Making the business case for sustainable investment

The concept of sustainability has been around as long as human civilisation itself. However, within the commercial domain the need for sustainable development has not always been easy to reconcile against the push for sustained shareholder/investor returns. At best sustainability has been a company’s social obligation; at worst it has been an unwanted headache.

But as I explained to an audience of entrepreneurs and investors during our ‘Investing in Sustainable Consumption’ event with Eka Ventures this week, two thirds of investors now claim they want to make the world a better place.

So how can we help investors to understand that it’s no longer a trade off between sustainability and commercial success?

Joining me to make the business case and explain the critical role of technology in enabling sustainability success, were some of the industry’s leading thinkers: Timo Boldt of meal kit retailer Gousto, Lucy Shea of creative agency Futerra, global spirits brand Chivas Brothers’ Sandrine Ricard, and Jon Coker of sustainability-focused VC firm Eka Ventures.

Demand is growing

We kicked off the debate with a UN statistic that 71% of consumers will consciously avoid buying products from companies with perceived environmental, social governance practices.

Shea said that while most consumers want to adopt a sustainable lifestyle, 41% claim brands make it harder – a “serious marketing failure,” but also a great opportunity to start setting this right.

The main consumer barrier may be convenience. As Ricard put it, “Consumers want to do good but they don’t want to be inconvenienced. They want companies to solve the problems for them.” Boldt agreed, noting that while food wastage is the single biggest problem in his industry, “There’s a real win-win opportunity by building supply chains to eliminate the wastage.”

Creating a more efficient supply chain is a standard way of increasing margin and, as Coker pointed out, one that is wholly aligned with the sustainability agenda. But he also stressed the need for a more emotive argument as, “Customers care who they buy from and people care who they work for.” This was echoed by Shea, who claimed that consumers and staff alike won’t engage with sustainability just to maintain the status quo: “You have to have a bigger vision to motivate people.”

Attracting talent

One aspect of the discussion with particular resonance for the tech sector is the importance of a sustainability focus in attracting talent. As Boldt explained, “Young data scientists can command the salaries they want wherever they want to go, so this stuff is incredibly useful to motivate them.”

However, to drive a sustainability vision internally, firms must make sure it runs through the entire organisation. This means appointing a “Department of Tiny Affairs,” in Shea’s words, to ensure the vision is being met consistently. Conversely, as Ricard pointed out, “Sustainability is about walking the walk, and so if the top managers don’t believe in it then it’s never going to fly across the broader business.”

Impact versus profitability?

Coker’s firm Eka Ventures specialises in sustainability investment and he was quick to note that many companies don’t see sustainability as an agenda – they’re just building it seamlessly into their businesses. “We're not an impact VC; we’re mainstream, but with sustainability baked in. This is not just about doing good, it’s about delivering shareholder value… Our successful investments are because of sustainability rather than in addition to it.”

Ricard expanded on this point, highlighting that, “The numbers show that when businesses act responsibly they perform better. But you have to be in it for the long term.”

Boldt agreed, going on to explain that even when sustainability might at first appear more expensive, customer retention could sway the argument in the other direction. “Make customers a lot happier by being sustainable and retention will jump. On the flip side, with Net Promoter Scores these days you’ll find growing examples of unhappiness due to issues such as plastic use. Businesses need to look harder at the data, rather than just glancing at the top line costs.”

The macro outlook is surprisingly positive

The debate concluded with a look at the macro economic perspective, and whether current conditions are sufficiently favourable to allow sustainability investment to achieve its potential.

Boldt explained that, as we move into the age of abundance, “Step away from the noise and look at the data, you’ll see that most things are getting better. There may be short term issues on the political horizon but the long term outlook is positive.”

I cited the Global 100 sustainability index, which shows that the companies on the list – all of which generate more than $1bn in annual revenues – have an average of three times as many female executives as other companies and also pay 27% more in taxes.

Shea commented that greater equality clearly has an influence on sustainability. “Climate change is the biggest game in town and we only have a few years to solve it… Solve climate change and we get less inequality…The lens through which we look at things is changing.”

The panel agreed that much of this positivity stemmed from companies’ ability to step up and take the lead on sustainability, even if meant ignoring the politicians.

“At the corporate level, there are several trends currently driving sustainability – consumers, talents and capital. We would love to be talking about governments and regulation in 10 years’ time,” said Coker. “Rewind 10 years, this would have been where people started the conversation, but it can’t be the only reason for pursuing sustainability – the last few years have shown us this.” Ricard agreed, pointing out that if governments regulate, it’s often because companies aren’t doing a good enough job.

Finally, when it comes to achieving their sustainability-powered potential, the odds may favour the startups. For as Coker concluded, “Many firms have to retrofit sustainability. What’s great for startups is that you can begin with a blank sheet of paper and built from the ground up.”

About the Author

James Downing is a director of venture capital services at SVB UK. With more than 15 years of banking experience, James has a strong background in financial services for technology businesses, having devoted much of his career to the innovation sector. He is responsible for building relationships with institutional VC funds across Europe and the US, working with them on their portfolio companies and providing access to SVB’s global platform. He also explores interesting new markets for the bank.

Before joining the UK Branch, James served as a director at Barclays Bank, where he focused on portfolio management and debt origination for businesses in the technology, media and telecommunications sector.

Outside of the office, James is an avid cyclist, spending many weekends riding the English countryside. He also enjoys time at the gym and golfing, as well as cooking and traveling. James also mentors startups, helping to position them as they look to grow their ideas into successful businesses.