We may earn a small commission if you sign up for a service or product from this page. This does not affect our rankings and it does not cost you anything. Learn more about how we make money and our review process on our advertising disclosure page.
On This Page:
With the world experiencing the undeniable impacts of climate change, impact investment has been capturing the growing attention of mainstream investors. While the sector is still at its infancy, its potential is huge. A 2019 Morgan Stanley survey showed that 85% of investors are interested in sustainable investing.
However, the business sector is struggling to tap into this newfound resource. As impact investors are looking for a specific type of business, not everyone fits the bill. So, this article will cover the necessary qualities businesses should have to attract and retain the growing pool of impact investors.
The Global Impact Investors Network defines impact investment as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”. With the investor base now valuing social responsibility, business owners need to weave social consciousness into the fabric of their company to attract impact investors.
Companies can do this through understanding the social and environmental impact of their firm and find ways to improve them. They can do this through having sustainable supply chains, ensuring fair labor practices, and the like. Beyond your business’ value proposition, you will need to be able to effectively communicate your social mandate as well.
Marketing the competitiveness of the investment
There is a misconception that businesses that try to achieve the triple bottom line—people, planet and profit—have lower financial returns. This dissuades many from investing in this industry or investing as much as they would in a traditional business. However, there is evidence of a non-negative relationship between investing along environmental, social and governance factors, and corporate social in performance in 90% of more than 2,000 studies published by the Journal of Sustainable Finance and Investment. Thus, for business owners, there is a need to stress that your business will be able to guarantee a better return on investment compared to a regular business. To do this, you will need clear financial projections that reflect this competitive result.
Related: The best robo advisors for Impact Investing
Providing financial and legal security
Investors look for security from the businesses they invest in, and impact investors are no different. This security comes in the form of financial and legal protection. Jim Friedman says that one of the common challenges for new investors is not having their personal finances in order. Having the right business structure ensures that your partners’ personal debts and finances are kept separate from that of the business’.
An LLP protects partners’ ‘respective interests and investment’, while an LLC protects members from business debts or lawsuits. Whichever business structure you choose ensure that it can protect investors and potential partners from financial and legal issues that may arise.
Presenting measurable results
Even if you are selling the social and environmental impact of your company, impact investors will want measurable results. You will need to be able to report the positive impact that your business is doing to your investors, often in a creative manner. The Plastic Bank for example is a for-profit company tackling the environmental problem by assigning monetary value to plastic waste.
They have changed the perception of plastic usage by giving incentives to communities affected by plastic pollution. They are asked to collect the plastic and then send the plastic to recycling facilities. Their business’ results are clear and measurable, thus making them very attractive for impact investors.