Integrating Sustainability into Your Growth Plans

I was recently asked to give a lecture to MBA students on corporate governance and sustainability. After lecturing 15 years on corporate governance and running the venture capital fund Butterfly Ventures, that was ranked by institutional investors the best Finnish alternative manager in sustainability, I decided to share my experiences with students and also write this blog.

Corporate governance is about aligning interests of owners and managers and building enabling structures to achieve agreed goals. Usually, the goal is to grow the company. Corporate governance techniques on sharing information, running meetings, and making decision matrixes, decisions and minutes is just to enable this.

Sustainability, on the other hand,  is challenging to define and measure. As companies, and societies in general, have faced crisis after crisis, sustainability has received less attention recently. In case owners and managers are not able to clearly understand and measure sustainability, it will not be integrated into their businesses.

Why sustainability?

Co-founder of Amadeus Capital Partners Anne Glover made a rhetorical question in the Invest Europe’s  Venture Capital Forum: “Should we all go back investing only into mobile games or should we try to do something more impactful?”.

Almost all companies get investors during their lifetime and many investors are really looking after sustainability of their target companies, as Anne pointed out. Investors investing into more mature companies, are ditching portfolio companies, ETFs and other vehicles that are not meeting sustainability requirement. Also regulators are directing us investors towards sustainability, but some investors are still worried that they may lose promising investment opportunities if they choose to focus on sustainability.

Those companies that do not need investors get this same requirement and pressure from their customers. Fastest way to lose company’s reputation in the eyes of customers is to cause harm to the nature or abuse people.

Sustainability will be as important metric of companies’ development as measuring financials is today. Companies must be able to provide basic financial information from the get-go while we accept that accuracy and detail level of financial information increases as the company grows. Same development will take place regarding the sustainability, even though the structure is not yet as developed as for measuring financials. For investors still hesitating sustainability, I recommend deeper dive into the topic to see all great tools and structures already in use to effectively assess sustainability of investment targets.

How to integrate growth and sustainability?

Growth companies have lot on their table and during the different growth stages you need to focus on the most crucial tasks of that development stage. My advice to the founders and managers of our early-stage portfolio companies is to focus on finalizing their offering to the level they get first users and start learning from the user feedback. At the same time, we investors can help companies to build enabling corporate governance structures gradually as the business grows and, at the same time, support integrating sustainability into their business and governance.

To enable measuring of sustainability, one should first define what are the sustainability factors affecting in and affected by their business. While some companies can directly decrease GHG emissions others may have greater impact in increasing health and wellbeing of people. Great book of Bill Gates – How to Avoid a Climate Disaster – will help in structuring your thoughts, especially with respect to climate. For example, construction and manufacturing create much greater amount of emissions than transportation.

At Butterfly Ventures, and with our portfolio companies, we use the Upright Model to define and measure sustainability and impact in a structured fashion.  With this structure and tool, we measure sustainability factors of every portfolio company before the investment and once a year thereafter.

In addition, we start sustainability integrating activities in the kick-off meeting right after our first investment and keep this topic on the board’s annual agenda. Once the early-stage companies get bigger, hopefully sustainability is integrated into their governance and not “glued on”.

As we all want better future for the next generation, we must bring sustainability back to the focus. Refresh your thoughts and start small. If not us, then who?

-Ville Heikkinen-

Writer is the Co-founding Partner of Butterfly Ventures and Advisor at HT Growth Partners