In the spring of 2011, Burn Manufacturing, a small social impact business, caught the eye of General Electric representatives at a Fortune Brainstorm Green Conference.
A maker of sustainable burning stoves for communities in Africa, Burn Manufacturing was in its infancy when GE expressed an interest in investing funds into the smaller company. For more than two years, Burn Manufacturing eagerly engaged in discussions with GE before coming away with a $1m loan.
The GE money played an important role in getting the company off the ground, particularly in helping to build a stove manufacturing plant in Nairobi, Kenya. But Burn Manufacturing isn’t expecting another corporation to make a direct investment like GE did.
“We hear more from corporations who are willing to engage in strategic partnerships, in branding or distribution for example,” said Boston Nyer, a co-founder of Burn Manufacturing.
This isn’t unusual. For all of the talk around impact investing, few large corporations are actually putting money into sustainable small companies. Instead, most are using arm’s-length arrangements like long-term grants and partnerships.
Social impact investing – directly giving money to sustainable companies with the expectation of a return – is a fairly new way of helping the environment while seeing a profit. In a JP Morgan/Global Impact Investing Network report, investors said they planned to commit $9bn to impact investing in 2013, up from a total commitment of $8bn in 2012.
But little of that money is coming from big corporations. In fact, the percentage of corporate impact investing is so small, there’s no hard data to measure their role, said Sonal Shah, a senior fellow at the Case Foundation.
Right now, there is not a way to measure how much corporations have invested in social impact enterprises, unless they are self-reporting,” she said. “We also do not have a good idea of how much corporations are investing overall in impact investing.”
The end of ‘greenwashing’
There is pressure to put an end to “greenwashing”, or allowing companies to make modest nods to social impact to cover for larger environmental ills. Direct impact investing is expect to increase as corporations face increasing pressure from stakeholders to step outside of their comfort zone and engage more directly in making a social impact.
“Before, the idea of talking about sustainability or writing a passable report worked. You could green wash and it worked for a while”, said Chet Reynders, chairman and CEO of Reynders, McVeigh capital Management. “Now it’s gotten to a point where this idea of transparency — this idea of recognizing that social liabilities are real liabilities — these ideas have become more hard-coated as very, very bright people has gotten engaged in sustainability”.
To be sure, there are already corporations heavily working in this arena. Along with GE, Shell, Cisco, Dell and a few others have put financial commitments into social impact companies. But this is primarily a world where foundations, banks and institutional investors dominate the space.
So up until now, why hasn’t more big businesses embraced direct social impact investing? There are a few major reasons.
No definitive description
One area that may contribute to the low number of corporate participation is the fluidity of the term. It seems “impact” investing means different things to different companies.
For example, many corporations, like Gap Inc, use their overall sustainable policies to “invest” in positive environmental action. Others use their purchasing power to invest in sustainable action. Microsoft recently announced a 20-year power purchase agreement for wind energy in Texas by agreeing to purchase the entire 110 megawatts of energy that will be generated by the Keechi wind farm.
Some big companies operate sustainable impact through their corporate foundations. The Levi Strauss Foundation has provided nearly $1m in grants to micro-finance company Earn, as part of the corporation’s asset building strategy.
MasterCard’s foundation said that it has teamed up with One Acre Fund to launch a $10m partnership that will increase incomes of Africa’s smallholder farmers and grow its microfinance sector. Still others, like Starbucks, put together key partnerships to advance a social good.