To varying degrees, they boil down to this: upholding ethical standards to create a better world.
Take ESG – Environmental, Social, and Governance – investing. This approach looks at principles like climate change, human rights and transparency, and how they may present risks and opportunities that impact a company’s performance.
Now, socially responsible investing is more focused. It actively screens potential investments to ensure that a portfolio company does not violate a firm’s ESG principles.
Meanwhile, impact investing incorporates ESG principles the most deeply. It sets the positive social impact of a company as a key desired outcome.
At GGV Capital, we refer to this as sustainable investing, which carries a lot of weight in our investment decisions.
The idea of creating change through institutional investing has not been around for very long. It picked up momentum in the early 2000s, when the United Nations (UN) led the creation of an independent network of investors to encourage responsible investing.
Later, the publication of the first Global Sustainable Investment Review by a consortium of international investment organizations raised the public profile of socially responsible investing.
In the 2010s, the Paris Accord for Climate Change and the 17 Sustainable Development Goals provided clear goals for investors to put their money where it mattered most.
Why Sustainable Investments Matter
Today, sustainable investments matter because, to put it mildly, the world as we know it could be better. Climate change, impending food shortages and underprivileged communities are just some of the issues countries face across the world.
By investing in companies with innovative solutions, investors like ourselves are helping to shake up the status quo for a better future.
Foodtech – Solving World Hunger
According to Food Navigator USA, investment in US foodtech hit a new high of US$8.4 billion in the first three quarters of 2020, easily surpassing the US$7 billion recorded in the whole of the previous year.
Bowery Farming, a GGV Capital portfolio company, is on a mission to open up access to high-quality, local, safe and sustainable produce. The US’s largest vertical farming company, Bowery deploys a suite of proprietary technology – software, hardware, sensors, computer vision systems, AI and robotics – in its smart indoor farms.
“[A]griculture is the largest consumer of resources globally,” Bowery’s CEO and founder, Irving Fain, said while speaking on his motivation to start the company. “70% of the world’s water goes to agriculture yearly…and because the way we farm, we’ve lost 30% of our arable farmland in just the last 40 years.”
Greater investment in sustainable farming is pressing. According to the UN, the world needs to increase food production by 60% to feed an estimated nine billion people by 2050. Irving’s point about shrinking farmland, along with water shortages, urbanization and climate change, suggests that a food crisis could be looming.
Supporting a disruptive idea like Bowery Farming means consumers shopping at the 850 retail stores it supplies can get fresh local produce grown using 95% less water than a traditional farm.
Edtech – Improving Access to Education
As the pandemic forced schools and businesses to close, both adults and children were bound to their homes. For these people, especially in less developed countries, education and learning were at a standstill.
Enter digital learning and teaching platforms, which could be accessed by anyone regardless of geographic location, as long as they had a reliable internet connection and a working computer. Through these platforms, students and adults could continue learning, and, in time, be qualified to take on skilled jobs that can improve their financial situations and communities.
Vedantu, India’s leading online tutoring company, offers live lessons with some of the country’s best-curated teachers, while Labster empowers students to learn life sciences through immersive 3D virtual environments.
“If you are in a big city, you might be lucky to get a good teacher. But if you are in a tier two, tier three city, even if you are willing to pay…you won’t get access to a good teacher. And that was the fundamental problem we’re trying to solve…at Vedantu,” explained Vamsi Krishna, Vedantu’s CEO and co-founder during his turn on the Next Billion podcast.
Access aside, edtech also offers answers to the high costs of equipment and classrooms, as well as the need to engage students effectively.
“It is so expensive typically… to provide the students with high quality facilities and then million-dollar microscopes, or allow them to take on field trips, where they can go out and experiment with science in the real world,” said Michael Jensen, Labster’s CEO and founder.
Their solution? A hybrid of 3D game design with the latest cutting-edge science research and pedagogy.
What’s Next for Sustainable Investors?
ESG-influenced investing has seen total investments double last year from the year before with over US$51 billion worth of new investments. A 2021 MSCI Global Institution Investor Survey also found that an average of 77% of investors across the world had increased sustainable investments during the pandemic.
In a sign that ESG investing is here to stay, the Financial Times revealed that sustainable investments globally have already reached US$184 billion in the first quarter of 2021.
ESG funds have seen flows totalling US $184 billion, with Europe receiving most of these investments. Graph taken from The Financial Times
The demands of coping with the pandemic has highlighted weaknesses in the ways we deal with food, and climate change to name a few. The ‘S’ in ESG has also become more prominent, with social movements like #MeToo and #BlackLivesMatter exposing the need for social diversity and responsibility in the way we work and invest.
After all, companies that have seen growth during the pandemic are also those who diverted time and resources to support their staff and communities.
At its heart, sustainable investment is about supporting founders and entrepreneurs who are working towards the big picture of a healthier, more inclusive future with more democratic access to basic human needs like food and education.
Sectors related to these may not promise the largest financial returns or grab the biggest headlines, but we believe that a better world is something worth investing in. What about you?