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The Opportunity is Startup Investment

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As we have covered previously, the number of Australian investors interested in sustainable investment sits at an all-time high (Link to previous article). Despite this trend, the opportunity that offers the greatest chance at delivering massive change and similarly sized returns is often overlooked.

That opportunity is startup investment.

At Vellum, we believe that real change that benefits the planet can only be achieved by actively nurturing great ideas and revolutionary technologies from infancy. This means diversifying away from pruning the leaves of established mega organisations to fit within ethical criteria, and instead helping cultivate the seeds of a more sustainable tomorrow.

Despite the existing enthusiasm from Australian investors, there is still a lack of clarity around how investors can support real, tangible change and make their money work harder for their interests. At Vellum, we have found that tools such as EnergyLab’s taxonomy for impact investors are particularly useful in addressing this issue.

With the primary aim of demystifying the United Nation’s Sustainable Development Goals’ 169 targets and 231 indicators, the taxonomy is designed to make SDG-aligned clean tech startup investing simpler than ever before.

Within the taxonomy, EnergyLab puts forward a list of thirty-seven categories of the most common cleantech startups and assigned an SDG they “primarily contribute towards as well as any SDGs they secondarily support”. This is a significant framework and is one that aligns with our interests in promoting greater transparency from organisations and clearer ESG returns for investors.

Investors who wish to positively transform the way companies operate, how we use technology, and by extension the sustainability of the global economy, should be looking first for that which underpins all successful ventures: a great idea.

We know that funding predictable, common organisations will net predictable, common results. By looking to support great ideas during infancy, you not only choose the change you want to see in the world, you maximise the potential financial growth of your investment. With ESG aligned and sustainability focused investing, we know that that big returns – both fiscal and sustainable – require thinking big.

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Australian Investors are Showing a Hunger for Ethical Investment – Don’t We Owe It to Them to Tell Them What ‘ethical’ really means?

There is no question that an appetite for investment options that make a positive difference is burgeoning in this country, the question then is how can we satisfy investors by achieving both profitability and positive outcomes?

Beta shares recently revealed that 20% of all investors in Australia are deliberately seeking socially responsible investment opportunities, a significant figure that rises even higher when discussing younger investor preferences (28%).

However, the term ‘ethical’ by its nature is subjective.

I for one firmly believe that we not only have the power but the duty as financial institutions to channel this trend for ethical investment into real action. However, this is only possible if a consensus definition of what constitutes ethical investment is reached and able to be tested against strict ESG standards.

At Vellum, we understand that positive impact which truly makes a difference either enriches one or all of the following dimensions, Environmental, Social Impact or Corporate Governance. These dimensions, which constitute ESG, are the exact parameters by which we can observe our investments at work, but achieving this visibility will take some reform.

Currently there are no regulations that ensure that the growing numbers of Aussies trying to make a real difference with their investments will see real results. There is no existing obligation for so called ‘ethical investment’ funds to clearly disclose investment choices, nor adhere to any regulatory standards. This may mean many Australians may be investing in causes which are counterproductive to their beliefs.

Such standards, which would ensure that ESG dedicated funds were truly creating positive impact, already exist in Europe thanks to the Sustainable Finance Disclosure Regulation and similar measures have recently seen significant backing from US president Joe Biden (ref).

In order to properly harness this growing enthusiasm from Australians for sustainable investment, and to ensure that ESG continues to be a meaningful benchmark for positive change, we need similar reform here in Australia.