At the World Economic Forum’s annual gathering in Davos, Switzerland, in January, decision-makers from the global corporate order discussed a radical idea: to use the trillions of dollars sitting in pension funds, insurance groups and family offices to support Sustainable Development Goals.
SDGs were launched by the United Nations in 2015, covering socio-economic issues like poverty, hunger, health, education and global warming. Because governments and NGOs like the World Bank provide around $1 trillion of the minimum $4tn of annual investment commentators agree is required to create the necessary infrastructure, the great and the good at Davos decreed that private funding is unquestionably needed to make up the difference.
As you would expect, there has been a level of pushback against highly-paid CEOs who, first and foremost, serve the interests of investors vis-a-vis other stakeholders to put their money where their mouths are. At the same time, in an age of duplicitous politicians, perhaps corporate executives, investors and even financiers can be more trusted to bring about real, lasting change.
Certainly there has been an undeniable wave of interest in the importance of investing for profit with purpose. This fast-developing segment of the investment world was examined last week at Cazenove Capital’s private investor event at the EICC. As the guest of a co-sponsor, private bank Hampden & Co, I camped for the afternoon at the Mission Led Investment in Scotland conference, which considered themes around investing in sustainability going mainstream, enabling social enterprise in Scotland and how to create a portfolio of mission-led investments.
An in-conference audience poll illustrated the knowledge gap, with 90 per cent of respondents saying they don’t think there is enough information available on sustainable investment in Scotland. Investors and corporates take heed: overwhelming evidence shows millennials are driving change and sustainable companies are increasingly expected to have strong relationships with all stakeholders.
As Cléo Fitzsimons, Cazenove’s responsible investment director, explains, the investment industry parlance of choice in 2019 is environmental, social and governance (ESG) and spans a spectrum of sustainability that accounts for around $23tr of assets worldwide. Encouragingly, many ESG-led funds outperform more traditional investment portfolios.
Kate McKay, partner at Scotland-headquartered angel firm Galvanise Capital, expands: “Globally recognised frameworks such as the UN’s SDGs or the B Corps framework can be useful tools for investors who are accustomed to assessing the commercial success of a business using objective data and metrics. For businesses that have impact as part of their raison d’être, if they are seeking investment it will be vital that the desired impact is underpinned by a solid and viable business model.” McKay cites Edinburgh-based ethical video advertising platform Good-Loop as an example of a business successfully balancing pure commercials with impact; Good-Loop contributes half of its revenues to social enterprise.
FutureX co-founder Bruce Walker, who leads the sixth annual cohort of Scottish companies out to Silicon Valley next month, adds: “We have been furthering a purpose and mission-based approach for years but it can take years for institutions to follow suit. Things are now getting exciting, things are moving much quicker.” Walker, who strongly believes entrepreneurship is the most potent catalyst for social and economic change, recounted a trip to India for the $1tr Ganges clean-up project where a number of Scottish companies were participating, illustrating that Scottish innovation can be at the heart of global change.
FutureX runs its second Impact Summit in Glasgow in May, where the profit for purpose narratives will be further explored.
- Nick Freer, founding director of the Freer Consultancy and Full Circle Partners