Going green on investments
Impact investing means investing in companies, organisations and funds with the intention of making a social and environmental impact in addition to a financial return. In contrast to the classic view of profit maximisation as a business’s sole purpose, impact investors believe that companies that aim to solve the pressing problems of today, often through innovative use of technology, can successfully combine a social conscience with profitable operations (1)
Historically, Denmark has attracted investments due to a combination of factors, from innovative business solutions, to a highly skilled population, to the security and trust that comes from the welfare society and its foundational institutions. Currently Denmark ranks 6 out of 49 high income economies for all-round innovation performance as per the latest Global Innovation Index, which highlights ICT infrastructure and skills as primary drivers in this area. These beneficial conditions for innovation are reinforced by the ease of doing business in Denmark.
In the yearly index by The World Bank, the top scorer amongst European countries is Denmark when comparing business regulations, and the extent to which these provide a positive arena for starting new business ventures. It is also worth noting that Denmark performs at the very top when it comes to trading across borders(2), which is crucial to creating widespread impact through green technologies.
However, while Denmark’s overall performance in areas relevant to potential investors is continually strong, something new is also underway. In the landscape of investors, it seems that a rapidly growing group is making efforts towards going green on investments. A flourishing community of impact investors are gathering and making headwind, redirecting investments, and helping startups move beyond the feared "pilot-death" to become resilient businesses.
Initially a niche group of investors, today impact investments flow from a broad range of institutional as well as private actors. Dedicated platforms like The Nordic Impact Investing Network, The Nordic Impact Hub and +Impact (by Danske Bank) are definitely making impact, focusing on startups within mainly cleantech, foodtech and biotech.
A different section of the playing field, witness initiatives by Vækstfonden and Innovation Fund Denmark, which display dedicated green investment programmes that fund startups as well as SMEs. Beyond this, we have organisations like The Danish Green Investment Fund, which is a "green impact only" foundation supporting companies with innovative solutions to environmental challenges.
According to recent studies the impact investment community is growing rapidly in Denmark and the Nordics(3). Today 41% of total impact investors are institutional actors, the highest in the Nordics, indicating that public-private funding schemes are popular in Denmark, although private funding still accounts for the majority of movement in this arena.
It is worth noting that early-stage funding for ideas or technology prototypes is almost exclusively funded by private actors. Only in the later stages do companies bring institutional impact investors on board to support scaleup and internationalisation. The stage of investment is one thing; it is another to consider which companies and solutions attract the most investment. Here the high scorers are companies displaying innovative solutions within sustainable energy and energy efficiency, industrial innovation and infrastructure, and responsible consumption.
All things considered, the impact investment community is greening the investment game, and it will be movement worth following closely now that old-school players like pension funds and banks are coming aboard.
(3) See Impact report, Nordic Investors, published by The One Initiative.