Traditionally, the primary factor used to determine whether something is worth investing in was the monetary return. But with the world constantly evolving and shifting, investors are setting new standards for what they deem worthwhile.
Today, company performance is measured by more than just ROI. Environmental and social issues such as sustainability, diversity, and responsibility are all increasingly becoming important factors to consider before making any financial decisions. These sets of standards known as ESG (Environmental, Social, and Governance) considerations have become an essential part of investment analysis and research.
As investors become more conscious of their long-term prospects, the sustainable business model is gaining popularity. However, it is up to companies to find, retain, or increase these investments. In this article, we will provide you with some direction on how to increase investment into your sustainability startup or enterprise.
What is ESG investing?
ESG investing is also known as socially responsible investing, impact investing, and sustainable investing. These are a type of investment where considerations are made to the impacts on environmental protection, human rights, and governance issues.
Here are some of the ways founders of sustainable enterprises can boost ESG investment into their ventures.
Find the right investors
There are different types of impact investors: angel investors, corporate investors, venture capitalists, institutional investors, and non-traditional entities. In the green tech world, financial corporations, charitable foundations, governments, or quasi-governmental agencies can be pulled in to invest depending on the various sectoral interests to which they may align.
Meanwhile, angel investors can be tapped to breathe fresh air into an old company with practices that have adverse effects on nature like fossil fuel industries.
Non-traditional entities like wealthy philanthropists may be interested in funding ventures that can make a difference in the world.
Seek corporate venture capital first
Dr. Dave Valliere is a professor of entrepreneurship and business strategy at Ryerson University. Together with associate professor Deborah de Lange, he published a study suggesting sustainability ventures would do well to seek out a corporate venture capitalist whose passions and interests align with them. In turn, these investors can help lend credibility and legitimacy so that others will believe in the venture as well. Corporations usually have an investment committee that decides on and pursues which new companies to allow into their portfolios.
However, corporate investors are often wary about the quality of a new venture until it has proven itself. And this means steady revenue and healthy profits. Many investors have clear criteria when sifting through sustainability ventures. These criteria include high-profile existing stakeholders in the venture, well-known industry experts on the board of directors, or a lineup of professional investors of the same caliber.
Clarify investment terms
You already know what sort of sustainability ventures you’ll be running, and maybe even how much money you’ll need to get it off the ground. Now you have to figure out what kind of capital investment might be right for it.
Are you looking for a fast infusion of capital or something that can be held over the long term? How much capital do you need in the short term?
In addition to financial investment, ventures may also consider various forms of capital such as tools or technology.
It pays to do your research on impact investing. Looking at how similar ventures have been funded makes a world of economic sense. Make sure you understand the different types of social and environmental returns that a particular corporate investor has specialized in.
Show how your impact can be measured
Aside from considering the actual viability of your business, corporate investors will also be looking at how to measure the exact social benefit you intend to deliver. What impact metrics will be measured and how?
As with any form of investment, founders of sustainable ventures need to connect with other entrepreneurs or corporations who are both interested in making ethical investments.
As a founder in search of investment, you should never underestimate the power of developing good relationships and maintaining connections. These should be strategically managed to help grow your network and be seen as a core element in any effort to find funding. There is nothing more attractive to an investor than the feeling that you have a strong support network, one that you’re eager to develop even more to support a growing company.
When doing your investor research, learn what sustainable ventures they’ve been involved in, know their expectations on ROI, and what options they are likely to take for more rapid growth. Learn the names of key team members directly involved in impact investing strategies. Given the values-based nature of impact investing, it’s important at least to know who will be helping your sustainable venture become more of a reality.
Climate change has posed an immense threat to the world for some time now but clever entrepreneurs are finding ways to turn environmental sustainability into opportunity. Corporate investment is an endorsement of a sustainable venture’s potential to do well in its industry.