Impact investing isn’t just about social entrepreneurs
Written by Michael Hilton
The recent Good Deals & Beyond Good Business conference showcased a range of exciting companies, with purpose at their core.
One was a well-established business which turns tonnes of old leather fire hoses destined for landfill into luxury handbags, giving 50% of its profits to a Fire Fighters’ Charity in the process. Another, at the start of its journey, was seeking new investment to expand its ‘aid through trade’ shoe business, with all products manufactured in Africa and all profits reinvested in the company. Two great businesses, both addressing the Sustainable Development Goals (SDGs) head on.
However, as the debate returned to more familiar concerns over how social investment was failing to find its way to social entrepreneurs such as these, my mind wandered back to a less glamorous pensions sustainability summit I had attended the week before.
A comment made by Lewis Grant from Hermes Investment Management had stuck with me. Companies that are improving, he said, rather than those performing well on ESG criteria but at a steady level, are the place to look to unlock shareholder value.
To me, this was an important reminder to look beyond the eye-catching social business superstars. Although not as sexy, investing in an unsustainable company which is committed to improving can unlock significant value and give an investor a voice at the table to help push it along its journey.
This could be a coal power company on a mission to switch entirely to renewables. Or a mining corporation determined to support local communities rather than to simply extract resources. Such a business offers huge potential to investors but is often overlooked or excluded from responsible investment portfolios.
I am not suggesting that the Church Commissioners should perform an about turn and invest in tobacco or guns. However, a focus only on minimising risks through exclusions does mean missing out on some big opportunities.
And these are opportunities for society as well as the investors – the scale of change needed to meet the SDGs is far too big to be achieved by social businesses alone.
The critical challenge for an investor looking for these opportunities is how to tell whether the transformative purpose stated by the company is genuine. How can you know if the purpose actual has any clothes?
Ultimately, an investor needs to assess what the leaders of the business are thinking and how this manifests itself in the company’s actions and relationships. Sometimes what counts can’t be easily counted.
At Blueprint, we’ve been working with some leading investors to come up with some key questions that would give an investor insight into the extent to which a company is being genuinely and effectively purpose-led. We will share more in the coming weeks.