Capital for Good: The Corporate Venture Capital Solution

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The world’s challenges are clear. As Secretary-General Ban Ki-moon referred to it, governments and businesses have never before had such a concrete “to-do list for people and planet.” We now have 17 Sustainable Development Goals (SDGs) that apply not only to all 200 members of the UN, but are also broad and ambitious in scope, and focus on all three dimensions of sustainable development: social, economic and ecological.

This agenda came about in part due to the High Level Panel, which published its report on the post-2015 agenda in May 2013. This diverse group came up with a coherent analysis of transitions in the world and formulated ambitious goals as well as defined a number of critical success factors.

One of the critical success factors is capital. In fact, it is probably the primary success factor in solving the problems of the world, as capital is a main driver. In recent years, this realization has increasingly influenced the financial markets. Exclusion criteria is becoming more ambitious and pervasive, and there is an unmistakable trend to divest from fossil fuels simply because the risk is now too big and thus no longer in line with the ESG strategy. Investors, banks and pension funds are consequently closing the ‘back door’.

Capital for Good

At the same time, a significant financial movement is visible and upcoming. It is what I refer to as ‘capital for good’. Simply said: the front door. This is the explicit investment in businesses, funds and bonds that have a direct, positive impact on the aforementioned SDGs. This is demonstrated by the growth in investors buying green bonds and the attention it is getting, also from stock exchanges. These investments are predicted to triple by 2018 to a total of 300 billion dollars.

Private equity firms are also innovating for good, such as New Crop Capital, who invests in disrupters of animal agriculture. New Crop Capital argues that the meat, egg, and dairy sectors, representing a $700 billion global market, is ripe for innovation and large-scale disruption for sustainability purposes.

Now a new trend is evolving. The front door is also opened by business itself. They put their Corporate Venture Capital on the table.  In the comprehensive 2014 report “Investing in Breakthrough”, John Elkington describes Corporate Venture Capital (CVC) as “a discrete investment activity into an independent company or a portfolio of companies with the objective of achieving both financial and strategic return to the parent company.” The strategic return is particularly essential. The companies with CVC investment are often innovative start-ups or scale-ups, and the investment also serves to gain access to new knowledge and core competencies.

The strength of the CVC model is twofold. Firstly, innovative ideas are effectively linked to economies of scale and financial power. This creates enormous potential leverage, especially if the multinational start-up or scale-up also provides access to their own global network and knowledge network or acts as a launching customer. Furthermore, this model helps large companies to realize their long-term strategic objectives.

CVC for Good

The CVC model itself is not new, but the current exponential growth that we are experiencing is new.  This growth is fueled by numerous disruptive, transformative trends which greatly increase the pace of innovation and business endeavours. Large companies are therefore looking for faster ‘shortcuts’ to enter new markets and accelerate growth. They are looking to innovate with a manageable risk and an assurance of a financial return of at least of part of their investment. But what is truly innovative is that they are increasingly using Corporate Venture Capital to realize their long-term goals for 2020 and beyond based on the SDG agenda. ‘Business for good’ is gaining ground.  And Capital.

This phenomenon is sometimes called ‘Corporate Impact Venture Capital’, or ‘Corporate Shared Value Venture Capital’. I call it more concisely: ‘CVC for Good’. This form of CVC is intended to not only realize the long-term strategic objectives of the investing company, but also to help solve the world’s problems more quickly. With mission driven companies that aim for business for good, these two aims are basically the same. This comprehensive goal is possible because new markets and business cases, and delivering a positive impact on SDGs essentially coincide. “Business as a force for good is a trillion-dollar business case”, as one reviewer noted in response to my book New Economy Business. Capital invested in positive impact business cases can therefore provide the ‘usual’ financial return and contribute to the strategic objectives and to the betterment of the world – all at the same time.

The list of examples of CVC for Good is getting longer every day, and moreover, the size and the funding is increasing as well. For example, Unilever Ventures is investing $200 million in promising young companies (‘tomorrow’s world-beaters’). These start-ups not only receive capital investment but also access to Unilever’s global ecosystem as well as their assets and expertise. Hydra Ventures, the corporate venturing division of Adidas, invested nearly two million dollars in CRAiLAR Technologies Inc. last year. CRAiLAR Technologies Inc. is a company that makes sustainable, environmentally friendly fibers and fabrics for textile, paper and composite use. And the listed publishing company Pearson poured $15 million into the Pearson Affordable Learning Fund (PALF) for the development of low-cost private education systems in the developing world. The Body Shop International not only directly invested in Divine Chocolate Limited (a Fairtrade chocolate company owned by a cooperative of Ghanaian cocoa farmers), but also supported this cooperative through the purchase of raw cocoa products. Morgan Stanley made a 5 million dollar equity investment into Eleni LLC, a Nairobi-based company that designs, builds, and supports the commodity exchange eco-systems in frontier markets. And the list goes on.

Global challenges: the bar is set higher in 2020 by mission driven companies

My estimate is that CVC for Good will become a stronger force in the next few years, and we will most probably see exponential growth. More and more progressive sustainable multinationals have formulated goals and set clear ambitions for 2020 and beyond based on the SDGs, and thus they have established a business for good approach. Scaling up innovative ideas and companies in this sense is a must.

For instance, Nespresso has launched its 2020 sustainability ambition, The Positive Cup, and the Nespresso Sustainable Development Fund, based on an investment of CHF 500 million over the next six years. Unilever is striving to not merely become CO2 neutral by 2030, but be CO2 positive. In addition to its venture fund of 200 million, Unilever recently announced their commitment to increase its use of crowdsourcing, with the launch of its Unilever Foundry IDEAS. The new platform will become a hub to centrally organise all crowdsourcing briefs, and allow the business to increase by tenfold its use as an idea-generating mechanism by 2020. Unilever Foundry enables innovative startups that are ready to scale up to partner with Unilever and its 400 brands in over 190 countries. DSM Coating aims to see bio-based binders as the worldwide norm by 2030. The global player Interface is currently formulating their post-2020 ambitions in a similarly spectacular way as they did a decade ago. And so on.

Every one of the mission-driven companies knows where they want to go and their strategy is clear. This enables them to find start-ups and scale-ups that match their strategy, or to reach out to companies and find innovative ideas that can accelerate both their growth and their own increasing impact. Mission-driven companies have the advantage that they are often used to thinking far outside their own four walls, collaborating with diverse stakeholders and partnering with NGOs and governments. CVC funds reflect this way of working as well, as the examples above clearly illustrate.

Linking business and capital for good

 In the Stanford Social Innovation Review, Corporate Venturing was recently declared “a new path to sustainability.” This is true, but it is also much more than that. Linking ‘business for good’ and ‘capital for good’ is perhaps the best instrument to effectively address the big challenges on Ban Ki-moon’s ‘to-do list for people and planet’ and to scale up solutions as quickly as possible. This is absolutely necessary as the world cannot wait long for this ‘to-do list’ to be accomplished and businesses are not waiting either. Corporate Venture Capital is an effective model for accelerating the solutions to the Sustainable Development Goals.  Let’s use it as such. Let’s use capital for good and let’s be a part of the solution.

foto hand onder kin Marga nov15 - CopyAbout Marga Hoek

Marga Hoek is an internationally known trailblazing figure in the movement towards a new, sustainable economy and the transition to a new way of doing business. Hoek is CEO of the Sustainable Business Association, Chairman of the Sustainable Science Association, and Author of the award winning book New Economy Business.

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