How to Attract the Socially Conscious Investor
In any industry, the guiding principle for a CEO is simple: Don’t run out of money. For established companies, this means managing profits and losses for the benefit of stakeholders; for growth-stage businesses, it means finding investors to finance your next big move. If balancing these goals is keeping you up at night, rest assured that you’re not alone.
At the same time, know that there's one large -- and growing -- pool of capital that can’t be ignored.
Its source? Companies that include social and environmental stewardship as part of their business models. Today’s investors are more and more committed to placing their money with these ventures, and that fact creates a prime opportunity for entrepreneurs to both finance their companies and effect positive change in their communities and the world at large.
In fact, the possibilities these socially responsible investments present offer so much opportunity for businesses that hundreds of mutual and exchange-traded funds are now committed exclusively to investments with a social, environmental or public sector component.
The number of assets held in these funds, in fact, has increased 142 percent in five years, according to Morningstar; by the end of 2017, their total worth was $100.2 billion.
What's key to winning the support of this growing investment audience is the crafting of a business strategy that incorporates social causes. How to start? I recommend going with the social causes you already care about. This can be win-win-win situation for you, your backers and the global community, and can produce rewards that go way beyond the balance sheet.
The rise of socially conscious investing
Socially conscious investing may seem like a new craze here in North America, but it’s already a well-established trend in Europe. When I worked in investment banking with Canaccord Genuity, we would take every water treatment company straight to the European marketplace -- and almost automatically, sustainable investors would buy just under 10 percent.
Why? Because they were genuinely dedicated to investing in environmental conservation and enabling access to clean water in the developing world -- and saw the potential in the future of conscious investing.
The U.S. is starting to catch up. According to the US SIF Foundation, the total value of assets under management related to sustainable, responsible and impact investments rose by more than a third from 2014 to 2016. The 2016 report -- the foundation’s most recent -- shows that one out of every five dollars under professional management belonged to these responsible and sustainable assets.
Platforms such as Canada’s SVX are offering investors new options when it comes to placing their money with companies that are making a positive social impact. If current trends are any indication, we can expect these numbers to continue to rise.
Weave social consciousness into your company’s fabric.
Cultural and demographic shifts are driving significant change across today’s investment landscape. In the past, people invested purely for profit and donated to charity once they retired comfortably -- but now we’re witnessing the rise of an investor base that knows social responsibility and return on investment do not have to be mutually exclusive.
Building social consciousness directly into a business is becoming table stakes for those who want to succeed, and all companies should be operating with a direct understanding of their impact. You need to clarify how you’re accomplishing your social mandate -- whether it’s by sustainably sourcing materials, taking action to reduce your carbon footprint or contributing to community initiatives -- and you have to figure out how to articulate these initiatives to the Millennial investors who are ready to finance your company. Here are a few things to keep in mind.
1. Choose your measuring stick.
What are you trying to accomplish, and how will you measure your efforts? For example, if your company helps reduce or eliminate single-use plastic, as Starbucks and my hometown of Vancouver recently announced they would be doing, how will you determine your positive impact and report that to investors?
The Plastic Bank is a great example of a for-profit company that’s tackling an environmental problem head on and quantifying it for investors. By assigning a monetary value to plastic waste, the company is changing public perception of plastic usage and empowering those living in poverty to earn money while benefiting the planet. Thanks to this initiative, Haiti alone has more than 2,000 plastic collectors, and 7 million pounds of plastic have been recycled. A spurred economy and significant waste reduction are relatable metrics for investors who want proof that the company they support is making a difference.
There is no single, standardized method for measuring the social outcomes of impact investing, as different industries, companies and causes necessitate different approaches. However, practical benchmarks do exist. Do your research so that you can set meaningful goals -- and show your investors how you’re meeting them. The Global Impact Investing Network, a nonprofit organization that measures the effectiveness of impact investing, is a great place to start.
2. Show your work.
Now that you’ve got your goals, strategy and benchmarks, you have to be transparent about them. Release regular reports, and be honest about your difficulties as well as your successes. Your investors will not be as deterred as you might think.
Neither will the public: Cone Communications’ 2017 study of corporate social responsibility shows that 91 percent of consumers are forgiving if a company falls short of its impact targets, so long as it’s forthcoming in reporting these shortcomings and committed to improving on them. Customers, like Millennial investors, are also more likely to vote with their wallets to support the brands that are in line with their values and boycott those that aren’t.
The bottom line here is that communication is key. It’s standard practice to report progress and demonstrate results so that investors know what their money is doing. Why not include social impact results the same way?
3. Lead by example.
One of the biggest challenges remaining for impact investing is that it’s still one option among many: There hasn’t yet been a mainstream adoption of standards for socially conscious practices. Yet the forward-thinking entrepreneur can see the benefit in early adoption. It’s only a matter of time before the standards reached by socially conscious companies become selling points for businesses across the board.
Goldcorp (which is listed on TSX Venture Exchange) does a great job with its sustainability reports. Of course, it’s easier to do when you’re Goldcorp: You have a big marketing team, and you’ve got people crunching the numbers. But companies of all sizes have the opportunity now to buy in: by self-reporting, contributing data and helping impact investing achieve critical mass. With leading businesses taking the helm, we can expect to see impact investing expand beyond its $100 billion in assets today.
Now that the first big wave of conscious capitalism has broken, stockholders are actively seeking investments that benefit both their portfolio and the planet, fueled by a desire to give back and the ease of the latest reporting technology. Companies wanting to ride the next swell need to take into account how their business models affect the world. Build this thinking into your organization’s DNA and showcase the difference you’re making -- today’s investors will be more than willing to back you.