Making an impact

We make an impact by living. There is no such thing as waste, it is just a human condition to not use everything we make or create. As an investor, we need to invest in effectively utilizing our by-catch. This circularity will make us much more efficient, more profitable and live a more comfortable life.

As an investor, what should our goal be: more ESG metrics and report cards, or a better world? I have been investing in making a better world for most of my career, and seen fads come and go that all are effectively “green washing” to attract assets under management and not implement results: but they can garner a good report card. The social and governance aspects of a company should be part of a minimum criteria for anyone’s investments and at NGEN we fully expect to improve all of our companies during our tenor. We have found that social diversity is intellectual diversity, and this translates directly into better results for all shareholders and stakeholders. Similarly, if you have a poorly governed company, you will lose your most important asset, your people.

At the end of the day, impact is affected by revenue. The best ideas without revenue traction have no impact. We need to support companies that are economically disrupt existing businesses, but that also are attractive to consumers and will rapidly generate revenues. What we have learned is that the consumer responds to fear and greed and will embrace change based on that. We also know that neither consumer nor commercial customers are willing to pay more for similar product that is less effective or doesn’t taste as good.

So what does that mean for investors:

1. Look for the good, not the perfect. Implementation is impact. Good implementation is the key.

a) If you are measuring impact, multiply revenue by an easily quantifiable corporate metric such as water saved per annum or pounds of sugar avoided.

i) If the number goes up substantially each year, you are making an impact;
ii) If it doesn’t, work to find out why not, and maybe look for another investment.

2. Identify what is your interest and become an expert.

a) Example - energy transition. Identify what is a science project and what is doable but will take time to perfect and build out the customer base: they have very different risk profiles. All too often investors have fallen in love with a technology, such as photovoltaics and not understood the price curve and ancillary products needed for broad adoption, nor the implications on the grid, which has and will continue to delay adoption.  We are still seeing this with the evolution of the electric vehicle. All too often our “green” vehicles are being charged by at night will coal fired base load, nor do we include the cost of rare earth mining into the equation of the true costs of battery storage.  Working on the grid balance and power management is an area that is not understood, and a great area to work in.

3. Recognize logjams and invest in them as they are the bridge to the next step.

a) Example – energy transmission. Right now transmission is less efficient than it could be and is a source of loss. This is the same with water distribution. Over 25% of all water is lost to leaks in the transmission system… fixing leaks is the equivalent of sourcing more water. Similarly with energy, solving the loss issues is the same as creating more energy, whether fossil or renewably-derived.

4. Watch for red flags.

For example, subsidy dependence must be weighed against capital efficiency. Investments must be capital efficient and you must fully understand the subsidy and tax environment.

In conclusion, impact needs to be defined as making a significant improvement to our environment, and that includes all stakeholders AND it is not philanthropic. Being perfect will never result in widespread adoption, it will always be too expensive. For large investors looking for lower risk, that can be accomplished by providing the project finance, which makes the good happen. For those looking to take a higher risk and therefore potentially higher return, participating in a portion of the equity stack is where to focus, and it just may facilitate the discovery of the perfect. As Rahm Emanuel said, “never allow a crisis to go waste”. The investor community already recognizes that the most embedded industries need to fundamentally change their business model, as the old model is helping create a crisis. Given the current uncertainty in the financial markets, now is the time to boldly invest at good valuations and fund the change: this momentum which will have huge impact.

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Under the spotlight: Peter Grubstein

Hear more from Peter at our recent SuperReturn North America event, as he shares his approach for building an impact portfolio below

Peter is the Founder and Managing Member of NGEN, an early-stage growth equity investment firm investing in healthy living, which is the intersection between better for you consumer, smart cities and sustainable food systems. His passion for the environment and improved utilization of resources has taken him from operating traditional manufacturing companies to technology and ultimately to found NGEN in 2001. Peter has over 30 years of experience as an entrepreneur, operating executive, and investor.

For more expert insights from Peter Grubstein and other industry leaders, be sure to join us at SuperReturn North America >>