Three mega trends shaping the Impact Era: Follow the money

the impact era - a picture of a droplet in water

To understand the Impact Era, you have to follow the money. There are three mega trends shaping the impact era and they all start with money.

A record $US490 billion was raised in 2020 by governments, corporations and other groups selling green, social and sustainability bonds.

Then there’s an additional $US347 pumped into ESG-focused investment funds during the same pandemic-wrecked year. According to Bloomberg, the investment levels were an “all-time high”. Around 700 new funds were created just to collect all this money.

But wait, there’s more. The same Bloomberg article reports Moody’s Investors Service expects sustainable-debt issuance to reach $US650 billion in 2021 as ESG funds continue growing at astounding rates.

All this while the world was (rightly) preoccupied by COVID-19 and geopolitics.

The more important point, however, is that it’s hard to ignore an inevitable conclusion: We’ve reached a tipping point and we’re not going back.

Globally, the sustainable investment industry manages more than $US3 trillion of funds. And investors are not done yet, despite accusations of “greenwashing”. Clearly the investment community has realised ESG funds are delivering better returns than non-ESG funds.

It turns out if you look after the environment, your community, employees and customers it’s better business (knock me over with a feather).

A new era – the Impact Era

But if you step back a second, it’s no exaggeration to say all this ESG investing (inclusive of its flaws) is symbolic of a fundamental shift in human history.

In this, the Modern Era, we’ve lived through World War I, the Great Depression, World War II and then the Contemporary Period — or Information Age. Technology has defined every aspect of economic, social and political life in this most recent period of history.

We’ve seen the world through the lens of software, AI, robots, fake meat, smartphones and incredible advances in science. Technology is arguably the dominant narrative nations use as a reference point for measuring progress.

It’s all great, and progress will continue. But the Information Age was just the setup. The punchline has arrived, courtesy of investors and a groundswell of like-minded people across the globe.

I’m calling this next period of history the Impact Era.

When you look at three clearly identified, converging forces (pictured below) they combine to form this notion of impact. It could be positive or negative, but long-lasting impact nonetheless.

The dominant narrative in society has shifted from marveling at our scientific and technological advances to asking harder questions: will our actions as humans positively or negatively impact the planet, our neighbours, our colleagues or customers?

In the Impact Era, we want answers and solutions.

Three converging forces

Time to unpack these converging forces: Environmental, Social, Governance (ESG); Global Community Consciousness; and Corporate and Social Sector Purpose.

Granted they’re not snappy names, but bear with me.
 
To follow are a few data points that illustrate how these forces are redefining the global narrative.

Environmental, Social, Governance

The world’s leaders continue raising ESG up the board and governance agenda, and the investor story above proves the point.

However, here’s another useful reference point: When big banks don’t want to support coal, oil and gas, you know the world really has changed.

The SMH recently reported leaders in fossil industries accused the banks of “zealot-like enthusiasm” for withdrawing support for their organisations.

They even claim some areas of Australia may become uninsurable as the economy swings towards renewable energy and climate change strategies. That is, they won’t be able to do business.

Perhaps a good way of summarising the meta message here. Black Swan Capital says: “ESG investing is moving into the mainstream.”

Corporate and Social Sector Purpose

Purpose remains one of the biggest buzzwords in corporate marketing and brand strategy.

What’s changing though, is an appetite for companies that do more than write clever purpose statements. Action is everything.

That’s why leaders in the corporate, social, NFP and government sectors are looking at each other for guidance and inspiration. What actions work? How can you best connect purpose to some kind of tangible impact?

This movement is illustrated by the global B Corp movement, of which my firm is a member. B Corps strive to meet the highest standards of verified social and environmental performance, public transparency and legal accountability. They believe business should be a force for good.

B Corp certification grew 23 per cent globally last year, and 21 per cent in Australia and New Zealand.

Meanwhile, Australian CEOs are taking notice of the need to connect purpose, profit and impact. The latest PwC 24th CEO Survey found that a growing number of Australian CEOs believe climate change is a serious threat to growth.

The issue is that they’re less likely than overseas peers to believe they should do more to measure and report on their environmental impact.

Sadly for the laggards, the growth of B Corps and corporate enthusiasm for purpose means this issue isn’t going away.

For example, Andrew Forrest, Australia’s second richest person, not only runs a philanthropic organisation but is focused on green energy deals and realising his dream for a carbon neutral world (AFR).

Other notable moves recently include Woolworths’ 2025 sustainability plan, T2 Tea’s Reconciliation Action Plan, and over in the US Impossible Foods is capitalising on appetite (pun intended) for plant-based meats.

Its product is now for sale in more than 11,000 stores across the US, up 77 times on pre-pandemic retail numbers.

A final note for this category: the purpose movement is placing employers under greater pressure. Employees expect them to create meaningful, fulfilling jobs. And according to McKinsey, if leaders fail on this score employees will consider leaving (particularly embattled millennials).

Global Community Consciousness

Finally, Global Community Consciousness is another way of talking about the modern zeitgeist.

What do we, the global community, agree is worthy of celebrating, or attacking, in society?

The 2021 Australia Talks survey, recently published by the ABC in partnership with Vox Pop Labs, brings this idea to life.

It surveyed 60,000 Australians on many aspects of modern life from climate change, how often we have sex, indigenous issues, and our attitude towards lying politicians (no surprise — 94 per cent of us want them kicked out).

The relevant data point is 72 per cent of Australians (at least, those in my middle-aged demographic) think Australia is doing poorly at addressing climate change.

More broadly, survey respondents give our sunburnt, flooded and plague-ridden country a Fail for not supporting older people, assisting people in regional communities, treating refugees and Indigenous people well, and caring for the environment.

We expect our country to do well on all these metrics. It’s the right thing to do. Governments, social sector organisations and corporations must help solve these vital social issues, and if not, why not?

As countless global movements attest, we’re getting impatient with inaction.

There’s much more to say, but suffice it to say, the global community is finally realising that climate change, the pandemic, myriad social issues, and sustainable life on planet earth can only be realised if we work together.

Corporates, social sector organisations, communities and governments are inextricably connected. 

This list of global events on this UN calendar illustrates the point. Wildlife, biological diversity, oceans, environment, food systems, climate change and transport all feature as event topics.

Forget the keyboard warriors, the forces of change are locked in and change is coming.

Fourth bottom line

The so-called Fourth Bottom Line or Quadruple Bottom Line in accounting is one way of tying all these stats together.

Joining People, Planet, and Profit on the bottom line is Purpose.

This is a notion pioneered by author John Elkington in 1994. He saw Purpose as a vehicle for measuring, valuing and reporting on an organisation’s impact on culture, spirituality and faith. In other words, companies make an impact on the real world and it should be measured accordingly.

Appetite for the Fourth Bottom Line and other measures like the 1 per cent Profit Pledge is catching up with John Elkington and the rest of us in the Impact Era.

Sure, it will still be messy. History repeats itself ingloriously. But there’s hope in another old cliche: follow the money.

At least the environmental movement and investors can finally agree on something.

Originally published on Which-50.com

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Written by: Mark Jones.

For more information visit: Impact Advisory