Recruiting Impact Investing to Grow the Bioeconomy

By Cynthia Thyfault, Global Biofuture Solutions, Founder and CEO and Gerard J. Ostheimer, PhD., Co-Founder and CSO

Special to The Digest

Impact investing is an exciting and rapidly growing industry powered by investors who are determined to generate social and environmental impact as well as financial returns. This is taking place all over the world, and across all asset classes.  Impact investing has grown 34% worldwide since 2016, reaching assets of more than US$30 trillion at the start of 2018. The pace of issuance in green bonds has also exceeded expectations with US$1 trillion in annual green investment in sight in 2020.

Sustainable investors aim for strong financial performance, but also believe that these investments should be used to contribute to advancements in Environmental, Social, and Governance (ESG) practices. Specifically, they seek out investments that are likely to provide important societal or environmental benefits. Some investors embrace sustainable investing strategies to manage risk and fulfill fiduciary duties. They evaluate companies using Environmental, Social, and Governance (ESG) criteria to assess the quality of management and the likely resilience of their portfolio companies in dealing with future challenges, like climate change. Some are seeking financial outperformance over the long term. Analysts at BlackRock recently highlighted the growing body of academic research that shows a strong link between meeting ESG standards and superior financial performance.

ESG criteria are a set of standards for a company’s operations. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits and internal controls, and shareholder rights.

A heightened regulatory environment is also calling for more transparency regarding ESG reporting requirements, but the motivators for focusing on ESG today go beyond the need to adhere to strict regulatory guidelines.

This growth is creating an exciting and unprecedented demand for investment opportunities in companies whose products and services benefit the climate, the environment, and/or society. As such, bioeconomy companies can and should easily tap into this new source of funding; however, senior management and boards of directors need to understand the motivations of the sustainability-minded investor and prepare detailed ESG materials that properly reflect the desires of the investor as well as meeting international standards

How can the bioeconomy tap into this new and growing source of global finance?  There are four key strategies that need to be developed and documented prior to approaching impact investors for investment.

1. Understand what ESG is and how it is evaluated. There is a growing list of ESG standards and ratings agencies, including the Global Reporting Initiative, IRIS+, MSCI, SASB, and Sustainalytics to name a few.  These organizations have developed and are leading adoption of international ratings standards. Ironically, this diversity in standards is also resulting in confusion as to which standards should be used, and the standards themselves continue to evolve.

2. Understand where your strengths and weaknesses are and create a plan to shore up the weaknesses. Most bioeconomy companies score high on the environmental attributes, but impact investors are equally interested in how employees are treated, how ethical your business is, and how you plan to protect it. As such, bioeconomy companies would be well served to understand how to report on social and governance criteria.

3. Understand both your ESG risks, as well as other business risks, and have a risk mitigation plan in place for all of them. Your project is competing with a stack of others, and will be evaluated on a 360-degree risk spectrum as well as financial performance. All impact investors have developed their own proprietary ESG formulas and if your project doesn’t meet the ESG and risk evaluation criteria, you won’t get the investment.

4. Don’t look back on the way investment has happened in the past, look forward, and embrace this new opportunity to the fullest. Most bioeconomy businesses are not well-versed in impact investing and ESG topics.  It’s time to invest time and resources to properly plan and prepare for success.

The time is now for bioeconomy companies to embrace the scope of impact investing opportunities and design and implement business strategies that match investors’ desire for investments with environmental and social benefits, including the climate change solutions that the world so desperately needs.  The world is counting on us to act fast and build exuberantly.   Now more than ever companies need to move forward with these new strategies for investment success.

Global Biofuture Solutions provides leadership to accelerate growth of the Global Bioeconomy. We develop and manage a suite of high-quality tools and services that can accelerate project development and financing both domestically and internationally. We combine our expertise in financing with a deep knowledge of sustainability certification to assist clients in participating in ESG capital markets.

Stay tuned for more in-depth articles coming soon on this topic as part of a series.