For many businesses, irrespective of size, acquiring investment is an important part of their growth journey. Not only does an injection of capital help overcome many financial obstacles, but in many cases, acquiring the right investment allows businesses to develop and grow quickly. Once a business decides that external investment is right for them, the next question they must ask is how to attract investment.
There is a multitude of ways in which a business can attract investment, from strong financial performance and forecasting to innovative and disruptive products and services. However, recently we’ve seen more investors looking for, and sometimes requiring, businesses to have strong ESG credentials before investment consideration. The EY 2021 Global Private Equity Survey found that 68% of private equity firms take ESG into account when making investment decisions, but why?
The post-pandemic landscape has reinforced the importance of ESG (environmental, social and governance) issues, driving them to the top of the boardroom agenda, and is accelerating a shift from the longstanding attitudes of shareholder capitalism to a more inclusive form of capitalism. Often referred to as stakeholder capitalism, it is a system in which corporations are oriented to serve the interests of all stakeholders, not just shareholders. The concept is based on a belief that a business’ obligation goes beyond simply providing returns to shareholders, and a recognition of the importance of creating long-term value for all stakeholders.
What does B Corp have to do with investment?
The B Corp movement is helping facilitate this shift towards stakeholder capitalism and in doing so, B Corp certification has become one of the best ways to signal to investors that you mean business when it comes to ESG. At Seismic, we offer B Corp services for businesses throughout their journey, we also use the framework to support with wider ESG strategies.
Certified B Corps are for-profit businesses that meet the highest standards of verified social and environmental performance, and are committed to considering people and planet alongside profit. With only 5,600 certified B Corps globally, a B Corp stamp is one of the most powerful ways to communicate that your business is adhering to high levels of environmental and social performance.
That said, achieving B Corp certification is by no means an easy task and is difficult by design. But once a company does certify and demonstrates they are using business as a force for good, they often attract increased investor attention, and for good reason.
Investors view companies that perform well in ESG as less risky
Investors increasingly believe that companies that perform well on ESG are less risky, better positioned for the long-term and better prepared for uncertainty. In addition, companies that realign to the stakeholder capitalism model may have a competitive advantage over those that try to remain ‘business as usual’.
This ultimately means that having strong ESG credentials is a signal to investors that the business is mitigating against potential future pressures, and further negates a need to retrofit the business at a later stage.
Investors are attracted to companies that are not afraid to innovate
Investors are constantly seeking companies that are innovative and have a strong competitive advantage against others in the market. Whilst having strong ESG credentials will be attractive to investors, it will not be the only thing under consideration, and business performance will still be vital. Investors like to follow the money; however, when deciding between two attractive, high-growth businesses, ESG can be a differentiating factor.
Certified B Corps tend to outperform their competitors in both ESG and business performance, seeing an impressive turnover growth of 26% between 2017 & 2020, compared to a national average of 5% (B Lab, 2021). In addition to this, B Corps saw an average employee headcount growth of 14% between 2018 & 2021, compared to the national average of 1% (B Lab, 2021). The combination of strong business performance coupled with high social and environmental performance makes B Corps particularly attractive to investors, so much so, that 44% of B Corps seeking investment found that their certification helped with initially attracting their eventual investor (B Lab, 2021).
What the B Corp achievement signals is a company’s willingness to do business differently. These businesses are often finding ways to innovate across their value chain for the benefit of people and planet, and in doing so, pioneering new products or inventive business models.
One example that comes to mind is Lick, a UK-based home decor brand and certified B Corp with a vision to transform the industry for decorators and for the planet. With the desire to make decorating easier and reduce waste, the Lick team innovated by creating peel-and-stick paint samples to help consumers find the perfect match more simply.
“The B Corp movement is, to me, a product of a general improvement in our understanding of economic behaviour. Through a greater appreciation of the real motives that drive and excite people, B Corporations provide a significant new opportunity for investors. I think they could make more profits than any other types of companies…”
Investors know consumers are demanding increased ESG performance from companies
In addition to risk aversion and business performance, investors are also acutely aware of the external pressures from consumers, who are now demanding more from companies in terms of their ESG performance. A recent study found 73% of consumers believe that companies should have a legal responsibility to people and planet alongside maximising profits.
It makes sense then — businesses that prioritise ESG will appeal to the growing number of conscious consumers, futureproof themselves for a changing demographic, and ultimately find themselves more attractive to investors.
The reasons listed here, and a myriad of others related to ESG, are leading 88% of investors to hold ESG to the same level of scrutiny as operational and financial considerations (Edelman Trust Barometer, 2021). It is evident that businesses seeking investment now and, in the future, will also need to place ESG alongside these considerations if they are to be successful in securing investment.
B Corps are good for people, planet and profit
With strong ESG credentials being so attractive to investors for the reasons listed above, and many more, it is no wonder that a framework like B Corp is becoming so popular with them. Before they begin their due diligence, a B Corp certification provides a clear signal to potential investors that you’re walking the walk when it comes to ESG.
Many investors are now leveraging the B Corp framework as part of their due diligence process, as the assessment provides a broad, thorough, and ready-made framework to assess a company’s ESG performance. In a similar vein, many investors are now asking and, in some cases, requiring their portfolio companies to go through the B Corp process, as it positively impacts the company’s ESG credentials as well as company valuation and exit opportunities.
This highlights the versatility and adaptability of the B Corp framework, and that for many businesses, certification is a vital step on the journey to becoming a better business.
Client spotlight: Piper Private Equity
Piper Private Equity helps founders build global brands that make people’s lives healthier, happier and more fulfilling while supporting them to minimise their impact on the environment. Through their B Corp journey, Piper has become a true advocate, using their influence to educate and inspire brands.
Using B Corp to unlock company value
Seismic exists to help change society for the better and fix our planet. We are an international team of sustainability experts on a mission to help businesses prosper by becoming increasingly impactful and influential forces for good. We use the B Corp framework to help businesses improve their impact and unlock company value. We are B Corp Advisors, Net Zero Experts and Sustainability Strategists – we are your partner for change. Get in touch.