How to Make Your Organization Attractive to Green Investors
The recent YouTube interview with David Barnett, which focused on going green and sustainability as a competitive advantage, highlighted ways that sustainability can grow an organization’s attractiveness to potential investors.
The interview sparked some questions as to whether it makes sense to go green in order to attract potential investors and buyers. Some small business owners and managers were concerned that this would take a lot of time and not yield results, while others – including many green champions in small and medium sized businesses - saw it as a ‘must do’ for their business’ long-term financial sustainability.
In general, the trend is that investors are increasingly asking organizations what they are doing in terms of going green. A recent CNBC article suggests that green investing could even be a mega trend. Some of the points in the article highlighting investors’ interest in this topic include:
A January 2020 study that showed that ‘firms exercising a negative social impact were valued at $0.9 less per share than those considered socially “neutral;”
Another study that found that in five years, ‘almost one in five investors said they would allocate between 21% and 50% of their portfolio to ESG (environmental, social and governance) fund;’ and
A recent AIMA and KPMG survey of 135 institutional investors, hedge fund managers and long-only managers where ‘84% of managers reported an increased interest in ESG-orientated funds and strategies over the last 12 months.’
While many smaller businesses may look at this and think it is just for the bigger companies, consider that your local bank or angel investor is likely to also be looking at this topic, only on a smaller scale. As a side note, you can learn about angel investors on sites such as AngelList, Flashfunders and SeedInvest.
Below are some specific steps that your organization can take to become more attractive to investors focused in lending to or buying green organizations; while these are by no means comprehensive, they are a solid starting point:
1. Green your operations: Greening operations involves reviewing current practices and identifying ways these can become more environmentally sustainable. This can include reducing energy and waste costs, streamlining processes to input and outputs, and replacing some products used in the business with eco-friendly (and often cost-neutral) alternatives. Identifying ways to reduce operating costs also shows that your organization is fiscally responsible, something that potential lenders and investors look for.
2. Make your products more environmentally sustainable: This can include the following: manufacturing some or all of your products with recycled materials, reducing packaging, eliminating or reducing plastic used, sourcing raw materials from ethical vendors, reducing waste sent to landfill and creating products that can be reused, repurposed or recycled. Alternatively, you may identify new products or services that your organization can offer that are more environmentally sustainable than your current ones. Sustainability is an opportunity for innovation – and an innovative and forward-looking company is more attractive to potential investors.
3. Get certified by a third-party: While there aren’t many nationally recognized third-party certifications for greening your business operations, you may want to look into industry-specific certifications. Examples include Green Guard for manufacturers of interior products and materials, Green Seal for janitorial products and cleaning services, Energy Star for appliance manufacturers, or Forest Stewardship Council for wood-based products. If there are no third-party green certifications within your industry, you may also want to consider becoming a certified B corporation once you have completed a few green projects. When considering certifications, be aware of green washing – there are many certifications out there that are not vetted; choosing a nationally recognized one should help address this.
4. Report on your sustainability initiatives: Once you have implemented a few going green projects and have started tracking them, reporting on your going green and sustainability efforts is a way to be transparent. Reporting means discussing not only your sustainability successes but also the challenges you are facing. The report not only provides transparency and accountability, but it also details your organization’s actions in the face of climate change. Once you start reporting, it is best to continue to report on a yearly basis to show progress and continued effort.
All of these actions are of course in addition to the more traditional steps to take to make your organization more attractive to potential investors such as having audited (or reviewed) financials for the past three years and having a strong leadership team, among others.
If you are looking to support your organization in going green, be sure to download our FREE Beginner’s Guide to Going Green, which includes 50+ low-cost and no-cost projects to get started with going green.