Prominent figures like Greta Thunberg and David Attenborough have thrown the urgent threat of climate change into the international spotlight, but when it comes to driving actual policy change, it seems to be falling on deaf ears.
According to the head of the World Resources Institute, the efforts of the major economies are falling “woefully short” of expectations, with little tangible progress being made at the recent UN Climate Summit in New York.
However, in the world of business and finance, people are starting to take matters into their own hands. 2019 has seen a surge of investment into funds and companies, which deliver environmental and social good.
This is promising as, regardless of moral imperatives, companies and investors will almost always move where the money does.
In the world of business and finance, people are starting to take matters into their own handsWhile this is undoubtedly good news, it does somewhat muddy the waters around what makes a company successful.
Measuring social and environment impact is not as straightforward as assessing profits.
But as impact investing becomes increasingly popular and investors need to both justify their decisions and make a return, it’s no longer something that businesses can afford to ignore.
The rise of impact investing
A relatively new concept, the Global Impact Investing Network (GIIN) describes impact investing as investing to generate a measurable positive social and environmental impact alongside a financial return.
Although new, it is becoming an increasingly significant part of the investment landscape.
Impact investing funds have amassed approximately $502 billion in assets under management since the concept was introduced 10 years ago, and high-profile investment managers including Credit Suisse, Goldman Sachs and JPMorgan Chase, have added impact products to their portfolios.
We have also seen the creation of venture capital funds which focus entirely on impact startups, such as Future Positive Capital, Fifty VC or Blue Orchard.
This is not just out of the good of investors’ hearts.
The idea that investors need to sacrifice returns in order to invest in companies they believe in simply is not true.
Not only are sectors like clean energy and agriculture generating significant returns, but they also make more sense in the long term.
As governmental and regulatory focus shifts towards sustainability, businesses who prioritise positive impact are likely to outlast those who brush it under the carpet.
Change of focus
One barrier to change has been the current fundraising model.
Traditionally, investment puts the power into the hands of a few stakeholders, who will typically focus on growth above all else.
Historically this has often led to businesses sacrificing the social and environmental principles which attracted their user base in the first place in order to keep their investors happy.
However, this no longer seems to be the case. We’re increasingly seeing that generating returns and a measurable positive environmental and social impact can go hand in hand.
Take Patagonia for example.
The company has gained a reputation for sustainable practices and values, committing to be carbon neutral across the entire business including the supply chain by 2025, and donating $10m to groups combating climate change in 2018.
Despite this, it is said to have booked $1bn in revenue last year.
A new breed of investor
It is not just companies that are changing, the entire investment landscape is undergoing a radical shift.
Despite reticence from global governments, we, as a society, are becoming increasingly aware of the environment and wider issues of sustainability.
And new technology is allowing those who previously would not have access to traditional investment the opportunity to put those beliefs into practice.
While institutional investors are under legal obligations to push for bigger and bigger profits, the same limits do not apply to retail investors.
And with the advent of blockchain-based investment platforms that allow companies to raise an increasing amount of funds from retail investors, businesses can now create a shareholder base who value impact as well as profit.
Whether altruistic or returns driven, this shift in investor priorities means that businesses who choose margins over morals risk alienating a significant number of both retail and professional investors when raising funds.
Investors now have a level of autonomy previously unavailable to them, and as the market develops they will be increasingly able to make their voices heard, using their investments both to generate profit and build a better future.
Jeremi Jak is head of impact at Neufund, a challenger fundraising and investing platform
