I attended the long-standing Sustainable, Responsible, Impact Investing Conference in Denver on Wednesday, November 9, 2016. The date is relevant because the conference began on the same day that most of us woke up to learn that the U.S. presidential election had not gone as the pundits had predicted. This is not a political commentary, but suffice to say that the crowd at this particular gathering was (at best) rather somber on that Wednesday.
Steve Schueth, the host at the event, suggested a theme for the 700+ in attendance of “Now, More Than Ever” and asked each table at the opening session to take a few minutes and discuss how to address the challenges facing the social impact investment world in light of the new political environment. Despite the downcast attitudes of my tablemates, I was quick to offer our group a healthy dose of optimism. In short, capitalism trumps politics (no pun intended), and the private markets are thriving with innovative, revenue-generating, market-competitive companies offering healthy and sustainable solutions that do not require political air cover.
And as NMI has shown, the market growth data is overwhelming:
So, if the companies and market demand are present and growing and if the offerings are financially viable compared to the status quo, what, if anything, has been holding back an explosion of new, innovative solutions from sweeping the country (and world)? In one word: capital. Specifically, private, growth-stage investment capital. Growth comes from customers and capital, and as has been well documented by numerous market analysts, private investment has been slow to reach social impact companies.
The good news is that a new company financing solution arrived (in full force) in mid-2016 that may help bridge this investment gap. The JOBS Act (aka equity crowdfunding) offers a path extremely well suited for the social impact market due both to the acute capital investment needs of this group and the likelihood that these companies may connect on an emotional level with a broader array of (unaccredited or accredited) investors who share a passion for the issues being addressed. But while we know that there is customer demand for these types of solutions, is there really an investor appetite for companies offering sustainable, socially responsible products and services?
A variety of analysts have studied this question. A February 2015 report from Morgan Stanley’s Institute for Sustainable Investing showed that 71% of individual investors and 84% of Millennial investors are interested in sustainable investing. As the report notes, these same Millennials connect their consumer behavior (demonstrated in the rapid growth of clean and healthy products/services) with their individual investment activities. Not to be outdone, women are more likely than men to factor sustainability into their investment behavior and consumer decisions, and women in the U.S. control over $11 trillion in assets.
Much of that is already being invested in companies (perceived as) sustainable. According to the US SIF Foundation’s biennial Report on US Sustainable, Responsible and Impact Investing Trends released in November 2016, sustainable, responsible and impact investing assets now account for $8.72 trillion, or one in five dollars invested under professional management in the United States.
Unlike these public company investments, the JOBS Act now provides an avenue for private companies offering solutions with a real social benefit to seek investment from a broad array of investors. Finally, some of the trillions of dollars being invested in slightly less toxic, slightly better behaving public companies can be redirected into companies delivering actual, proven solutions to the health, environmental, and other social problems facing our society.
As Don Shaffer noted in his recent Interconnectedness article, this investment shift is the key to making a material change in the social impact marketplace. He notes the questions that concerned investors should be (and are) asking about what’s actually in their “ESG” portfolios and whether there are more (suitable) direct investments instead, and he poignantly adds:
Let’s get real – individual investors have no sway in the public markets. The place where individual investors can have the most impact – by far – is in providing direct growth capital to private companies and social enterprises. Instead of giving investors an (arguably) false sense of doing good through ESG funds, we need to get serious about how to create the conditions for a revolution in how people relate to money altogether.
There is now a new path to direct, private investment. While the JOBS Act is still very new and poorly understood, and there is a real need to promote individual company investment opportunities better, for once we have an avenue to materially change the social impact investment market. It’s no time to be somber. 2017 is going to be the start of something great!