A new report explains how corporate venturing can help source sustainable business innovations
Since the 1960s, corporate venturiing has helped corporations to capitalise on their profound industry expertise and move from early insights into emerging trends to actual investments that end up generating the new products and services that power the core features of business.
But the logic of value creation is now changing – sustainability is increasingly driving value and new pathways are needed for sourcing business innovations. The $5 trillion base-of-the-pyramid (BoP) market, the $546bn global virtuous consumer segment, multitrillion-dollar green growth, and a modernising welfare state, are pushing the world into uncharted territory – creating massive investment opportunities, and the possibility to achieve sustainable growth and corporate profits.
At a time when sustainability considerations loom larger for global CEOs, and in the minds of consumers and regulators, many executives report that they are stuck on their climb. The transformation path is unclear, and an effective corporate impact programme can remain elusive.
To help address this need, Impact Economy – a global impact investment and strategy firm – has just issued my report Driving Innovation through Corporate Impact Venturing: A Primer on Business Transformation. The goal of the report is to assist businesses to get ready to innovate in order to serve the BoP, green growth and the other markets of tomorrow mentioned above.
Despite the daunting challenge ahead, there is also good news – corporate leaders do not have to have all the ideas themselves. They can build on the proven channel of venture capital to source the innovations now needed with corporate impact venturing, which marries corporate venturing and positive social and environmental outcomes.
A company needs access to new business ideas that have strategic value in order to build and defend a franchise where sustainable products are part of its unique selling proposition. Take the case of Patagonia, which is covered in the report. A sustainable outdoor apparel pioneer, the company launched the internal venture fund $20 Million and Change last year to invest in start ups focused on clothing, food, water, energy and waste. Launching an investment fund was – in the words of Patagonia founder Yvon Chouinard – “a logical step for reaching out beyond the framework of the apparel and outdoor industries in order to do business more responsibly”.
Or take the case of Ikea, the world’s largest furniture retailer. By 2020, Ikea plans almost to double its revenues to €45bn to €50bn in turnover. The firm faces growing consumer demand, rising raw materials prices, as well as more stringent ecological footprint considerations resulting from growth and changing consumer expectations.
Encouraging current suppliers to move from compliance-driven to shared-value-based social and environmental performance is only one part of the strategy. The other element has to include engaging in impact venturing on a variety of fronts so as to bring on board the expertise needed to make the transformation in scale viable. This approach is already happening through investments made by Ikea’s corporate venture GreenTech in green technology companies that help Ikea “go renewable” in its core activities, encompassing energy, materials, water and waste issues.
We are now finally seeing the effects of social trends that have been bubbling just underneath the surface of our daily lives – the increased demand of the poor; an ageing population in most Organisation of Economic Co-operation and Development countries, alongside a growing youth population in many emerging countries; greater total resource productivity; and a bifurcating consumer market driven only partially by price.
Marrying the logic of investments and impact, corporate impact venturing is a powerful pathway to engaging systematically in corporate opportunity without neglecting cor-porate responsibility.