501: Defining and Measuring Transparency | “The Switch” With ARK Invest

This season of “The Switch” is focused on how transparency can impact an organization’s success. ETF Trends’ CEO, Tom Lydon, is joined in this episode by Dr. Rainford Knight, CEO of Transparency Invest, to discuss transparency and how it is defined and measured.

The discussion opens with Dr. Knight defining transparency as a company’s willingness to be open and honest in communications with its stakeholders and shareholders. By practicing transparency, companies are more accountable, which in turn creates greater trust for the company itself.

Transparency Invest utilizes six KPIs of transparency when screening companies, Dr. Knight explains, which are transparency standards, terms, total accountability, cost, truth, and trust. By quantifying each of these, the firm is able to determine the overall transparency of a company.

Transparency standards can be varied for each company, depending on their priorities, but will reflect a willingness to go above and beyond just the baseline requirements within their industries. Dr. Knight gives the example of a company for which diversity is important having a diversity standard for itself.

“When you look at all of the research out there, when organizations are transparent, it leads to greater employee retention, greater employee happiness, greater customer retention, and greater profitability and brand loyalty in the marketplace,” Dr. Knight says.

For investors, a company with standards and practices that are benefiting both employees and customers is going to create both impact and performance.

“When we talk about impact, when you look at the Transparency Index, for example, based on our exclusionary method, we’re looking at over $2 trillion in economic impact versus the S&P,” Knight explains.

Transparency is the key driver for the companies that Transparency Invest will include within their index, regardless of how profitable a stock might be. For them, it is transparency itself and the benefits it brings that end up being the key drivers within the marketplace for a company, as well as the overall impact they have.

The approach is one that is akin to ESG in that the index excludes the same nine industries that ESG does, but while ESG is a part of the investment strategy, it isn’t the whole thing.

“ESG is a component of the Transparency Index in terms of construction, but in addition to that we also have impact, which are companies that are deploying technologies that are positively impacting the well-being of people as well as not harming the planet,” Dr. Knight says.

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