Investing with heart: Why doing good is good business
Article originally published in May 2016 edition of Private Capital Magazine
By Adam Spence
Co-founder, MaRS Centre for Impact Investing
The Lucky Iron Fish is a simple idea that’s life-changing. A palm-sized piece of reusable natural iron, it can be placed in cooking pots as a low-cost way to fight anemia, a health problem impacting more than two billion people worldwide. The inspired move was to shape the product like a cheerful fish, making it much more appealing than simply tossing a hearty chunk of metal in soup. Lucky Iron Fish, the start-up based in Guelph, Ont., that developed this idea, now employs a team of four and has racked up sales of more than 46,000 fish.
Lucky Iron Fish’s smart design is crucial in helping it win over customers, but so too is the way it does business. The firm’s founder, Gavin Armstrong, named on the Forbes 30-under-30 list, is a model of the idea that for-profit businesses can be in the business of doing good.
He’s not alone. From start-ups to major corporates on the TSX, more companies are measuring success by social and environmental impact as well as profit margins.
In 2004, Google went public under the motto Do no evil as a way to differentiate itself from the corporate pack. Today the pack has upped its game. More than 80 per cent of large Canadian firms now issue an annual corporate social responsibility report, indicating a desire to be perceived as doing the right thing. And it’s not hard to see why: Last year, Project ROI — a partnership of Verizon, Campbell’s, research firm IO Sustainability and Babson College — found that firms building a reputation on good corporate citizenship enjoyed higher sales and could charge a 20 per cent premium for their product. Doing good drives revenues.
Some forward-looking companies are taking it a step further, using business as a platform to solve pressing problems. B Lab is an organization that has created a system for certifying firms that are living up to these values. Today more than 1,700 companies in 50 countries hold its B Corp designation, from start-ups like Lucky Iron Fish to large organizations like Ben & Jerry’s and BDC.
Some of these changes are driven by the most populous living generation: millennials. They’ve consistently told researchers that they value companies that are seen as giving back to the communities where they operate.
Over the next two decades, these millennials will be beneficiaries of the largest inter-generational transfer of wealth in history as their parents pass on their assets to them. There are indications that many will seek to deploy this wealth through investments that match their values.
A recent study conducted on behalf of the Responsible Investment Association found that 58 per cent of millennials would be interested in “impact” investments, which are specifically dedicated to solving social or environmental problems — two times more than boomers. Doing good drives investment dollars.
This shifting landscape presents great opportunities. Social or environmental missions can be major selling points for an organization seeking to generate customer loyalty or attract investment. Helped by an innovative marketing campaign, Zooshare, a Toronto-based cooperative, whipped up excitement around the remarkable idea of converting animal waste into electricity. It raised $3 million, primarily from small investors, and has now broke ground on its first biogas plant, located near the Toronto Zoo.
Walking the talk
But there are also challenges. Impact-focused companies have to tread carefully and be authentic. The public has a harsh view of firms that fail to live up to their social and environmental promises.
There is also a perception that investments in companies with a positive purpose have lower financial performance. The good news is that recent evidence suggests impact investing delivers returns roughly similar to other asset classes. A recent study by the Global Impact Investing Network found that 92 per cent of investors who had made impact investments had returns that are in line with or exceeded their financial expectations. Doing good can generate resilient returns.
To demonstrate the potential of this kind of investing, the MaRS Discovery District recently partnered with Sir Richard Branson’s Virgin Unite foundation to set up the MaRS Catalyst Fund, which aims to generate market returns from early-stage impact ventures. We also operate an online investment platform called SVX to connect accredited investors with quality ventures, funds and projects that generate positive impact alongside the potential for financial return.
If we succeed, it will be a clear indication that doing good really is good for business — and good for your investment portfolio.
*Adam Spence is Director of Social Venture Connexion (SVX) and co-founder of MaRS Centre for Impact Investing.