Early Investing

Startup Investing and Impact Investing Go Hand in Hand

Startup Investing and Impact Investing Go Hand in Hand
By Andy Gordon
Date February 16, 2022

I don’t have many hard-and-fast rules as an investor. But one I follow to the letter. 

I don’t invest in jerks.

I have my own ideas of how to put that into practice. 

When I’m looking at a public stock company, I prefer investing responsibly. Call me crazy, but I think I can make money and also put my money into companies that are making a concerted effort to make the world a better place. 

Some people call this kind of approach ESG (environmental, social and corporate governance) investing. Others call it impact investing. It takes into account a company’s willingness to alleviate social and environmental problems. 

But when I look at startups, I have a different mindset. The bulk of startups are focused on solving big and stubborn problems. The seriousness of those problems can often be measured in human suffering and loss of life. The problems are just as big regarding our planet, its worsening climate and the mismanagement of our natural resources. 

Most companies in the public stock market are not solving social, environmental or health problems. They’re making money selling you smartphones, cars, groceries and a million other things. Or they’re supplying companies with equipment, parts and components, and less tangible products like software. 

Their core mission has nothing to do with making the world better. But that hasn’t prevented an increasing number of them from making pledges to (quite literally) clean up their act and do more to combat climate change. 

It’s an important — and necessary — step in the right direction. And the companies that aren’t making a concerted effort to make their business operations and products more environmentally sustainable are jerks, plain and simple.

Well, as I told you, I don’t invest in jerks. 

But it’s not easy to tell the jerks from the good guys these days. Take Amazon. Former CEO Jeff Bezos says, “As a co-founder of The Climate Pledge, Amazon is committed to protecting the planet and achieving net-zero carbon by 2040.” 

He’s not a jerk, right? But wait a minute. Environmental group Oceana says that “Amazon’s recycling promises and claims do not add up and do not reduce the company’s very large plastic packaging waste footprint.” Amazon’s retail business in 2020 generated 599 million pounds of plastic packaging waste. According to Oceana, that’s significantly more than the year before. Oceana estimates that up to 23.5 million pounds of Amazon’s plastic packaging ended up in the world’s freshwater and marine ecosystems. It’s the equivalent, it says, of a delivery van full of plastic dumping its payload into major rivers, lakes and oceans every 67 minutes.

Meanwhile, Germany-based NewClimate Institute has dubbed Amazon a jerk. Well, not exactly in those words. It characterized its net zero emission plan as “low integrity” — lacking a credible strategy for getting to net zero in the time frame promised. 

Amazon has pushed back against both of these claims. It claims that Oceana overestimated its plastic usage by 300%. And that it’s committed to hitting its net zero target by 2040, 10 years ahead of the date that world leaders set in the Paris agreement.

So is Amazon a jerk or not? I’d have to do further research to find out for sure. But I’m not going to. You know why? 

The tech companies I most often invest in (and recommend) are startups. Most are trying to solve big problems. They’re not reduced to the Hippocrates-like “do no harm” statements about the environment coming from public stock companies. 

Of course, there are some startups that are jerks. Fortunately, at this stage of their development, they’re still too small to have much of a negative impact on the environment.

But, taking startups overall, it’s silly to think of them as either ESG or non-ESG. Here’s what the last 10 startups I’ve recommended (to members of our First Stage Investor research service) do…

  • Master noninvasive glucose monitoring
  • Make mind-controlled prosthetics
  • Cut down on textile waste 
  • Provide short-term and easily obtainable loans to government contractors
  • Recycle difficult plastics into products people want
  • Build a bridge between pharmaceutical companies and the customers they serve
  • Provide a two-way online marketplace for lawyers and their users
  • Help young athletes monetize their videos
  • Solve the growing space debris problem
  • Develop superior robotic hip and knee surgery

Just a couple of them don’t solve problems that make our lives much better, easier or healthier. The overwhelming majority of the non-CPG (consumer packaged goods) startups I come across have a core mission of making a large positive impact in the world. They’re solving big stubborn problems with brilliant ideas and innovative technology. Even the CPG startups are making foods and beverages that are much healthier for you.  

These startups are the very definition of impact companies. Startup investing is impact investing. Impact investing is startup investing. 

And the company that solves huge health, environmental or societal problems is also putting itself in a position to make lots of money. For startups and their investors, big impact and big profits go hand in hand.

Evaluating the credibility of a company’s ESG pledge is a big headache… as is figuring out whether high ESG trumps low profit. Fortunately, it’s not our headache. Startups, by definition, aren’t jerks.

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