Social impact is a hot topic — and for a good reason.
The call by today’s global citizenry, especially millennials and Gen Z, for socially conscientious business practices is louder than ever. The good news is that both the business and investment community is stepping up with large companies like J&J and small firms like Cash-D developing creative solutions.
While big businesses often have deep enough pockets to make investments, smaller companies usually need to rely on the investment community to turn their ideas into social impact value.
Big Businesses With Big Partnerships
Many big businesses are making bold commitments by investing in partnerships that enable societal changes. Big pharma company Johnson & Johnson has been involved in social impact initiatives for decades.
To further its commitment to eliminating its energy consumption by 2025, the pharmaceutical powerhouse acquired Colbeck’s Corner wind farm, a privately-owned renewable energy venture in Texas. Currently, this partnership is helping Johnson & Johnson with renewable energy that accounts for 60% of the company’s electricity usage in the U.S.
Through this strategic partnership, J&J is winning hearts and minds with its commitment to reducing greenhouse gas emissions. The wind farm is also experiencing a growing positive reputation and the dividends of having such a big client in its portfolio. It’s a partnership that doesn’t just help the environment, but is mutually beneficial to both companies.
In my own case study describing the strategic partnership between BP and JLL, I profile how BP and JLL launched a strategic partnership in January 2021 that was designed to transform BP’s workplaces across the globe and support its net-zero carbon ambitions. The partnership centers around mutually defined desired outcomes where JLL is incentivized for helping BP meet its goals across 200 sites globally.
The Catch-22 of Impact Investing In Small Companies
A big gap in impact investing is getting investors to support smaller startups. Oftentimes, small startups have great ideas that can have amazing social impacts, but founders lack the business savvy and investment backing to bring their ideas to life.
While interest in impact investing is growing, creating and sustaining socially conscious businesses is challenging in a tensely capitalistic business atmosphere — two challenges stand out.
First, many socially conscious businesses and initiatives (especially smaller organizations) are run by people who are more socially conscious than entrepreneurially savvy. This tends to defeat the purpose of starting a business in the first place.
The second reason, which is also partly a fallout from the first, is the difficulty associated with attracting relevant capital and partnerships that further the causes of these socially-conscious initiatives and businesses. Remember: Social impact investing almost always needs a longer-term perspective and is often riskier, thanks to a host of unknown variables.
Eitan Neishlos, the CEO and founder of Neishlos Capital, explains this catch-22:
“The very nature of social investment often makes it difficult to marry it with any long-term, significant profit-making venture. As such, many investors shy away from making investments in social-focussed startups.”
Getting investors in the same room as innovative startups without facing reasonable conflict can be challenging. Often when it comes to the investment and contracting processes, an unending series of pain points drives an adversarial wedge between investors and said startups.
Organizations such as the Netherlands-based non-profit LISI (Legal Innovation for Sustainable Investments) are trying to help bridge the gap by helping the investment community and socially focused startups create a more balanced impact investing term sheet.
A Call for Impact Investors
Neishlos is leading the charge to challenge the investment community to step up to invest in socially-focused companies. While Neishlos believes that investment companies have to take more responsibility in society, he also believes that social impact investors should remain focused on perfecting the business side.
Neishlos recently discussed his perspectives on the synergy between philanthropy and business and outlined his philanthropic vision in a panel discussion at the Jerusalem Post Global Investment Forum 2022 in Marrakech, Morocco.
“Finding companies that are both socially viable and financially viable is often a real challenge. As an investor, it is easy to fund a company, but I also wanted to ensure the leaders in the startups were getting the support they needed to help then not only achieve their social goals, but also financial goals.”
Neishlos Capital has an operational presence in Australia, Israel and Latin America and maintains a particular interest in disruptive technologies and cutting-edge fintech, such as Resonance Australia and CashD. Neishlos shares, “Our payment solutions have delivered financial inclusion through social grants, agency banking and distribution of subsidized medication.”
The Next Generation of Impact Investment
Perhaps the next generation of impact investment is right around the corner. NYU’s School of Law is hosting its annual conference in 2023 on Legal Issues In Social Entrepreneurship and Impact Investing – In the US and Beyond, which is being co-organized by NYU Law’s Grunin Center for Law and Social Entrepreneurship and the Impact Investing Legal Working Group.
The conference will take place on June 6 and 7 on the campus of the NYU School of Law in New York City. The conference is expected to attract over 300 lawyers, students and other stakeholders from across the globe who will attend in-person, as well as online.
Deborah Burand, faculty co-director of the Grunin Center and professor of clinical law at the NYU School of Law, is excited about the conference. “To advance the next generation of impact investing, we need to encourage both financial capital and knowledge capital to flow into these impact investments. Our growing legal community of practice is all about sharing knowledge to innovate, replicate and ultimately, drive down transaction costs so that greater positive social impact can be generated.”
Thankfully, the world of impact investing appears to be headed in the right direction.
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