Sustainable Capitalism Is the Next Big Thing in Investing
The former U.S. vice president and his firm, Generation Investment Group, are pioneering a new type of investing that focuses on long-term financial returns through sustainable projects. Although small by traditional standards -- Generation currently manages about $12 billion -- the company’s success suggests a way forward for investors and socially conscious innovators alike.
Rather than equate social impact projects with poor returns, investors who are willing to take the long view can enjoy handsome profits on sustainability initiatives. Many investors became accustomed to fast, high returns after the rapid rise of companies such as Facebook, Snapchat and Instagram. But the Generation model requires more patience because socially conscious companies take longer to reach similar levels of success.
These businesses often face infrastructure, bureaucratic and regulatory hurdles that others simply don’t need to address. Organizations such as the Urban Us -- a venture fund raising $10 million to invest in businesses that improve cities -- are willing to take on those challenges, exemplifying the long-term gain mentality.
But large-scale disruption will rely on big investment firms because small venture funds can’t commit the kind of capital that social projects demand. Big-time investors need to step up on these opportunities, and evidence already exists that, if they do, they’ll do well.
Elon Musk is perhaps the single best example of an investor who has achieved social good while also earning significant returns. Musk invested millions of his own money into projects such as SpaceX, Tesla and SolarCity and was able to create incredible value both economically and socially. As more investors wake up to the benefits of this model (Musk is worth $12 billion), the market will see increased interest in social impact initiatives.
Sustainable investing is the future.
Rapidly improving technology will make sustainable solutions more viable than ever, and there will be much money to gain in those projects. Autonomous cars will reduce accidents while perpetual ride schemes help decrease carbon emissions. The move to autonomous vehicles will be challenging due to regulation issues, rollout strategies and political cooperation, but it will happen. This is just one way sustainable capitalism will reshape the face of society, but every sector will undergo changes.
Socially minded companies will also leverage the support of everyday consumers to achieve their visions. From Kickstarter campaigns at one end of the spectrum to Tesla’s pre-order system at the other, more and more people will demand direct ways to support companies they value.
Entrepreneurs interested in the sustainable capitalism model should use the following strategies to develop their business plans:
1. Question existing pillars of infrastructure.
Identify ways to improve the systems people use in their daily lives. Existing nonprofits often attack similar problems as sustainable capitalism, but they don’t monetize their solutions.
Study what the prominent nonprofits in your interest area are doing. Then find a way to improve on the work that’s already been done and generate revenue off of your product. Hyperloop is a great example of a company that’s transforming an existing infrastructure -- long-distance public transportation -- in a way that will change how people travel while still benefiting the environment.
2. Approach the right types of investors.
When you create a genuinely innovative company, a lot of people will want in on the action. But not every investor will be able to realistically support the mission, and the proposal won’t make sense for the majority of potential backers. Pitch investors who have expertise in the industry and who can offer the long-term capital and support the venture requires.
3. Partner with like-minded people.
Disrupting an industry with a socially conscious and sustainable company takes more time and money than traditional strategies. Projects such as the smart parking initiative in Los Angeles are attempting to pool resources to solve one of the city's most well-known problems. Align yourself with people who understand your vision and who are both financially capable and passionate enough about the project to stay the course.
Given the urgent social needs throughout the world and the unprecedented pace of technological advancement, sustainable capitalism is a necessary development.
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