Sustainability is the biggest economic opportunity of our times

The global drive for investment in sustainability is at risk of waning in response to the pandemic’s economic impacts, but experience shows that sustainability itself brings economic opportunities.

Published: 17 Nov 2020
Author: Antonio Miguel
Type: Insight

Sustainability focuses on the long-term, a concern for future generations, leaving our people and planet better than it is today. The mission is crucial, but the task at hand is challenging given its complexity: sustainability encompasses a triple bottom line which includes economic, social, and environmental considerations. Sustainability cannot happen in isolation and requires a coordinated approach from businesses, investors, and governments. 

The year 2020 is witnessing a legacy of environmental and social challenges, including climate urgency, Covid-19, Black Lives Matter, and so many other events that have turned the tide on how sustainability is seen. I work at an impact early-stage fund that partners with tech ventures tackling the most prominent environmental challenges we face as a society. It is our belief that sustainability is the biggest economic opportunity of our times. This is rooted in three tenets: 

1 – Consumers want sustainability and are influencing their purchasing decisions accordingly. More than 2/3 of millennials will pay more for products from sustainable brands, according to Nielsen. It is not by chance that the first movers in eliminating single-use plastic and plastic-based packaging have been consumer-facing businesses, who are being more promptly scrutinized.

For example, with Covid-19 as an accelerator, we are seeing a growth in sharing economy platforms and related solutions (e.g. insurance), capitalizing on users wanting access over ownership. If a product is underused during its lifetime while it sits idly at home, it makes sense to be used by other people. Better use of products during their lifetime reduces acquisition and, consequently, production. This is the thesis behind ventures like Rnters (a rental marketplace for everyday items) and Omocom (a full-stack digital insurance solution for the circular economy).

2 – Talent is moving to employers that place sustainability at the core of their actions. Around 75% of millennials want a job where they feel there is a sense of purpose towards people and the planet, according to Deloitte’s annual survey. Professional services firms whose business model relies on selling their talent through advice and counseling have been the first movers, to keep an edge on talent acquisition. Our investment and partnership with Platypus (a talent lifecycle solution to measure organizational culture) build upon the realization of how much values drive performance.

3 – Big problems often hide big opportunities. The 17 UN Sustainable Development Goals are estimated to cost the global economy more than $10 trillion. Examples include food waste which costs $1 trillion to the global economy and leads to 3,3 billion tonnes of CO2 equivalent per year. Another example is unemployment: after Covid-19, unemployment levels reached all-time peaks in several OECD countries, and structural unemployment is expected to grow in the coming months.

The way employment outcomes are funded currently does not align the incentives between those acquiring the skills and the providers of those skills, towards employment. The growth of Income Share Agreements (ISAs) through which students only pay their loan when they enter the job market and earn above a certain threshold, aligns the incentives between students and their education providers, who will then make sure that their training does not end in the classroom but continues until an employment outcome are achieved. This funding model ensures that people who lost their jobs can fund their requalification towards areas with growing employability, including green jobs. Student Finance is pioneering this model in Europe.

These three tailwinds result in a growing allocation into green and sustainable investments, which have reached $30 trillion globally in 2018, up 34% since 2016. With most of these assets being encompassed by green bonds, this trend is likely to demonstrate that sustainable businesses will see a lower cost of capital when compared to non-sustainable alternatives.

The formula is simple: sustainability is a driver of better consumer engagement, productive and retained talent, sizeable market opportunities, and wider access to capital. Businesses cannot ignore it in the way they create value, investors are making allocation decisions accordingly, and governments are and should be pushing for regulation that favors such investments. The economic opportunity of sustainability will be realized when profit is made from solving environmental and social problems, rather than when it is made by externalizing social and environmental factors. That new paradigm is much closer to happen than it’s ever been.

This article was originally published by Impakter

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