Time and time again, we are reminded of the power consumers wield, as we continue to see an increase in “dollar voting” through ethical consumerism. Support for small and medium scale manufacturers and local businesses is growing, with increased awareness of the community benefits of buying local in the aftermath of COVID lockdowns.
This behavioural shift towards ethical and local consumption has extended beyond consumer goods to the financial sector, with Goldman Sachs (which was famously compared to a “vampire squid” in its relentless pursuit of money) even declaring a commitment to sustainable finance. When it comes to businesses considering their wider impact, beyond profit for shareholders, this is a time for proactivity over reactivity. Investor demand has increased for financial products that look beyond just financial growth, by integrating non-financial factors, such as those on the environment, local communities, employees and individuals. The integrated reporting framework describes these factors as ‘capitals’, by which it means the areas of value in a business that can be both used and grown or developed by activities of the business. The capitals compromise financial, manufactured, intellectual, human, social and relationship, and natural capital. Looking at your business’s use of, and impact on, these capitals, in addition to the traditional focus on financial capital, can help your business stay relevant and sustainable in the modern world.
A challenge faced by consumers in the financial sector is the difficulty in identifying how ethical investments really are. The growing impact investment market, which increased to a global value of over USD $715 billion in 2020, has also seen the growth of greenwashing: when a business overstates its social or environmental impact in order to sell more product or secure favourable investment. This has somewhat tarnished the impact investment market in recent times, gaining the attention of regulators globally. One may ask, where do you draw the line? What qualifies as a social impact investment?
In December last year, the Financial Markets Authority (FMA) released guidance for issuers of financial products that incorporate non-financial factors such as ‘green’ bonds and ‘socially responsible’ managed funds, as part of their commitment to supporting Aotearoa New Zealand’s transition to an integrated financial system. The FMA’s concern on greenwashing focuses on ensuring investors can understand the true nature of what they’re getting for their money. This comes hot on the heels of the Government’s introduction of mandatory climate-related financial disclosures for some large organisations, which is likely to be a requirement from 2023. The common theme is that transparency to investors can lead to better outcomes for everyone.
If you’re considering your capital raising options for 2021, also consider how your business can have an impact beyond profit – and how you might measure that.
Impact measurement and management (IMM) is key for businesses to understand ethical and sustainability-related metrics and targets, and to develop their impact strategy. It is important to embed good reporting practices, to continuously drive internal performance improvements, and assess the effectiveness of internal controls, risk management processes, compliance with reporting standards and frameworks, and the appropriateness of key performance indicators. Integrated, or Better Business Reporting (BBR) are also frameworks that can help drive better long-term organisational planning.
Catalist’s market has been designed to enable social impact projects to connect with investors, in order to deliver social benefits, as well as financial returns. We will classify investments on our markets as ‘impact investments’ if the business or project has clear social or environmental goals, funded directly by the investment, and has committed to transparent data-driven reporting of the impact they are having. Investments of this nature will be highlighted in our market with an icon, indicating they are social impact investments.
For more information, talk with our team about how Catalist could work for your organisation.
By Michelle Polglase