These challenging times have helped bring to light the importance of owning, operating, and investing in businesses that are specifically driven, and required, to have positive impact, defined broadly as environmental, social, and corporate governance (ESG) investing, impact investing, triple bottom line investing, purpose investing, etc. The good news is that funds are flowing into ESG investments at an accelerating rate.
Impact investing is here to stay, and my hope is that it will become more widespread — and virtually mandatory — to care about all stakeholders in our businesses, not just shareholders. As millennials and members of Gen Z become the investing, working, and buying majorities, making your business “walk the walk” is going to be critical to your future success, as stakeholders choose to vote with their wallets.
Impact Investing on the Rise
According to the US SIF Foundation, sustainable investing in the U.S. continues to expand at a healthy pace. U.S.-domiciled assets under management using sustainable investing strategies increased to $17.1 trillion at the beginning of 2020, up from $12 trillion at the start of 2018, a 42 percent rise. The 2020 figure represents 33 percent of the $51.4 trillion in total U.S. assets under management.
Why is this happening? Millennials care a great deal about what companies they invest in and how they spend their money. They are voting with their wallets by choosing to invest in, and buy from, companies that are socially and environmentally responsible. Young people are not alone in this. According to Morgan Stanley, interest in sustainable investing among all individual investors jumped from 71 percent in 2015 to 85 percent in 2019, and in millennial investors from 84 percent in 2015 to 95 percent in 2019. Businesses are under increasing pressure to step up to meet the challenge of becoming socially and environmentally responsible, driven by a large and increasing demand from investors and consumers.
Building Impact Into Your Company’s DNA
To ensure your business is making the most impact possible, consider the following steps and tips:
- Legally organize your business as a Public Benefit Corporation or Public Benefit Limited Liability Company. A PBC or PBLLC is legally required to consider the impact on internal and external stakeholders while pursuing profits. As a public-benefit entity, your company would have a fiduciary responsibility to balance stakeholder and profit considerations. There are at least 35 states in the U.S. that have public-benefit entity forms of organization. An attorney can assist you with creating or transforming your business to be incorporated in this way.
- Become a Certified B Corporation. Certified B Corporations, or B Corps, are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy. B Corps fill the void between the work of government and nonprofits. B Corp certification is an exhaustive process that looks at all aspects of your business, including mission statement, company policies and procedures, ethical business practices, customers, supply chains, environmental impact, employee treatment, facilities management, waste management, stakeholder engagement, and more. Suffice to say, B Corp certification is a great achievement, and it requires a substantive commitment to maintain it.
- Do Both: Be a Public-Benefit Entity and a B Corp. Your employees, customers, suppliers, and other stakeholders all benefit from the company’s commitment to the principles and practices of being a B Corp and a public-benefit entity. There are currently more than 3,600 B Corps spread over 150 industries and more than 70 countries worldwide — all with one unifying set of principles and business practices. There are over 800 companies that are both B Corp certified and organized as public-benefit entities. Consider putting your company in this category, with a mission of doing good and making money at the same time. At some point, this will become the norm rather than the exception.
- Be transparent. By committing to serve stakeholders alongside maximizing profit, clear multi-directional communications are necessary to earn and build trust that your company is faithfully fulfilling its mission to have positive impact. Frequent communications with directors, shareholders, communities at large, media outlets, and team members build a cohesive, mutually reinforcing ecosystem that can propel your business to new heights with loyal support from all directions. Be honest, open, and fair — and listen to your biggest fans and worst critics. There is something to be learned from anyone who takes the trouble to communicate with your team.
- Empower your team. Employees, contractors, board members, advisers, and investors have unique perspectives on the company — keep the door open and listen to their ideas. Give your team a real say in the company’s direction. Encourage dialogue, poll stakeholders, stress test ideas for new initiatives, and foster an environment of collaboration, accountability, and mutual respect. Teamwork can transform the impossible into possible — it just takes a little longer.
- Take action. A lot can be learned from the actions we take, and the actions taken by others. Pay attention to what people do, not to what they say. Putting in place mission-aligned policies and backing them up with consistent and appropriate actions from the top down takes the interpretation of words out of play. Positive, impactful actions are more powerful and demonstrative than any lofty mission statement posted to your website, letterhead, or delivery vehicle. Positive impact builds brand equity faster than any slick media campaign. Words and imagery seem hollow with inconsistent actions.
- When in doubt, do the right thing. If you are the least bit hesitant about taking a certain action, it is probably not a good thing to do.
Ed Tepper WG86 is chief operating officer and director at CoPeace, a public benefit corporation and certified B Corp. CoPeace is an impact investing holding company that invests in businesses that have positive social and environmental impact.