Would you like to start with an introduction of yourself and perhaps summarize Top Tier Impact and ESG 360?
Certainly. My name is Alessa Berg, and I am the founder and CEO of Top Tier Impact, which is a global ecosystem for impact and sustainability spanning 45 countries. We’re known for our network of members, including investors, entrepreneurs, and corporations, all involved in various aspects of climate and positive impact innovation. Our mission is to accelerate the mainstream adoption of impact and regeneration as the standard approach to making investments and running companies of all sizes.
Additionally, we have ESG 360, which emerged as a spin-off from the advisory unit within Top Tier Impact. ESG 360 focuses on assisting companies in their climate transition and climate planning. It’s a software platform that enables corporates to gather all their scope through external data sets, with a significant emphasis on the scenario planning required for successful decarbonization efforts. Currently, there’s a gap between making commitments, aligning with net-zero plans, complying with regulations, and the actual implementation within companies to achieve these goals.
Thanks for the introduction. The first topic I’d like to cover is how you define impact investing now compared to when you first got involved in it.
Impact investing has been a term in use for decades. Initially, it was closely associated with emerging markets and focused on activities with a social impact. Similar to how the “E” or “S” in ESG is measured today, impact investments were about measuring social impact. There were specific criteria and factors associated with it. It was also viewed as an asset class that fell between philanthropy and traditional investing.
However, over the past five years, there has been a significant shift in the understanding of impact investing. It has evolved to encompass much more than just social impact in emerging markets. Impact is now seen as any measurable positive innovation across various sectors of society. At Top Tier Impact, we mainly focus on tech-related impact across different sectors.
Speaking of technology, which tech areas do you believe have had the most significant impact in the realm of impact investing over the last few years? Is it software, manufacturing, or something else?
That’s an excellent question because there have been many developments across different tech areas. Clean tech is a notable example. In the past, it was cost-prohibitive as an asset class, but innovation has driven down costs, making it more accessible. Software, in particular, plays a crucial role in industrial decarbonization and the necessary adjustments to corporate processes. Software, combined with AI, holds great potential in transitioning corporate and investment structures effectively.
Shifting our focus to the Sustainable Development Goals (SDGs), within this framework, which sectors have garnered the most interest from investors in recent times?
Within the SDG framework, the sectors drawing the most investor interest are those related to environmental factors, particularly in areas like real assets, land, and regenerative processes.
Additionally, climate tech has been a standout sector. It’s important to note that investor interest can vary significantly depending on geographical location due to differing regulatory contexts. Europe and the UK have led the way in climate tech and sustainability, but the pace and areas of focus vary globally.
Do you think climate tech investors worldwide share a common approach, or does it differ based on their geographical location, such as a US-based investor versus one in Denmark?
In short, no, there isn’t a uniform approach among climate tech investors. Several factors influence their investment strategies, including regulatory contexts, geographical focus, and time horizons. Different regions have varying priorities and opportunities in climate tech. For instance, the UK and Europe have led the way in certain areas, while the US may have a different focus. The key is understanding the broader ecosystem and how regulatory forces drive opportunities in specific markets.
When it comes to entrepreneurs or companies seeking investments from impact funds, should they approach impact investors differently from traditional venture capitalists (VCs)?
The approach to impact investors depends on the nature of the fund and the type of investor.
Development finance institutions (DFIs), a significant asset class within impact investing, operate differently from traditional VCs. When dealing with DFIs, understanding their specific processes is crucial.
However, for private market funds, I believe it’s best to approach them as you would approach traditional tech VCs. Your case must be crystal clear. Impact alone is not sufficient; it should be embedded in your company’s DNA. If impact is added as an afterthought, it won’t resonate with impact investors. It needs to be an integral part of your company’s mission and operations.
Conversely, do you think impact investors prioritize companies that are clear in their vision and prioritize impact over those who retrofit impact into their strategies?
Absolutely. Impact investors look for companies with a clear vision and mission rooted in impact. Retrofitting impact into a business strategy is less convincing. Your impact story should align naturally with your company’s core values and objectives.
Can you provide examples of companies that have successfully integrated impact into their vision, secured funding, and are now thriving?
Certainly, let me provide an example of a company we worked with last year.
It’s a financial inclusion startup in Africa. The founders were clear about their mission to promote financial inclusion in challenging African markets. They went through Y Combinator and chose to operate in regions where access to financial services was limited.
Their impact was evident from the start, considering their chosen geography and mission. They secured funding with favorable terms, especially from development finance investors who recognized the impact potential. This company’s case demonstrates that when impact is ingrained in your business model and strategy, it becomes a compelling story for investors.
Where do you see impact investing heading in the next decade? What are the
significant changes you anticipate, considering the developments of the last ten years
Impact investing will become more granular in the next decade. It will expand as an asset class, delving deeper into measurable impact.
The goal is to go beyond broad impact statements and focus on specific outcomes. Harmonizing metrics across sectors and regions will be important. However, there will also be more diversity in measurement approaches.
The impact investing landscape will continue to evolve, offering opportunities for differentiation based on specific impact metrics. The industry will witness increasing diversity in approaches, with a focus on measurable impact at both macro and micro levels.
