This post is part of an EDF+Business ongoing series on sustainable finance, highlighting market mechanisms and strategies that drive environmental performance by engaging private capital. EDF is actively engaging leaders with the capital and expertise needed to catalyze sector-wide changes—from accelerating investment in energy efficiency and clean energy, to protecting tropical forests, restoring depleted fisheries and saving habitats of endangered species.
I recently returned from SOCAP15, an annual conference “at the intersection of money + meaning”… in other words, a good place to be if you’re interested in how to harness markets to deliver financial, as well as social and environmental, returns. A record 2,600 attendees turned up this year, evidence of the growing interest in sustainable finance.
The increased focus on this space has triggered a wave of innovations aimed at addressing some of the sector’s key challenges, such as building and supporting a pipeline of investible entrepreneurs, securing sufficient demand from investors, and linking those players so that capital can flow efficiently to provide the greatest impact. It’s a challenging road ahead, but the conference offered important proof points that help show the way forward.
Growing support for entrepreneurs
Now is a very good time to be a social or environmental entrepreneur. We are witnessing a growing array of resources, services, and incubator and accelerator programs aimed at kick-starting ventures and preparing them for investment. One exciting example: Agora Partnerships hosted 20+ “deal rooms” at this year’s conference, offering Latin American-based entrepreneurs who had completed Agora’s intensive six-month accelerator program the chance to pitch to interested investors. Last year, these deal rooms resulted in eight investments, ranging from $50,000 to $500,000. EDF is in the early stages of engaging with Agora as we look to scale our sustainable fisheries finance work in Latin America.
Increasing demand from investors
Investor demand is rising to meet the growing supply of social and environmental ventures. A recent survey by US SIF – The Forum for Sustainable and Responsible Investment shows that U.S.-based sustainable, responsible and impact investing assets grew 76% from 2012 to 2014. Another driver of demand is the growing trend of big banks, such as Citi, Goldman Sachs, and Bank of America, committing to increased investment in environmental innovation.
The demand extends beyond banks and institutional investors – to individuals, foundations, and companies, all of which have roles to play. During a panel discussion, Sasha Dichter, Chief Innovation Officer of Acumen Fund, an international nonprofit venture fund, noted a recent shift in how companies invest in their supply chains to build more sustainable businesses: moving from funding initiatives to becoming more deeply engaged, strategic partners. He cited the example of Acumen’s partnership with Unilever and Clinton Giustra Enterprise Partnership, which will improve the livelihoods of up to 300,000 smallholder farmers globally by investing in enterprises to support farmers and incorporate them into Unilever’s global supply chains.
Our own work to support sustainable fisheries also shows the importance and effectiveness of attracting a variety of investors in building more sustainable enterprises. At the global scale the stakes are large, and public and private capital sources have vital – and viable – roles to play. New research by University of California-Santa Barbara, Environmental Defense Fund, and the University of Washington shows that managing the world’s oceans sustainably could increase profits from the fishing sector by $51 billion a year compared to today, and $90 billion per year compared to a ‘business-as-usual’ scenario that factors in the declining health of the world’s oceans unless reforms are made. EDF’s work with the Prince of Wales’ International Sustainable Unit lays out a high-level framework for leveraging philanthropic, public, and private capital towards achieving the kinds of reforms necessary to provide more fish in the water, more food on the plate and more prosperous communities.
Simply having a supply of entrepreneurs and a demand from investors may not be enough to spur investment at scale. A number of hurdles remain in connecting entrepreneurs and investors with each other and with other critical actors, like those providing technical assistance to new ventures or due diligence to vet potential deals. Web-based platforms have been developed to help facilitate connections; however, the lack of standardization or connectivity among platforms limits their reach.
The SOcial DAta Commons (SODA), a data exchange that connects various web platforms and launched at SOCAP this year, offers a promising example of how to increase connectivity and decrease transaction costs for organizations working across platforms. By standardizing how basic information about enterprises is reported across platforms, SODA hopes it will help the various platforms “raise their visibility and lower their costs,” as stated by David Bank, of Impact Alpha, one of SODA’s co-founders. Other founding members of SODA include Artha Platform, Sphaera, Smartgrid, SVX, and USAID Global Innovation Exchange, and SOCAP.
Standardizing transactions is another key component of strengthening connections and decreasing transaction costs. For example, EDF is tackling this issue head-on with our Investor Confidence Project (ICP), aimed at unlocking access to financing for the building renovation market by standardizing how energy efficiency projects are developed and measured. Financing for energy efficiency represents a potential $1 trillion market – but, to access even a small portion of that total, the energy efficiency industry needs to demonstrate investment outcomes more clearly to investors. ICP addresses this issue, in part, by defining a clear roadmap for developing projects, determining savings estimates, and documenting and verifying results.
Finding market-based solutions to environmental challenges is a tenet of EDF’s approach, and this year’s SOCAP conference provided plenty of inspiration to consider for our own initiatives. As our work in sustainable finance advances, we’re working to make sure that new capital can flow towards solutions in spaces as diverse as sustainable fisheries finance and energy efficiency investment – and do so in ways that ensure investments generate real environmental results alongside financial returns.
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