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Why impact investing could be more important than ever

by gbaf

By Dan Somers, Managing Partner of Boundary Capital

The current pandemic is alarming, but the data suggests that we may be affected by other crises in the future. Climate, Disaster and Development Journal predicts that intense floods and storms around the world could double in frequency within 13 years, as climate breakdown and socioeconomic factors combine. Pandemics also are predicted by some to increase more and more from urbanisation, resistance to drugs, and also indirectly from climate change. The U.S. intelligence community’s bottom-line assessment of the risk is plain: “Over 20 years, the net effects of climate change on the patterns of global human movement and statelessness could be dramatic, perhaps unprecedented.”

It’s not all doom and gloom however: There is a groundswell of popular mainstream opinion now demanding that Governments and businesses do more to help the environment and sustainability. Voters, consumers and investors are now voting with their feet to drive more businesses to adopt Environmental, Social, and Governance (ESG) policies.

Last year, flows into U.S. sustainable funds more than tripled, marking the fourth year of record flows. In 2019, according to the Global Impact Investing Network, assets in this market totalled around $500 billion, based on surveys with 1,300 impact investors.

Investors no longer want to be associated with or contributing to companies to may harm society, on the wrong side of new sustainability guidelines or going against popular consumer views and trends.

As a result, the climate solutions market could double from $1 trillion a year now to $2 trillion a year by 2025, says BofA.

Ironically, what the recent Covid-19 ‘lockdowns’ have shown is that environmental pollution can drop dramatically in coordinated activities (planned or unplanned). Recent satellite images from NASA of China also showed less air pollution amid the country’s economic shutdown, due to less transportation and manufacturing. Nitrogen oxide pollution above major cities has decreased by 30% to 50% compared to the corresponding period of last year. And since the lockdown in Italy and the drastic reduction of water traffic and tourism, residents have observed the usually muddy canals run with bright, clearer water with swarms of fishes and the canal bottom clearly visible. More and more people are looking for ways to create such impact, without the reverse consequences of course.

This is where impact technologies come in. Impact technologies are those which provide a meaningful benefit to people’s lives directly or indirectly. This might be improvements in batteries and Electric Vehicle (“EV”) technology to reduce environmental pollution, improvements in drugs and medical devices which improve life quality, or AI which helps to empower ordinary citizens to take decisions and improve their skills and productivity. It is only changes in the ways we do things that can have a meaningful impact and with a viable approach to economic sustainability too. Many of these technologies have a high positive social or environmental impact as well as a medium and long-term economic advantage to make a strong financial return. However, like all technology development and adoption, there are many associated risks bringing a new technology to market and productising it, particularly when the market doesn’t yet exist or is nascent.

Boundary Capital is one of a number of innovative investment firms that are trying to change the rules around impact investing. Rather than investing in ESG public companies or impactful businesses, it focuses on investing in early-stage private B2B technology companies that have the potential to enable and transform markets to make the most impact. So rather than investing in EV charging infrastructure, it invests in the technologies that it believes will make the most difference to accelerating the adoption of EVs by improving battery life and longevity. Similarly, it doesn’t invest in tertiary healthcare, but in oxygenated wound care devices that reduces the time and cost of wound healing (and hospital beds) by over 70%. The partners are all experienced technology investors and entrepreneurs who can bring more than just finance to help impact businesses succeed and deliver on the promised societal or environmental benefits.

As well as following six themes derived from the UN’s Sustainable Development Goals, Boundary only invests in businesses that affect 100m lives or more in a meaningful way, based on a proprietary methodology measuring the lives impacted over a long-term period. These goals are also underpinned by an overall economic return for investors of 3x overall over 5 to 7 years.

Their latest investment is in Cambridge based Inotec, is a fast-growing medtech business that has developed a novel device capable of healing a range of chronic wounds, from diabetic foot and venous leg ulcers to non-healing surgical wounds. The business has developed a world leading medtech product, called NATROX® Oxygen that generates pure humidified oxygen to treat a range of chronic wounds, from diabetic and venous ulcers to non-healing surgical wounds.

Dan Somers, Managing Partner at Boundary Capital says: “Impact investment has mostly been socially-driven up until now. There is now the real opportunity for investors to make a return as well as optimising the impact that their investments can make on human lives.

“As long as we have an eye on medium term and place our support in the right places, we can all do our bit to mitigate some of the future crises and enjoy profitable and impactful lives.

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