Raising Out Loud #7: ESG vs Impact Investing

This week I was in two different rooms, in two different countries, talking about "ESG" and "impact investing." I was shocked at how the significantly the conversations and perspectives varied.

To some, increasing ESG scrutiny is a scary prospect. An unnecessary compliance burden. A distraction from generating financial returns. Even “woke capitalism.”

To others, ESG is the baseline of shareholder responsibility for the future. It’s critical to not only attracting talent, but also an imperative for managing risk in a climate changing world.

The case for going beyond ESG to impact, especially in food systems

For stakeholders along the food and agriculture value chain, I believe there’s a massive (commercial) opportunity to go beyond ESG to impact investing.?

1. ESG is changing quickly from a nice-to-have marketing effort to a business-critical compliance and risk function. It will, very quickly, become table stakes for market access. Yet it doesn't have to be a cost center, there are tons of opportunities for top-line growth, deepening customer & employee engagement, and more as we scale sustainable supply chains.

2. The investor froth around ESG (and related sub-sectors in climate-risks) has mostly to do with reporting and measurement. This is needed, but also not enough. We need new tools and business models to actually deliver impact and avoid tick-the-box-only behavior.

3. As big, or even bigger of an opportunity, for value creation & capture is in the shifts that actually deliver impact - the technologies, practices, and business models that will reduce the chemical and emissions intensity of agriculture, scale the regeneration of natural capital to improve climate resilience, repurpose waste streams, and much more.

The time for carrots is now, but sticks are coming

The opportunity to decarbonize the food system is enormous. Today, the business cases for more talent, better customer and shareholder engagement, more efficiencies, less waste, and better risk management abound.?

Early movers will have an advantage. But as regulatory pressures mount, the window for taking a leading role is closing. The sticks are coming.?

All of this depends on moving past the fear and the politics, and getting on with the action.

Where Tenacious Ventures lands on ESG and Impact Investing

As we’ve been fundraising for our second fund, many potential LPs (though definitely not all) are asking us about our approach to both ESG and impact.?

Fortunately, our COO and Operating Partner, Vela Georgiev, has already written about this here.?In short, we go beyond ESG to also invest for impact because we believe that, especially in agriculture, a focus on impact will deliver MORE returns.

As you check it out, I’d love to hear what you think about our approach and ESG + impact investing more broadly. Here are some questions that came up this week to consider:

• With many fund managers touting ESG credentials, how can investors efficiently sort the greenwashing from the true impact opportunities?
• How do we right-size approaches to ESG and impact measurement for early-stage startup investing?
• How do we get the balance right between data and metrics vs. storytelling?
• In five years, will we even be using the terms “ESG” and “impact investing”??

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This is the latest post in our “fundraising out loud” series. To learn more about investing in Fund II and our vision for a digitally-native and climate resilient food system, get in touch here. Early-stage agri-food tech startups looking for funding, reach out here.

Disclaimer: The information in this post is not investment advice or a recommendation to invest. It is general information only and does not take into account your investment objectives, financial situation or needs. Before making an investment decision you should read the information memorandum and seek financial advice from a professional financial adviser. Whilst we believe Information is correct, no warranty of accuracy, reliability or completeness is given, except for liability under statute which cannot be excluded.