Why Businesses Can Invest In Sustainability And Also Do Well
It doesn’t have to be one or the other, says Ramanan Raghavendran, managing partner of venture capital firm Amasia
After growing substantially for decades, global greenhouse gas emissions plunged by 6.4 percent—or 2.3 billion tonnes—in 2020, as the pandemic forced the world economy to a standstill. There was an important silver lining for climate advocates: the drop showed us that individual actions, when adopted at scale, can have a powerful impact in the fight against the climate crisis.
Although carbon emissions rebounded to record levels in 2021, the pandemic served as a wake-up call. Research shows that 70 percent of respondents are now more aware of the impact of human activities on the climate and environment than they were before Covid-19 hit.
But awareness alone is not enough to tackle the climate crisis. Current projections of its effects are alarming: millions could perish or be displaced and global GDP could be slashed by nearly one-fifth by 2050 if no climate action is taken.
Despite the urgency, we have a massive investment gap, estimated at US$3.7 trillion. But there is good news: it is clear that climate-impact businesses can be both economically interesting and societally impactful. In other words, climate investors can “do well by doing good”.
Green is the new black
Encouragingly, there has been a widespread desire to lead more sustainable lives. A study found that over three-quarters of respondents consider environmental problems as concerning as health issues. This opinion, the study revealed, has little to do with age, gender or financial status, busting the myth that only young people are concerned about the climate.
This heightened awareness has been the key catalyst in the rise of the climate-conscious consumer, who is determined to shift their lifestyle and consumption habits. People are actively avoiding certain products and increasingly willing to pay a premium for more responsibly produced products, in some cases as much as 50 percent more.
This creates business opportunities, and firms that ignore it will likely lose out in the battle for market share.
Businesses must understand that we are creating a new world with enormous new markets where doing good for the environment is necessary for keeping up your business. Larger companies need to either participate or run the risk of quickly becoming obsolete.
The role of investors
Businesses obviously have a crucial role to play in tackling the climate crisis. Venture capital specifically has a critical role, as firms such as Amasia invest at the earliest stages.
Economic returns are still vital in this paradigm and are central to Amasia’s approach. We do not believe in “concessionary” returns in our work—we seek to deliver top-tier returns to our investors while also doing good.
The rise of innovative businesses that do well and do good
Behavioural change at scale is urgently needed to combat the climate crisis. Sustainability investment should be placed in areas that have the potential to inspire and shape change at global scale.
An example of enabling climate-positive behavioural adjustment is getting better environmental data, which falls within “R1 - Review” of Amasia’s “4 Rs” investment thesis.
There are several examples in the company’s portfolio, such as US-based Joro that puts power in the hands of consumers by allowing them to track their own carbon footprint and recommends lifestyle changes to reduce it; UK-based CarbonChain and Singapore-based Unravel Carbon, co-founded by 2018 Gen.T honouree Grace Sai, which provide carbon accounting solutions to businesses; and US-based Clarity that offers air quality measurement and management for municipalities and corporations.
Common sense also plays a big role. Remote work is an example of a positive impact on our environment that falls within “R3 - Rethink”. Transitioning from in-person meetings to virtual conferencing substantially reduces energy use and carbon emissions associated with transportation and accessing a physical venue space.
The widespread adoption of virtual technology like Zoom reminds us to think differently and creatively when it comes to sustainability. Many of these applications may not typically be labelled as “climate solutions”, but they offer huge potential in lowering greenhouse gas emissions.
Examples like these illustrate the potential of new approaches to tackling the climate crisis and demonstrate how high-growth profitable businesses can contribute to the global effort to achieve net-zero emissions. These businesses with positive climate impact can indeed do good and do well at the same time.
In short, when it comes to climate and sustainability, there is a wonderful contradiction of received wisdom—impact investing in these areas doesn’t imply lower returns, it likely invites higher returns.
The author is the managing partner of Amasia, a thesis-based venture capital firm that backs seed to Series B-stage companies tackling the global challenge of helping humanity build a more sustainable future.