure. This is the story of Post-it® notes, a product which has created a one-billion-dollar market. So technology is not everything.

Innovation is about coordination, dialogue and opening-up among stakeholders. An innovation that can create economic, social and environmental value is a real smart one.