People have traditionally invested in startups and emerging products to make a profit. But these days, there’s a growing interest in backing environmentally sustainable products and companies.
Some of Australia’s most exciting startups are those which combine an attractive investment proposition with measurable environmental benefits.
Credit Suisse has even predicted that environmental, social and governance (ESG) investments will be the dominant investment theme of the decade.
When I first began investing 20 years ago, it was rare to find a company that clearly stated how environmentally sustainable it was, but thankfully, awareness about environmental issues has grown, and most large organisations now have sustainability policies and programs.
Purpose-driven crowdfunding businesses are helping to amplify ethical investment opportunities, which is why I’m an investor in VentureCrowd.
Crowdfunding creates avenues for investing in unlisted companies or property developments, and is providing a much-needed space for ethical companies to complete their fundraising efforts.
It is also encouraging to see an increase in green or cleantech startups applying for funding from Australia’s largest angel investor group Sydney Angels.
These are all positive signs that a growing number of companies are working towards environmental sustainability.
Below are my tips for how best to identify investment opportunities that take these responsibilities seriously, while also delivering value to their investors.
Do your research
We only have one planet Earth, and destroying it in the pursuit of economic growth is reckless and short-sighted.
We should be striving towards a circular economy and directly addressing the causes of climate change and other negative environmental impacts.
When looking for companies that achieve these outcomes, it’s important to understand whether their business solves a real problem, or if their market proposition is all hype.
Look at how scalable the idea and business are, and how large its addressable market is.
Get to know the founder of the company, research who they are and what they’ve previously done.
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If they’ve founded a successful business in the past which put the environment first, this is a good indication they’ll be able to propel their current business forward, while remaining true to the values of their investors.
Understand the impact
The World Economic Forum recently published a report identifying 15 green global opportunities worth USD $10 trillion and creating 395 million jobs by 2030.
The current issue is that we’re still not measuring the full impact of the damage that a business can have in terms of pollution, climate change, loss of biodiversity or animal welfare.
Take coffee cups for example. Disposable plastic coffee cup lids are cheaper than those made from biodegradable materials, but this is only the case because the plastic cup lid manufacturer isn’t asked to bear the brunt of the costs associated with their product going into landfill, rivers or the ocean, and the associated impact of microplastics on marine life.
Ask yourself what impact your investment would have on the company you’re looking to back.
Ask yourself whether you would use the product or service that the company is selling.
We’re all more likely to invest in a business if we are excited about their services or products, and can do so while still looking at how a company is solving an environmental problem that we’re passionate about.
For example, if you’re a vegetarian or vegan (or just reducing your meat intake) investing in plant-based meat is a great way to encourage others to reduce meat consumption while supporting a booming industry that’s actively addressing climate change and animal welfare issues.
Australian business V2Food raised $35 million in Series A funding in 2019, and is just one plant-based business that is contributing to a growing trend to reduce global meat consumption.
Take a close look at your super fund
Another investment that we may forget that we have control over is our choice of superannuation fund.
With close to $3 trillion in funds, super funds are highly influential investors in both listed and unlisted businesses across Australia.
It only takes a small effort for each of us to research which superannuation fund is best aligned with our environmental or other goals in order to make a positive impact.
For example, Australian Ethical, Future Super and Cruelty Free Superannuation are all focused on environmentally sustainable investments.
Incidentally, some of these super funds are also among Australia’s best performing, creating a win-win for both members and our beautiful planet.
We have no Planet B if the Earth is ravaged by climate change.
While it may feel as though we are powerless to make large scale change on our own, we all have agency over our investments.
This is why it’s vital that we do our research to understand the environmental impact that these investments have, and lobby emerging companies and existing funds to make sure they do the same.