In a previous life I worked with sales executives who sold HR solutions to global organizations. It was while I was reviewing the annual report for one of our prospects, a household brand consumer packaged goods organization, that I had an epiphany that took its time settling in but ultimately led to co-founding Red Rocks:
Companies need to get a lot smarter and less wasteful about how they use resources, and the smart ones know it.
It wasn’t news to me that we have big problems to solve, many created by large global conglomerate organizations. However, this annual report helped me realize that some companies are capable of looking past short-term profits. They understand that sustainable materials management, production and distribution is good business, which is why a growing number of consumers want to buy from them. I also realized in this moment that this is where the smart money is going to be in future, as natural resources get scarcer and more expensive.
In other words, it’s possible to invest wisely from both a financial and a sustainable perspective. In fact, taking a long-term view, it’s the only wise choice for companies and investors alike. Impact investing is defined as ‘generating a measurable social or environmental impact alongside a financial return,’ which distinguishes it from philanthropy or purely financial investment, which doesn’t care about the damages or cost to the public.
Bottom line: If we continue to depend on fossil fuels and wasteful manufacturing practices, we will face extinction for destroying our climate and failing to adapt. One of the key goals of impact investing is to avoid that fate.
The other goal is to make money doing it. Independently from the climate impact of wasteful extraction and dirty production, it’s bad for business and the economy when the natural resources we depend on dry up or become prohibitively expensive to extract. Prosperity becomes increasingly thinly spread, shrinking the total economic pie as buying power shifts to human necessities. That’s why the market needs to correct course by rewarding ventures that deliver sustainable returns, and start demanding impact KPIs side by side with financial returns.
So, where to begin?
Impact investing is an emerging field so there isn’t a long track record or even agreed upon clear impact metrics yet. That means new impact investors have to do a lot of extra due diligence and make it up as they go. Fortunately, some things always hold true. My grandfather consistently made wise stock market investments on a moderate salary on a few basic principles, the key one being: People will always need food, energy, housing, and water. If you apply that principle to impact investing, you find profitable opportunities to invest sustainably in renewable energy, sustainable agriculture and housing, and modern water treatment technologies.
That’s our starting point, and we plan to expand our portfolio as we gain expertise and traction. Our journey will be documented here to add our voices and financial swing mass to the growing movement toward impact investing.
Yes, it’s a growing movement as family offices around the world team up to change the course of human history with systemic thinking and combined financial power. According the UBS 2018 Global Family Office Report, more than a third of all family operated investment offices are engaged in impact investing, a number expected to increase dramatically as the next generation assumes control. That translates to $22.89 trillion managed under ‘responsible investment strategies.’
So, we seem to be onto something here. At least, as parents and global citizens, we hope so. Stay tuned and watch this space.
Making money do more....