For 15 years, EcoEnterprises Fund, a venture fund for nature, has provided growth capital to community-based sustainable companies so they can achieve scale. By funding companies which might otherwise not have access to investment, EcoEnterprises Fund is having an impact both socially and environmentally.
Please tell us more about EcoEnterprises Fund.
We are committed to working with companies which offer sustainable livelihoods to bottom of the pyramid communities, while encouraging the management of natural resources in areas with high biodiversity. For the first fund, we invested in 23 companies in 10 countries. The first fund was proof of concept that demonstrated the success of business models to achieve positive conservation impacts. At that time we invested in the first movers and pioneers in market niches, for example, the first organic flower company and the first organic shrimp company. Now in 2014, the market has evolved with great consumer demand and awareness of sustainable products with certifications, such as organic, fairtrade, bird-friendly, etc.
We launched our second fund about two years ago. Some of the companies in the second fund are success stories from the first fund, such as a leader in the acai business. For the second fund, we are looking at making greater impacts given the environmental and social challenges of our time. Moreover, we are aiming for higher returns for investors by scaling up company business models. We are investing in 10-12 companies in the second fund. The first fund had, on average, investments of $250,000 and the second time around we are investing an average of $2.5 million.
In our first fund, many of the entrepreneurs approached their businesses as visionaries guided by their passion for the environment and community. Now we are seeing a trend of professional managers, existing entreprenuers and business school students from regions in Latin America who are pursuing businesses with a social and environmental mandate.
How do you fill the financing gap that exists for eco-enterprises to succeed?
Capital markets in most of the countries in which we work (and in emerging markets in general) lack the depth and breadth of services that are provided to small to medium-scale businesses in the USA — funding from R&D to angel; and mezzanine to equity financing. For example, look at a company in a country in Latin America, where EcoEnterprises Fund works. If the business has collateral such as a building or land, they may be able to access 3-year financing from a local bank. If they have no history or collateral, it is almost impossible.
Increasingly as we have seen in Latin America as economies advance and there is a strengthening of the regulatory and legal business environment, there are more opportunities for investors. Concurrently, with the demand for goods and services which have positive environmental and social impacts, there are greater investment prospects for impact investors.
There is a lot of variation in the countries where EcoEnterprises Fund works. After the security situation in Columbia improved, the economy is now booming. In regions like Africa, certain countries are much more amenable to foreign investment than others There are many investors in the impact space that want to invest in Africa. Overall, impact investors must determine their respective risk profile for their portfolio.
For the most detailed description of the internal monitoring and evaluation tool used at EcoEnterprises Fund, please see the book, “Portfolio For the Planet – Lessons From 10 Years of Impact Investing.” (Earthscan/Routledge Press)
Organizations, such as GIIRs and impact industry-wide metrics systems based on IRIS have enhanced the standardization of metrics and reporting. This is important for the mainstreaming of the industry and increased investors attraction to the space. With that said, at present many impact investment firms still use internal scorecards because they collect data beyond what GIIRs and IRIS is looking at. This is a very company specific process. For example, consider the differences between ecotourism and forestry products, both sectors have different evaluative criteria.
Does your organization try to foster entrepreneurs to participate in new eco-ventures?
We work with groups like, New Ventures, Village Capital and Agora Partnerships which are business incubators that provide the hand-holding companies need. We do, though, identify companies of interest and then work with them with business planning, accounting, organic certification financial management to strengthen the investible opportunity from our perspective.
How can business best contribute to the conservation of natural resources?
What needs to happen is happening in some places on an accelerated basis. Today there is much more acknowledgement of the challenges at hand. It is quite evident in the coverage of climate change or limited access to water, or droughts that this is the case. Even on a corporate level there is talk. For example, a few weeks ago an article was published in the New York Times about how a company like Coca Cola is worried about their water supply in some places. The pressure is on, but is there enough happening to stem the tide?
Education and research are very important. All international and local conservation organizations are working diligently at varying aspects of the issue and together are making progress.
Can you share some resources you find helpful for learning about impact investing?
There are increasingly many go-to sites and informational material on impact investing, including industry trade groups which publish studies, books and research. Here are a few to choose from: