rotmanmagazine.ca / 107networks of angel or early-stage investors, including Angel.
co and F6S.
Another option for social enterprises is social impact
bonds (SIBs), increasingly known as pay-for-performance
contracts. This is a complex investment vehicle in which a
principal (often a government funder) invests in an organiza-
tion or program that is expected to have a social or environ-
mental benefit. A third party is typically engaged to verify
achievement of the benefits, which triggers payment to the
principal. However, the benefits of SIBs may be outweighed
by the complexities.
For more established companies, issuing a green bond
is one possibility that could be targeted to impact investors
with an interest in environmental benefit. But there are oth-
er ways to structure deals to support projects with environ-
mental or social benefit.
Companies with advanced finance capabilities might
consider more complex instruments like real options or spe-
cial purpose vehicles. Real options allow an investor to partici-
pate in an investment in a tangible (real) asset. For example,
a company could offer an investor greater access to a promis-
ing green or social benefit project for a small upfront invest-
ment with the right to choose to expand their involvement
later, wait, or abandon the project.
There are also special purpose vehicles in which a par-
ent company places an asset in a subsidiary and securitizes
it or otherwise offers it to investors. This approach is already
used to manage billions and possibly trillions in public-pri-
vate partnerships involving governments, multilateral orga-
nizations and lenders/investment banks. However, in strict-
ly private markets, this promising approach may have been
destroyed by Enron, which made extensive use of them.
Sustainability professionals have come a long way in
understanding how to manage risk and add value to their
companies. At each stage, we have had to learn or otherwise
access new capabilities, including making a stronger busi-
ness case, understanding materiality, measurement and
reporting and ultimately, how to deliver both business and
social value.
These are all powerful advances. However, the better
we get, the more it becomes apparent that we need more fuel
— that is, more financial resources — for our sustainability
initiatives than is easily accessible in internal pools of capi-
tal. To overcome this challenge, we can access new pools of
external capital, but we will need to learn and engage in an-
other set of capabilities: finance and investment.In closing
Happily, the investment market is looking for good work to
fund. Many of our companies — especially the larger, estab-
lished, publically-traded ones — have strong finance capa-
bilities that we have only tangentially leveraged.
Perhaps the time has come for us to reach out to our
finance colleagues, connect our work with the capital mar-
kets, and potentially have a greater positive environmental
and social impact than ever before.Betwt een 2013 and 2017, the global impact investing mv arket
grew almost tenfold from US$ 25.4 to US$ 228 billion.Rod Lohin is Executive Director of the Michael Lee-Chin Family Insti-
tute for Corporate Citizenship at the Rotman School of Management.
This essay was first published on the website for the Network for Busi-
ness Sustainability (NBS), which is headquartered at the Ivey School
of Business. For more on this and related topics, visit https://nbs.net