How To Make Money By Saving The Planet
What if I told you that there is a way in which you can have a positive impact on the world and make a living at the same time?
Nowadays, we are seeing an increasing number of business models that not only generate positive social and environmental impacts, but are also profitable. This is a phenomenon that’s breaking old paradigms that dictated that, in order to generate positive social impact, profits had to be sacrificed.
This is no longer true.
Businesses focused on generating social and environmental impact alongside financial returns are flourishing around the world. These businesses are proving that profit and impact not only go hand in hand, but mutually reinforce each other. The more profits generated, the more positive social and environmental impact can be generated.
The heroes solving social and environmental issues through these innovative business models are known as Social Entrepreneurs.
Investing in these triple-bottom-line businesses is known as Impact Investing.
Make Money While Saving the Planet
In the past, the idea of doing well by doing good was met with skepticism. Until recently, common knowledge stated that to do good you had to donate to a nonprofit and to make money you had to invest in for-profit corporations. This separation between profit and impact is disappearing as impact investments prove themselves.
Proof of this is a recent report that found that funds focused on generating positive social impact (alongside financial returns) outperformed conventional Private Investment funds.
Impact focused funds smaller than $100 million returned a net internal rate of return (IRR) of 9.5%, outperforming similiar sized funds that did not focus on impact (4.5%) and bigger funds (over $100 million) both focused on impact (6.2%) and not focused on impact (8.3%).
This report shows us that doing good while achieving financial returns is possible.
So, if attractive financial returns are possible, can impact investments gain enough traction to replace business-as-usual practices and potentially change the world for the better? Let’s see.
Shifting From Business-as-Usual to the Impact Economy
The days of pursuing profits without considering social and environmental factors are fading away. The profit at any cost mentality is changing, people are voting with their dollars by pursuing investments that set out to improve society. To prove this, let’s take millennials as an example.
Today, millennials stand as the largest generation in American history, approximately 20 million larger than the baby boomer generation. According to Accenture, millennials will inherit around $30 trillion in assets over the next several decades (just in the US).
What are millennials going to do with all this money?
A 2013 US Trust report found that millennials would be willing to accept a higher risk profile or receive lower returns in exchange for greater social or environmental impact. Which we already pointed out is not necessary, but it’s still good to see their commitment to achieve positive social impact.
In a study conducted by Morgan Stanley, results found that millennials are not only twice as likely to invest in companies or funds that target social and environmental outcomes but will also divest from companies that do not take these outcomes into account.
If so much money is going into impact investments, what kind of issues can it solve?
With growing population density, increasing food and energy demand, scarcity of resources, uneven distribution of wealth, and climate change; the opportunities to develop impact business models that address these challenges are endless. Of course, not everything can be solved this way, there are problems that still need government or development funding to be addressed, but there is a vast amount of issues that could be tackled profitably this way. Lets take climate change for example.
Climate Change is commonly seen as a problem that will force us to adapt the way we live and bring drastic changes into the way we interact with the planet. There is no way around this, many countries will suffer greatly due to increasing natural disasters and rising sea levels. The environmental consequences are real, the world as we know it will probably be very different to the one awaiting us in the near future.
However, there is a side of climate change that brings opportunities for entrepreneurs and investors that manage to translate these emerging risks into business opportunities: saving lives, improving the environment and generating profits. According to the International Energy Agency, approximately $53 trillion in investments will be required to keep global temperatures rising below two degrees (and avoid catastrophic consequences), just in the next two decades.
From these investments, the IEA estimates that approximately $10 trillion can be addressed profitably. According to Jigar Shah, all of the $53 trillion can be tackled profitably, it just requires government coordination.
You might be wondering, how in the world are we going to address these challenges profitably?
Are these solutions ready to be deployed at scale?
Do we have the technology to tackle these challenges?
Do we have the know-how to capitalize on these opportunities?
Yes, yes & yes!
According to the Carbon War Room, “Over 50% of the climate change challenge can be addressed today – and profitably – by existing technologies, under existing policy. This is an opportunity masked as a crisis – arguably the largest wealth creation opportunity of our lifetime.”
The problem is that most of us are still waiting for someone or something to come and save us from ourselves. We think that technology breakthroughs are going to save the world. Technology and product innovation are obviously important, but the point is that we already have the solutions, technology and know-how to save the planet without relying on something that still doesn’t exist.
What we need is a change of mindset. Start focusing on how to implement proven technologies, find the right business models to execute them profitably and at scale.
Based on this information, there are literally trillions of opportunities to address social and environmental problems profitably, which is something we have to do one way or another. On one end, we have to do it if we want to survive and thrive as a species. And on the other, we can make a profit by doing it.
It’s a win-win situation, not only will investors generate attractive financial returns but society and the planet will profit due to positive social and environmental impacts.