This article features as part of IFA Magazine’s celebration of World Earth Day
Why is impact investing much more than just doing good? Saving the world from certain destruction was once a market cornered entirely by superheroes, says SyndicateRooms’ Martin Dean. That is to say, to most people’s knowledge, nobody of note was doing it outside of fiction.
What was the world being saved from? Interestingly, at a certain point in history, the bad guy was increasingly a corporation. Lex Luther’s corporation – LexCorp – first appears in Superman comics in 1986, a few years after Terminator’s SkyNet entered the public consciousness. Did these companies have strong ESG principles? I think not.
ESG itself traces its roots to the 1960s, when the exclusion of industries from investor portfolios once more associated with religious principles (i.e. avoiding investment in industries that were considered sinful, like tobacco or gambling) was used to express support for civil rights. The widespread withdrawal of investment from South Africa in the 1980s, due to its apartheid policy, is one early example of this divestment activism, or as it’s come to be known today: impact investing.
This was an investor-led initiative, which is an important detail when you consider that Corporate Social Responsibility really didn’t start to become widespread until the 1990s, and arguably not until the 2000s, when major corporations like Coca-Cola, Walt Disney, and Pfizer began to emphasise it. That explains why Superman was still fighting an evil corporation in the late 1980s.
(To quickly tidy up the overlap of ESG and CSR – ESG is generally considered the set of criteria an investor uses to assess a potential company for investment, while CSR is a corporate practice that forms part of a company’s business model.)
It’s an important detail because that trend of investors taking a stand in the name of principle has evolved into today’s system – ESG – by which investors can assess, to a degree, whether companies are principled enough to deserve investment. There is of course the added bonus, according to some research, that a company’s adherence to ESG principles brings a number of business advantages that make that company a better long term investment anyway. So, reason to celebrate even for the unprincipled.
Impact investing has grown steadily over the past decade. In 2010 the Global Impact Investing Network’s (GIIN) annual survey had around fifty respondents, 75% of which thought the market was in its infancy and who expected to invest an aggregate $4 billion the following year. In 2021, the GIIN’s report was based on feedback from close to 300 investors, 69% of whom regard the market as growing steadily and who expect to invest $48 billion in 2021. The total market size is now estimated at around $715 billion.
It is encouraging that what began as investor activism has evolved to become a defining vertebra of today’s startup ecosystem, particularly when we consider how many new businesses are founded with missions to improve social conditions, engage with environmental and energy challenges, and for whom strong ESG practices go without saying. Investor principle has led to a situation where all new companies, to some degree, are trying to make an impact on some of the fundamental problems that affect the world and the survival prospects of the human species. Or, in the parlance of superheroes: saving the world from certain destruction.
While the image of the evil corporation that exists in the popular consciousness, threatening everything from the environment to social conditions, probably isn’t going anywhere soon, it’s encouraging to see that its nemesis, the superhero, might today be living a double life as a founder, or an investor.
Increasingly, the startup ecosystem is evolving to become a powerful engine for positive change, and the place that people who want to make that change, whether it’s through developing the latest innovation in an industry that directly impacts social and environmental conditions, or simply through ensuring that their business adheres to ESG principles. With any luck, and if these trends continue, there’s a chance the world won’t need a superhero at all.