Editor’s Note: Gideon Soesman is co-founder and managing partner of Greensoil Investments, a venture capital firm with nearly $200 million of sustainable investments targeted and under management in agtech, foodtech and proptech startups in North America, Europe and Israel. He’s also co-author of “Living Impact: Greensoil Investments Impact Report,” a recent white paper on the future of sustainable investing.
In 2022, venture capitalists became more selective about investing in startups amid macro market, inflation and interest rate concerns. However, mission-driven investing is on the rise as investors increasingly recognize they can do well by doing good in the world.
Moving into 2023, the pace and intensity with which sustainable investment grows, and the scales used to measure environmental, social and governance (ESG) efforts, will all continue to rise for a number of reasons.
For one thing, humanity has no choice.
There is an urgent global need to address climate change. Governmental efforts to set goals and pass laws that protect the environment — among them America’s recent Inflation Reduction Act — will only further incentivize investments in climate tech. Ultimately, profits are only sustainable by preserving the planet so everyone can survive and thrive.
There is also a new generations of investors demanding change. No longer content to merely call for corporate accountability, young people are embracing the belief that companies are responsible for doing no harm and need to be in the business of repairing and improving the world.
Interest in impact investing by Millennials (those born between 1981 and 1996) increased to 99% of investors polled in 2021, up from 84% in 2015. Young investors are pushing corporate boards to incorporate environmental sustainability and better accountability into their business models, not simply chase short-term gains at the environment’s expense.
In fact, approximately $17.1 trillion, or one third of all assets under professional management in America at the end of 2019, were run with a sustainable investment strategy and/or ESG goals, according to U.S. SIF.
Sustainable funds, in particular, have seen a surge in popularity. In 2021, they attracted a record $69.2 billion in net flows, climbing 35% over the 2020 record of $51.1 billion. This marks the sixth consecutive year of record deal flows, according to Morningstar.
The total number of sustainable open-ended and exchange-traded funds available to U.S. investors has also increased significantly, rising to 534 in 2021, up fivefold from 2012 (104 funds) and 36% since 2020 (392 funds).
These trends show that investors are increasingly focused on sustainable and impact investing and are willing to allocate capital to companies and sectors that align with their mission-driven goals.
At our firm, we are committed to supporting the growth of companies that are not only driving positive change but also creating technologies that will alter their industries for good and make a lasting impact. We chose to focus on industries that have an enormous impact on our climate and industries that will need to make substantial changes in order to help global de-carbonization: agriculture, food and real estate.
And as impact investors, achieving net-zero greenhouse gas emissions and creating a more equitable world are our market-making missions. Greensoil believes in the venerated Hebraic ideal known as “tikkun olam” – that we bear a fundamental responsibility to repair and improve the world.
In recent years, there has been a growing demand for authentic and effective metrics to measure the impact of sustainability efforts in the startup ecosystem. This has been fueled by concerns about “greenwashing” and phony ESG ratings.
To mitigate these concerns, investors, calling themselves sustainable and/or impact driven, should have strict criteria in their investment selection process (for example, we chose the UN’s Sustainable Development Goals as the basis for a clear and measurable framework), and they should report on the actual, quantified impact of their portfolio companies. Here is how we report it.
Looking ahead to 2023 and beyond, expect to see a continued rise in investments to create more sustainable agtech and foodtech, and to build and manage more sustainable real estate. Sustainable investing is becoming the norm, not a niche, because the globe is demanding it.
To see impact and ESG investments as trends subject to market vicissitudes is to fail to understand how markets have fundamentally changed. The road to net zero runs through the built environment and stretches from farm to fork. It has infinite investment potential due to the endless resources required to sustainably shelter and feed the Earth’s 8 billion inhabitants.