March 22, 2021
Attention to climate change has grown enormously in recent years. An old generation has been shaken up and a new generation has emerged. One that is more and more in action mode to make 'impact'. I myself also made the transition from a corporate strategy consultant to an impact investor at StartGreen Capital. But what is impact investing and how do I distinguish myself from the 'normal' investors? With every investment I follow 5 simple rules to determine whether it is a 'normal' investment or an 'impact' investment. These rules ensure that I can continue to say that I am an 'impact investor'. And I would like to share them with you here.
1. Connect with tested and accepted impact frameworks
In the impact investing world there are many extensive impact frameworks and methodologies that claim to know what impact is. They all only partially provide a method for measuring impact, however I have fully embraced one of these frameworks (and many in the world of impact investing with me): the UN SDGs Why? Because they define impact across 17 impact areas with underlying goals, has been set up by the UN and is internationally recognized. A uniform image of impact is created that can be used internationally, by investors, entrepreneurs and companies. From research of PWC shows that 72% of the companies use the SDGs in one form or another in their accountability. For each investment, I am the first to determine which SDGs will be affected and why. Based on the funds that are managed at StartGreen Capital, my focus is mainly on the energy transition and thus 'SDG 7 - Affordable and Sustainable Energy'.
2. Opt for (smart) solutions, not for symptom control
In addition to the SDGs, I determine whether a company only offers a 'plaster' and mainly does symptom control to reduce its own negative impact, or whether it is aimed at 'solving a social or environmental problem' that affects society as a whole. . An example of this is the difference between an investment in soot filters for a steel blast furnace factory, which is important and has an impact, but is nevertheless a form of symptom control, or an investment in a new form of steel production that is CO2 neutral, which will solve the problem. takes away completely. That is impact investing and I focus on investments for these kinds of smart solutions. For the classification of impact within investments, I recommend that you look at it Impact classification report of Impact Management Project.
3. Make the positive impact measurable and set goals
With the chosen SDGs as a basis, I can (together with the entrepreneur) determine which units of measurement contribute to the chosen SDGs, for example: TJ energy saving or CO2 emission reduction. In this way you create multiple units of measurement per investment on which you can measure the intended impact, set goals, and above all compare with the current alternatives. When 'claiming' a saving, comparing the impact of your investment with the current alternatives is crucial. For example, electric driving can be a good alternative to fossil fuel cars, if electricity is also (largely) generated sustainably and the batteries can then be properly recycled or reused. Every company is new and should be researched at the start of the investment, and continuously tested throughout the life of the investment. I usually perform calculations and research myself, but I can advise you to use recognized professional impact measurement parties if data is not available and / or it is very complex. StartGreen Capital currently has 65+ units of measurement on which it measures its impact on investments, linked to the SDGs. In doing so, we set goals about the minimum impact that we intend to have with an investment.
4. Also consider the negative impact
In addition to the positive impact, I also look at the negative impact, via an extensive ESG (Enviromental Social and Governmental) scan. A company can claim to save CO2, but to achieve the CO2 savings, for example, use strong toxins in the production process, or stimulate child labor through products from a supplier. The internal management must also contribute positively (enough), which is why the internal processes must always be investigated. With each investment, I first look at whether there is a strong negative impact that I cannot accept (such as child labor), then whether the positive impact sufficiently outweighs the negative impact, and finally where we see possible improvements to mitigate the negative impact. minimize, in order to subsequently be able to improve it from moment one of the investment.
5. Combine impact with profitability to create long-lasting impact
With charity you make more impact by not giving fish to someone who is hungry, but a fishing rod so that they can become self-sufficient, this also applies to impact investing. A company must be able to make a profit independently (in the long term) and must also be able to offer that perspective. After all, the aim of this is that i) your investment continues to make as much impact as possible, and ii) that you eventually get your investment back (with a certain profit). Of course it continues to invest and not charity. As an impact investor, we therefore only look at companies where profitability and profit on our investment is possible, where this can go hand in hand with making an impact. Safeguarding the right balance is essential here, and there is room for loss financing of impact start-ups.
What makes StartGreen Capital unique?
What distinguishes impact investors from normal investors is that we also believe that there is and will remain a good balance between making impact and profitability, because both are our goal. It is therefore important that investors and entrepreneurs both commit to impact objectives and that not only profit is of great importance. You have interesting ways to do this, such as linking the rewards of investors to the realized impact, or working with Steward Ownership. Constructs that I would like to explain further in a future blog.
For now I hope that these maxims provide sufficient guidance to gain more insight into what an impact investor does to be able to claim that they invest in 'impact'. I would like to connect with you to continue the conversation about this linkedin.com/in/rogier-de-groot-51096141.