How Are Impact Investors Different From Venture Capitalists
Venture Capitalists, have to have to go out on the road to raise money and sell their expertise. Impact investors add to the challenge of selling the social value proposition, the fact that social results will really be achieved and the promise that financial and social returns can actually go hand in hand. – Source Berry Kennedy, GreenBiz
Impact investors are key players in the journey from a social innovation to a sustainable impact venture. They are evangelists who mobilize resources for social entrepreneurs by making strategic investments in their startups.They have a larger time horizon to stay invested because unlike in pure commercial startups the return on investment on social startups takes a bit longer. It is because of this reason that they are called patient investors and the money they invest, patient capital.
Role Of Impact Investors In Achieving Sustainable Development Goals (SDGs)
“The investment community will be very important to the success of the SDGs. I’m not saying that it’s the first thing they think of when they wake up in the morning but I can tell you that the SDGs are known, now, more and more so. They are part of the strategic framework to be thought through in the board rooms of large companies.”
“We feel that the SDGs will act as a global framework that more and more impact investors will align with going forward,” says GIIN’s Research Director Abhilash Mudaliar, who notes that the UN guidelines have acted as a “clarion call” for the burgeoning industry.
I. Aligning areas of investment with outcomes of SDGs
SDGs are outcome based with specific targets against each goal. Aligning with them means impact investors will have to focus on social and economic outcomes than just looking at a standalone sectors for investment opportunities. Every sector be it agriculture, education, healthcare or cleantech has cross-functional dependence on others and thus impact investors need to scout for holistic social innovations that align with at least one of the SDGs.
Let’s say an impact investor is focused on social startups providing curative and palliative healthcare in rural areas. Healthcare especially for children, elderly and women is heavily influenced by local sanitation and hygiene conditions as well as the extent of household pollution (Caused by burning firewood for cooking). This means that a comprehensive solution lies in providing or collaborating with WASH and cleantech partners. Thus achieving SDG #3 of Good Health and Well Being also relies on addressing SDGs # 6, 7 & 2.
Most leading impact investors do not mention SDGs in their vision and mission statements leave aside aligning with them.
II. Getting portfolio companies and potential investees to report Impact Metrics based on SDGs
Impact investors should encourage their portfolio companies as well as potential investees to align their impact metrics to SDGs. In an earlier article – Storytelling Needs To Follow Impact Reporting Based On SDG, we demonstrated how a cleantech company can report its impact by following sub-goals under SDG #7 ( Ensure access to affordable, reliable, sustainable and modern energy for all) thus delivering outcomes as per the global framework.
III. Sponsoring events that promote or discuss SDGs
Impact investors can conduct and sponsor meet-ups, launchpad programs and other such interactive events where the importance of SDGs in achieving impact goals is given the centre-stage.
For eg: In a recently concluded BCorp Hackathon, 6 representatives of BCorps and impact organisations came together to develop a product idea that aligned with SDG goal 12 – Ensure sustainable consumption and product patterns.
And the result was beyond great! Here’s what the co-chair of B Lab UK had to say,
Charmian Love, co-chair of B Lab UK, put it: “This is the most exciting time to ever be in business — there is so much opportunity and the SDGs provide a great roadmap forward. Although the focus of the hackathon was SDG12, I think we all learned the importance of proactively looking for ways to connect it to the other SDGs.”
Given the urgency with which the world is reacting to SDGs, impact investors in India need to act upon aligning themselves with it. Underlining this fact, Christine adds,
“For an investor, there might be two dimensions. If you’re in the investment business and only think about, “How can I optimize between today and tomorrow?”, you might not think too much about them. But, if you look just a little bit further out, you will have to think about the SDGs, because enough people are now worried about the underlying issues of the SDGs to actually start acting on them. And if you don’t act on them, you’re going to be left behind.
You don’t necessarily have to have a horizon of 10 years — if you have a horizon of even three years, you might be caught out if you’re not looking at the SDGs. And even on a day-to-day basis, that will start to matter. I would also argue that every investor now should know about the SDGs because we are all in this for a better world at the end of the day, because when it all ends, we’re all equal. We can’t take anything with us.”
Impact investors are the evangelists of the social entrepreneurship ecosystem and they have a key role to play in the success of SDGs. By re-aligning their investment focus on social and economic outcomes defined under the SDGs, impact investors can encourage cross-functional and holistic social innovations.