Hitting a bullseye in investing for impact – and sometimes aiming off-centre
Tuesday, July 1st, 2014 By
Whether it’s climate change, renewable energy or water scarcity, we all have areas we want to invest in – but it’s not always possible to hit that sweet spot straight away. Suzanne Biegel writes about the investment bullseye, and why aiming slightly off-centre is not always such a bad thing.
As I speak to more investors who want to use their capital for impact with a return, through my work at ClearlySo, one question keeps coming up: how do I focus on one area of impact and make real change there? This makes sense to me – when you have a cause you are committed to, why not focus your philanthropy and investing on tackling it?
For a climate change-focused investor, investing in a company like Abundance Generation (in the UK) would seem to be a potential investment to consider – a bullseye for her area of focus. It’s a deal that provides a direct challenge to the problem that investor cares about.
More frequently now, there are ‘bullseye’ investment deals in almost every area of social or environmental impact – from mental health provision to financial inclusion, or enabling the movement of artisanal goods from emerging markets. There are deals, and funds, out there, and investors can choose those that work for them.
Over the past few years, and particularly through screening deals for Clearly Social Angels and Investors’ Circle, I have found that hitting the bullseye isn’t always easy. You need not only the timing to be right, but also for the investments to be in solid companies and good deals for all parties. And there’s risk in everything. Diversification matters.
Personally, I invest with a climate change lens – to mitigate it, to manage its effects, to promote more sustainable ways of living. It’s key for me that my money is used to protect and preserve natural capital and to combat the destructive effects we have on our environment and our ability to thrive on the planet.
So, I might invest into something like Abundance in my ‘bullseye’ because it is specifically about increasing the portfolio of community renewables. But then along comes a deal that is about car sharing – a way of encouraging reduced consumption.
Do I say, no, that’s too far removed from the impact I want? Or do I see the opportunity to invest in a product that responds to a market need – if I invest, and it works, my influence will be positive, and my capital may be returned at a profit, giving me the opportunity to invest in more products, more companies, and more bullseye investments. I look at a deal and say, here’s the thing I want to change – is the impact of this business related to my target? Is it going some way towards creating the world I want to see?
If I am investing along a particular theme, I need to think about what effect I want – if my ‘frame’ is climate change, what is the landscape of direct and less direct areas that are open to me as an investor? Are we talking about mitigation or adaptation? Developed markets or emerging markets? What else has to go right for that company to make its impact?
For mitigation, this might mean thinking about buildings, transport and water – three of the biggest areas of energy consumption. If I’m thinking about adaptation, I’m thinking about companies and products that will support people to live with an increasingly unpredictable climate and the after effects of climate-related incidents.
Extremis Technology, for example, creates shelters and housing for people affected by earthquakes, hurricanes and floods. It is pretty far out from my bullseye investment, but there’s a through line there – and if I feel it’s a company that has the potential to scale, and meets my other criteria for a solid start-up, it could be a smart investment.
So once I know if I want to tackle mitigation or adaptation, or whatever piece of the climate change-related market opportunities or issues I want to address, I have to think about the impact I can have personally. Is it just my capital? Or are there businesses where I can add value on a board or as an advisor?
Realistically, I have to believe that the businesses have enough traction from enough customers to really make the difference I want. So does that mean investing with the crowd – following the wisdom of others? Or does it mean looking where great potential is under capitalised, and where my experience and contact book can help catalyse further investment?
How else might I invest my capital to support the environment? One circle out from the bullseye, I could invest in a company like GnewtCargo (it delivers for logistics companies, retailers and organisations – 100% emission free) or GoCarShare. It may or may not have as much direct impact towards climate change as Abundance, but it is businesses with a strong contribution to make to a sustainable future.
So what about zooming out a little further? Then I can see the opportunity in investing in advocacy, publishing and communications, or systems change consultancies – in companies such as GreenBiz or Purpose.
Or I might do a loan for a non-profit enterprise like Carbon Tracker, or the Carbon Disclosure Project, who are telling the real story about risk and stranded assets, and creating transparency in large companies. Yes, they aren’t directly creating products that mitigate climate change, or scaling up renewable technologies, but they are having an impact that galvanises change.
My climate change investing portfolio might look something like this – one bullseye and then other investments that orbit the cause I see as key:
Yes, it can be great to invest into a company that obviously, directly influences an area about which you are passionate. But it may or may not turn out to be the thing that scales your impact most, and it can be limiting – it limits your portfolio and your power as an investor – to look only at deals that hit the centre of the bullseye.
By widening your search – on your own, or through working with partners like ClearlySo – you can aim for direct and indirect impacts, using your capital to influence the change you’re shooting for, with some diversification and, potentially, more impact in the long run.
Suzanne Biegel is senior adviser to ClearlySo. She founded Clearly Social Angels, the UK’s first impact-focused angel investing group, and Catalyst at Large, which helps to raise capital for social impact ventures and funds.
Photo: Asif Akbar via freeimages
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