Monday, March 2, 2015

Everyone Wants to be an Impact Investor

This article was first published on www.Inc.com.
This year's edition of San Francisco's annual impact investing fest, known as SOCAP14, actually featured money. The message was: there's a lot of liquidity out there, and everyone wants to do some good before they die. Average Joes want to give to their communities; high net worth individuals are putting "good" on their bucket lists; even Wall Street is tripping over itself to "do good, and do it well."
A growing industry of "impact investing" is springing up in order to funnel all that money into enterprises making an impact. If you were a social entrepreneur at SOCAP, you might have felt a little bewildered by the jungle of money trees. There were angels investors, donor-advised funds, hyper-specialized venture capital funds, crowdfunding circles, community lenders, and community direct public offerers. They had funds for different levels of start-up, seed, growth story, scaleable and scaling enterprise. And Morgan Stanley, Deutsche Bank, Goldman Sachs and US Trust all showed up for the party.
People brought up the Rikers Island story: in 2012 Goldman Sachs launched a $9.6 million social impact bond to lend the City of New York funds to reduce the rate of young criminals returning to prison. If all goes well and a large number of teens are successfully rehabilitated over time, Goldman can make more than $2 million in profit while the City will save $20 million in prison related costs. In addition to being financially sound, the transaction has been a media and reputational jackpot for Goldman.
The big banks say clients are clamoring for impact investing, so they're scrambling to accommodate: they're lowering thresholds, reducing bureaucratic obstacles, making it easier for some of the smaller deals to get through the door. "There's definitely more demand than there is product available," said Gary Hattem of Deutsche Bank. He points to opportunities in microfinance and the energy sector beginning to evolve.
All these financiers, moneylenders and social capital innovators admit that it's tough to fish out the best social enterprises to fund. Of course, your enterprise can't just make an impact; it needs to also promise returns. Due diligence is expensive and might not be worthwhile to do for small fry.
The first movers bringing social impact investing to the mainstream say they're cautious: they don't want to make a glaring mistake that will cause everyone to take their money right back out of impact investing. The stories in these early days need to be winning ones.
If you're an entrepreneur, despite all this liquidity it might still seem impossible to find capital. Most impact investors have very rigid criteria you might not fit. They want you to have a track record of already having launched two or three successful companies. They want you to be already on the market. They may ask a lot in return for sharing your risk.
So how can you make your particular social enterprise stand out in the crowd? One impact investor suggests getting B Corp certification from B Lab, a Pennsylvania-based nonprofit that assesses companies for sustainability, so that you can put yourself forward already pre-screened. Your business plan has to show returns, but even more important is your ability to impress your bankers with the idea that you're on a mission, that you have courage, commitment, resilience, follow-through.
You also need a good financial advisor or lawyer that knows how to navigate the panoply of possibilities available to you for your financial backing, and can direct you to the right one. An Impact Hub in your city may be able to help too. (If that doesn't work, attend SOCAP next year.)
Will the flow of money dry up anytime soon? Jenny Kassan of Cutting Edge Capital thinks not. "It's exciting," she says, "more and more people are not happy with their investment portfolios, feeling like they are not doing good for the planet. Imagine if everyone took 1 percent out of their retirement fund and invested it in the community, where jobs are created?" she asks.
Imagine that.

Monday, February 23, 2015

6 Sustainability Buzzwords to Use at Cocktail Parties

This was originally published on Inc.com.
The world of Sustainability evolves so quickly that it can be a little hard to keep up with. You may remember Michael Porter, of Harvard Business School, trumpeting in the new term "shared value," making anyone still cooing about "corporate social responsibility" suddenly seem terribly pass.
So always make sure your buzzwords are up to date. Here are a few to get under your belt while they're still hot:
1. Triple Bottom Line. This one's been around since what seems like ancient history, but it's still going strong. Just focusing on profits (the original bottom line on the balance sheet) is a no-no; companies today need to show good social and environmental performance along with good financials. An even classier way to refer to 'social, environmental and financial' is to wax poetic: people, planet, and profits, or the 3 Ps.
2. "Multi-Stakeholder Engagement." Engaging only with shareholders has an '80s greed ring to it. Companies must engage with their employees and communities, as well as with NGOs and regulatory watchdogs. This may sound like the latest politically correct trend, to look warm and fuzzy but without any serious business reason for it--but companies still focusing on only one bottom line and one stakeholder can see their reputations--and share prices--crash and burn.
3. Net Positive. European home improvement retailer Kingfisher has set out a plan to "be restorative to the environment" as well as having a positive impact on people and communities, becoming carbon positive, wasting nothing, AND creating wealth. This is the future. Across the spectrum of sustainable companies, the next frontier is to not only 'do less bad' and to 'do more good,' but to actually leave the planet a better place than it was.
4. ESG and SRI. "Socially Responsible Investing (SRI)" has morphed into "Environmental, Social, and Governance (ESG)" investing. The SRI acronym also gets translated in different ways: "Sustainable, Responsible, and Impact" investing and "Sustainable and Responsible Investing". But whatever: it's all Green. Now that it's catching on in the US, ESG is becoming institutionalized. Big pension funds are making it strategic and fleshing out the concept with more lists and acronyms. CalPERS, for example, talks of "three forms of economic capital--financial, human, and physical--that are needed for long-term value creation," and has proceeded to roll out a new acronym, with its Sustainable Investment Research Initiative (SIRI).
5. Materiality Matrix. Let's face it: it is tough to get quantitative about sustainability. If I'm in the tire business and doing something for rubber farmers in Indonesia, how can an investor put a number on that? How can her ESG index compare my social responsibility to that of a canned food company working on feeding the poor in Africa? And what about measuring environmental impact or governance? But even ESG investors need graphs and charts. So companies using the latest GRI (Global Reporting Initiative) framework to do their sustainability reporting are producing a matrix, with X and Y axes. Stakeholders tell them what to put on it, and this helps prioritize. Investors love it. Don't report without one.
6. Circular Economy. The basic premise here is that all waste should become some sort of fuel or resource. Technology is making that possible, right now, so the next step is implementing it across the board. Products need to be made with recyclable materials; new applications need to be developed for end-of-life products to be turned into new things, and infrastructure for collection, recycling and transformation needs to develop further. This is a good buzzword to have, especially since at some cocktail parties you might run into people who think sustainability is just about energy efficiency and LEED-certified buildings. LEED, by the way, stands for Leadership in Energy and Environmental Design. But that is a buzzword for another column.