Earlier this year, Mark Carney, in his first big role after his term as Bank of England governor, joined asset manager Brookfield to launch an “impact investing” fund focused on social and environmental benefits as well as financial returns. Accepting the Brookfield position, he said that impact investing was “one of the greatest commercial opportunities of our time,” and that he was “looking forward to building on Brookfield’s leading positions in renewable energy and sustainability”.
Carney is just the latest investor in Europe to acknowledge the commercial opportunity of impact investing. Sir Ronald Cohen recently released a book, Impact: Reshaping Capitalism to Drive Real Change. The book calls attention to the fact that impact investing is rapidly expanding in Europe: between 2016-2018, the impact investing market grew at a rate of 40% and was valued at $502 B. Additionally, Cohen adds, the sector is growing in the popular conscience amongst Europeans: $30 trillion stands to be inherited by Millennials in the next decade, and this generation has expressed deep interest in double bottom line investing. Even 77% of pension fund members prefer a social investment fund to a conventional one.
The central conceit of impact investing is that businesses can do good while also doing well- rather than analyzing the risk-benefit profile of a company, you add their social or environmental impact to the evaluation to make a more informed, longer-term investment decision.
We have seen ample evidence of this at Village Capital, where we have been investing and supporting early-stage, impact-driven startups around the world for over ten years (download our 10 Year Impact Report here). The companies we have worked with directly though our programs have a 90% survival rate, and have raised half a billion dollars in follow up funding. For example, UK-based Railsbank leverages the new regulatory framework of PSD2 and open banking practices to “make financial services accessible to everyone by giving access to global banking with 5 lines of code." Or Denmark-based CreditStretcher, which offers a product that allows business owners to access loans during the period of time when a company finishes work, files its invoice, and gets paid.
While impact investing has established a clear foothold across Europe, the development of the ecosystem has been asymmetrical, with certain hubs and cities developing faster than other regions across the continent. Add traditional barriers to collaboration like language, regulations, and different cultural interpretations of what is impactful, and the result is a growing but fragmented impact economy. While the creation of the UN Sustainable Development Goals - have helped advance collaboration by creating a metric driven impact framework that has been embraced by companies, cities, investors, and entrepreneurs across Europe, there are still large gaps in the connective tissue of the European impact economy.
However, despite the gaps, the commercial and disruptive potential of impact investing has not gone unnoticed by multinational financial institutions, especially with the increased uncertainty COVID has introduced to the world. We just wrapped up our latest accelerator program for impact-driven startups, Finance Forward Europe 2020, and were joined by partners MetLife Foundation and PayPal, two of the biggest financial companies in the world.
Even though there has been more movement towards a more connected impact economy across Europe, the opportunities to create a vibrant and resilient support network for mission driven entrepreneurs in Europe (and beyond) are enormous. Traditional philanthropic dollars are moving into more sustainable impact funds, corporate VCs are starting to include explicit impact themes in their mission statements, and there is an unprecedented amount of money pledged in the Next Generation EU response to the COVID crisis that has sustainability at the core of its mandate. With the establishment of coordinating impact bodies like GITA, and cities like the Hauge, Lisbon, London, and Budapest vying for the title of impact capital of Europe, the momentum is palpable.
Village Capital is looking to build on the recent advances across Europe by creating a more inclusive impact economy and bring our decade of experience in supporting overlooked and undervalued entrepreneurs to the continent. Working closely with major actors and hubs across the region, we hope to bring deeper insights, a suite of tools including our investor matchmaking platform Abaca, and our global network to make sure that capital and resources are channelled to entrepreneurs that are solving some of the most pressing issues of our time.