How sustainability is becoming a part of mainstream funding and investment

How sustainability is becoming a part of mainstream funding and investment


Building a healthier and more sustainable planet for our future generations has never been felt more urgently than in 2020, when the coronavirus pandemic brought the entire world to a grinding halt. Be it agriculture, or sustainable clothing, vegan products, climate change or environmental startups, investment funds are now focusing on businesses that can be built with least impact on the environment. 

The focus on sustainability began sometime in late 2019, but, for obvious reasons, it accelerated in 2020. According to YS research data, in 2020, a total of $67.29 million was pumped across 18 deals in energy, waste management and cleantech startups. This year $6.46 million was pumped across five deals. 

At the World Economic Forum’s Digital Davos event, Hollywood actor Robert Downey Jr announced the launch of his venture fund, FootPrint Coalition Ventures. The group aims to combine high impact media with early-stage and opportunistic growth stage investments, with a focus on sustainable technology, AI, and robotics, among others.

 

Closer home, Indian Funds too have begun to take a keen and active interest in startups that display sustainability and protection to the environment. Nithin Kamath, Founder and CEO of the online brokerage firm, Zerodha, announced the launch of Rainmatter Foundation in January this year. 

The $100 million Rainmatter Fund will be focused on building a playbook for climate change solutions and livelihoods, taking risks with potentially scalable experiments, and lessening the concentration of wealth in the hands of a few, to create an equitable society. 

The funding amounts in the startups are significantly increasing as well. Ahmedabad-based dry waste management company Let’s Recycle’s parent company, Nepra Resource Management Private Limited, has raised $18 million in Series C funding, led by Aavishkaar Group’s impact investing arm, Aavishkaar Capital, and Circulate Capital.

Circulate Capital is a Singapore-based investment management company focused on preventing plastic from leaking into the ocean, and advancing the circular economy. The fund has been established in partnership with PepsiCo, Procter & Gamble, The Coca-Cola Company, Chevron Phillips Chemical, Chanel, Unilever, Dow, and Danone, and calls itself the world’s first investment fund dedicated to combat ocean plastic in South and Southeast Asia.

Startups Climate Change

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Joining the mainstream

So while these green investing funds stay focused solely on the environmental cause, many mainstream funds are also joining the trumpet call. 

“We are investing in consumption, and the future of a billion people. If we ignore the present, we’re going to leave the world in massive disarray. Imagine if one billion people have a mindset of production that does not care, we could leave behind a mess,” says Sandeep Murthy, Partner, Lightbox Ventures. 

He explains that the idea of being good to society and the environment, as well as making a profit, does not have to be mutually exclusive. There needs to be a change in how we look at impact funding, as opposed to for-profit funds. And this idea was accelerated by the pandemic. 

In October 2020, Stellaris Venture Partners and IFC announced the launch of a new programme, AI4Biz, to support early-stage AI-focused enterprise SaaS startups. The programme had startups like Prescinto, a SaaS platform, which applies AI on solar power plants to identify causes for underperformance and suggests work orders to plant crew. Blue Sky Analytics, a data intelligence startup, leverages satellite data and AI to generate environmental datasets across a range of air, land, and water parameters.

“Funds across categories are looking at startups that are sustainable, and that doesn’t mean they function with no business models or revenues. The idea is to create a business out of sustainability,” said Prashanth Prakash, Partner, Accel Partners, at a panel discussion at the BHive InvestTech conference. 

Explaining how organisations can make a difference, he cited the example of agritech startups with a clear goal of sustainability. The companies in this space explore how supply chains can work differently, and constantly strive towards reduced waste generation on farm produce. 

Anup Jain, Managing Partner at Orios Venture Partners, explains “Climate change and its adverse impact is being recognised globally. At Orios, we see an opportunity in the usage of cleaner technologies that helps us eat, commute, cool or warm our surroundings, and entertain or take care of our health in a more responsible and sustainable way, while not taking up the cost too much so that there is widespread and early adoption.” 

Sustainability

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Sustainability and revenue – not mutually exclusive 

How can organisations shift their focus to align impact and growth equally? According to Lightbox Ventures’ Sandeep, the example of Bombay Shirt Company (BSC), the customised clothing brand, is apt. 

The brand fundamentally believes that fast fashion is not helping the environment, and more clothes are being thrown away than ever, leading to overflowing landfills. A BSC shirt is only made when an order is placed, and customers have the option of free lifetime alterations. 

Another example of sustainability and profit working hand-in-hand is the American brand – Patagonia. The brand is known to produce some of the best outdoor gear used by trekkers, mountaineers, adventure sports enthusiasts, and many others. Yvon Chouinard’s company is known as much for its sustainability initiatives as it is for the quality of goods. 

The company had an estimated revenue of $800 million in 2019 according to a Forbes report. The sole owner of the company, Chouinard’s net worth is over $1.2 billion.

In his book, Let My People Go Surfing, Chouinard says – 

“I think of Patagonia as an ecosystem, with its vendors and customers as an integral part of that system. A problem anywhere in the system eventually affects the whole, and this gives everyone an overriding responsibility of the health of the whole organism. It also means that anyone, low on the totem pole or high, inside the company or out, can contribute significantly to the health of the company and to the integrity and value of our products.”

The choices of today will shape our planet tomorrow, and it is easy to imagine the impact of another potential Black Swan event, like the coronavirus pandemic, on people and businesses alike. By keeping sustainability at its heart, investment funds can expect growth and profit of a different kind – one that is beneficial to all.





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