HomeFundingSustainability: What it really means - from an investor perspective

Sustainability: What it really means – from an investor perspective

At risk of becoming a buzzword, or perhaps already is one, sustainability is the phrase at the tip of everyone’s tongue. But just what exactly does it mean? How does it relate to investments and startups and how can companies be genuinely sustainable? We chatted with Alix Lebec, Founder and CEO of Lebec Consulting, to get her insights about this topic.

Sustainability is defined as meeting our own needs without compromising the ability of future generations to meet their own needs. Aside from environmental implications, it is also embedded in concepts of social equity and economic development. It refers to making the planet more eco-friendly as much as it does to promoting an intersectionality-informed society.

It’s not inflationary to say that we are currently, right around the world, coming to grips with a number of crises. The climate crisis is continuing to manifest itself and is impacting us each year with increasingly potent venom, with countries and regions–such as Africa–that are least responsible for climate change suffering the most. According to the latest Lancet report, North America and Europe have contributed 62% of carbon dioxide emissions since the Industrial Revolution, whereas Africa has only contributed three percent. Within society, the pandemic and wider political circumstances have brought us to the brink of a generational crisis. Healthcare systems are on the edge of collapse, doctors are struggling to keep up and drug discovery isn’t fast enough. Our cities are growing quickly and our food system is undergoing drastic change. 

These all are foundational elements we need for a thriving and sustainable society and global economy.

According to Swiss Re, not acting on climate will destroy around 18% of GDP by 2050. Further, according to a recent 2022 Deloitte report, climate inaction will cost the global economy $178 trillion over the next five decades. Simultaneously, accelerating our pace to net zero would add another $43 trillion to the global economy by 2070. Additionally, as has been well documented, diversity and inclusivity is not at the point of equity that it needs to be, and too often women and people of colour in Europe are facing discrimination.

Getting to a point of ‘sustainability’ and protecting our planet is clearly an urgent generational need. Across Europe’s startup ecosystem, one phenomenon has been notable in recent years. The rise of impact-driven companies, impact-driven investments and the use of the words ‘sustainable’ and ‘impact’ are being used to justify spend and to explain innovation. So, what exactly does it mean, and are these trends genuinely contributing to impact and sustainability?

Alix Lebec: Impact investor and entrepreneur

Founder and CEO of Lebec Consulting, Alix Lebec has spent two decades working at the intersection of impact investing, philanthropy, social entrepreneurship, and ESG. As a founding team member, she is one of the architects behind WaterEquity—a dedicated global asset manager solving the water crisis, and is now advising on and co-creating financial and social impact innovations across philanthropy, impact investing, and ESG with the Lebec Consulting team and its clients. We discussed how impact, investments, entrepreneurism and sustainability can intersect. 

Defining sustainability

“In our view, a sustainable company gives equal priority to all of its stakeholders, from shareholders to clients, employees, and partners in the communities where they operate. A sustainable company integrates ESG considerations and impact into their core purpose, strategy, and operations—though this might look a little different based on the size of the company, its business model, and its industry and sector.”

How this looks across verticals

In real estate, a company could be considered sustainable if it shifts toward solar design, LED lighting, low-flow water structures, and providing quality affordable housing opportunities that embed clean energy. In transportation logistics, a company could be considered sustainable if it shifts toward clean fuel, batteries, or advanced technology such as hybrid power systems and fuel cells. And in fintech, a company could be considered sustainable if its leadership team and board are diverse and include more women, uses data analytics to calculate and reduce a carbon footprint, or implements innovative banking and payment solutions (such as blockchain) that do the same. However it is important that these activities are embedded in a global sustainable strategy that informs everything a company does—and how it does it—ranging from how it treats and pays suppliers, employers, and local communities, to its commitment to diversity, equity, and inclusion (DEI).

Regardless of industry or sector, there is one common denominator of every good sustainable company:

Moral leadership that does not pit sustainability and long-term profitability against each other, but instead values and understands their interconnectivity.

Preserving and taking care of human and natural capital (i.e., the environment and the only perpetual asset) is essential for long-term, equitable economic growth and prosperity. In our view, examples of strong sustainable companies are Patagonia, IKEA, Chobani, Canva, and Thankyou.

Sustainable investing – is it a real thing?

In its most basic form, sustainable investing—also referred to as socially responsible investing, or environmental, social and governance (ESG) investing—is an investment strategy that considers both financial returns and social/environmental factors to bring about positive social change. But a more poignant definition comes from Australian Ethical

Sustainable investing is about investing in progress, and giving equal weight to social, environmental factors and financial returns. 

It is about pioneering better ways of doing business, and creating the momentum to encourage more and more people to opt into the inclusive future we’re working to create. Through the combination of traditional investment approaches with ESG insights, investors ranging from global institutions to individuals are taking a sustainable approach to pursuing their investment goals.

What this means to Alix

“We believe the future of sustainable investing lies at the intersection with impact investing, where global businesses and financial institutions move from more passive ESG divestment strategies to more proactive investment approaches that create value, reach low-income communities and consumers who make up half of the world’s population, and generate a positive social and/or environmental impact.

We also believe that risk should not just be measured based on past performance, but with a view to the future. The world we live in today and the very real climate and water risks it faces are very different from where the world was decades ago.”

A focus on climate action

The climate crisis is by far the greatest challenge of our time. It’s impacting our food, water, and energy supplies, health systems, and societies overall. Philanthropists, impact investors, ESG investors, and policy makers must take a much more radically disruptive stance and real action on climate change. 

According to Nick Robbins, Co-Director of the United Nations Environment Programme, “Unchecked, climate change will be very disruptive during the first half of this century. And then into the second half, it will be very destructive and potentially catastrophic.” 

Alix also highlights that, “Climate change creates a domino effect—one that affects people, not just the planet, immensely. Rising temperatures lead to severe drought which creates greater natural disasters like widespread fires. This wipes out crops and species, and displaces people from their homes, leading to sweeping economic issues and global insecurity that affects everyone. As glaciers melt, oceans rise, creating severe flooding, water contamination, and further loss of species and ecosystems. This in turn disrupts entire food systems and destroys local communities and environments we all depend on. All of this contributes to health risks, increased inequality, and additional political instability. Moreover, the climate crisis is the result of global inaction, and is already impacting those least responsible for it, including the most vulnerable communities and people living in poverty. Among the world’s poorest are women. Women are on the frontlines of climate change and yet they are the most underrepresented in climate policy and solution decision-making.

What can we do about it?

Alix argues that action needs to be taken, and taken now, as, in her words, “the cost of inaction is astronomically high and irreversible.”

But, there are positive signs on the horizon. More and more investors are going down the impact route – seeing themselves the vital importance of it and also that it can leave them with positive financial returns. Impact investment can positively change the future of humanity. 

“Investors largely agree that investment returns and sustainable impact go hand in hand.”

According to Alix, investors currently want to invest in ESG and are actively looking to the long term ESG data to inform their decisions. And now, the ball is firmly in the court of the startups to embed sustainability into their processes. 

Alix commented: “If a company does not invest in sustainability, it risks falling behind by having difficulty attracting and retaining talent, customers, and investors. Given regulatory changes, many companies also risk losing the license to operate in more sustainability-stricken markets like Europe and parts of the U.S.” 

How can startups push forward ESG targets?

Startups might just hold the key when it comes to ESG. Already, it’s notable that startups are generating innovations that are addressing climate change head on, and Alix believes this is due to inherent capabilities that startups have. 

Startups have the advantage of building a culture of sustainability and transparency right at the early stages of a business, versus trying to change established norms and cultures within global corporations. Startups can push ESG forward by working toward intentionally ingraining sustainability into all aspects of its business model and culture. For example, knowing which ESG topics are most material to your business and your sector, can help you prioritize and address these opportunities and/or risks. Investing in the right tools and technologies early on to measure and monitor your ESG goals will help you build stronger resiliency into your business.

Markets and startups on an ESG high

We wanted to take a look at which areas are showing the most promise in pushing forward a sustainability agenda. As far as Alix is concerned, the most optimistic signs are:

  • The development of the International Sustainability Standards Board, which will develop a high-quality global baseline of climate and sustainability disclosures to meet investors’ information needs.
  • The push toward integrating standardized impact measurement into mainstream financial investment practices to move the ESG market away from greenwashing.
  • The move toward more proactive investments that are creating value, and have a positive social and environmental impact
  • The growing traction of the ‘S’ in ESG – which includes investing more in impactful women-owned and led businesses in emerging markets. 

As for startups, Alix believes that women-led ventures are the ones showing the most promise and wielding the most influence. And we would be inclined to agree. 

“With 85% of the world’s population living in emerging markets, we need women-led businesses, and women at the decision-making table—writing big checks to avoid a climate catastrophe and create a more sustainable world.”

Alix further advocates that now is the time to reverse the tides of inequality:

“Closing the gender gap in business growth globally could literally add trillions of dollars in GDP and hundreds of millions of jobs. Supporting women entrepreneurs and women-owned and led businesses is not just the right thing to do socially—it is one of the smartest things that governments, corporations, and the philanthropic and finance community can do economically.”

So, what does the future hold?

The outlook for sustainability is bright and both we at EU-Startups and Alix agree on that. With sustainability and impact-driven investments now becoming the norm rather than the exception, there is a real space for creative and purpose-led minds to develop those breakthrough initiatives and inventions that will positively influence our future. Investments can give the resources, investors the space, and the wider ecosystem the advice, support and network. 

For those startups with sustainability embedded into their business approach, Alix recommends the following: 

  1. Understand and communicate your sector’s ESG risks and opportunities: Investors focused on ESG, cleantech, and impact investing want to know what ESG topics are most material to your firm and how you are capturing these opportunities and addressing risks. Make sure you can articulate these sector-specific risks and opportunities. Lead with data, showcasing how you are keeping track of these topics.  
  2. Educate: As we know, many investors are newer to the climate tech and sustainability spaces, therefore taking time to educate potential investors on the trends and opportunities in your industry will help be helpful during fundraising. Developing reading materials to share with your potential investors ahead of your meeting is a great way to help them understand the role that your company plays in the ecosystem. 
  3. Seek values-alignment: As a sustainability startup, you want to make sure you can grow in a way that is in line with your company’s mission and purpose. Seeking values-aligned investors will ensure that you feel supported throughout the growth of your company.
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Patricia Allen
Patricia Allen
is the Head of Content at EU-Startups. With a background in politics, Patricia has a real passion for how shared ideas across communities and cultures can bring new initiatives and innovations for the future. She spends her time bringing you the latest news and updates of startups across Europe, and curating our social media.
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