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Raising money for sustainable enterprises

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This section offers advice to entrepreneurs on seeking finance, and highlights a number of key sources well disposed toward investing in sustainable enterprises. It assumes the reader has some experience in business finance and that, if not, they will seek basic resource materials and qualified financial advisors.

Businesses the world over are built on the pillars of ingenuity, hard work, demand for products and services, and money.

The growth of sustainable enterprises requires an infusion of finance and investment - debt and equity. However, because the concept of sustainable enterprise is relatively new, securing the necessary funding from conservative capital markets can be a challenge.

The relative unpredictability of environmental business sectors has led North American lenders and investors to focus on risk and liability avoidance. Although some investors have recently added positive environmental or social screens to their evaluations, these organizations and individuals are primarily in the secondary or stock markets, and are not particularly relevant for investing in small and medium sized enterprises (SMEs).

Environmentally sustainable enterprises must also improve their financial performance if sufficient new capital is to be attracted to the market.

Sustainability can add value, in terms of the economic, environmental and social objectives of communities and nations. This thinking translates the concept of sustainability into language that the average businessperson comprehends. The business that does not add value to a product or service will be forced to leave the marketplace, especially in today's increasingly competitive global economy.

The Business Council for Sustainable Development (BCSD) argues that eco-efficiency is a key requirement of sustainable business. Eco-efficient activities bring lower costs and economic gain, which is attractive to capital markets. Companies becoming eco-efficient, as well as those supplying the technology, goods, and services that make the transition possible, will benefit.

Some investors are beginning to recognize that unsustainable practices can adversely affect business performance. New York City Comptroller Elizabeth Holtzman, declared that:

'As the emerging owner of corporate America, with a financial and future stake in corporate activity, pension funds have an obligation to speak up. Poor management decisions, sloppy stewardship of natural resources, inattention to the consequences of wasteful and hazardous production practices, can shrink the present return on our investments, and - a more sobering prospect - diminish our world.'

Sustainable enterprises offer new opportunities through which investors and entrepreneurs can find common ground. For investors, the transition will involve developing a long-term strategy and an appreciation of opportunities in sustainable markets. Entrepreneurs will have to develop commercially attractive, sustainable enterprise opportunities, and learn how to gain access to investors who are enthusiastic about this type of market.

'Sustainable investment' is a relatively new concept, but is basically an innovative way of reconciling environmental preservation and social responsibility with economic activity, and then adding value to it all. Sustainable investment is a sophisticated way of shifting capital to companies (particularly SMEs) that are smart enough to position themselves to take advantage of opportunities arising from the new marketplace.

Sustainable investment is the same as traditional investment in that it is placed in companies that do the fundamentals well. Growth projections are based on sound management and business principles.

Sustainable investment favours SMEs that:

  • Have identified and developed emerging markets for their products and services;
  • Devise and market technologies (both 'hard' and 'soft') that meet pressing environmental, social and economic needs;
  • Use every environmental efficiency that is economically viable.

However, sustainable investment differs from traditional investment in that money will come first from investors who share an understanding of the new economic paradigm of sustainability. As the sector demonstrates its ability to generate competitive returns, more investors will be attracted into it.

The challenge for sustainable entrepreneurs is to appreciate the distinct features of sustainable investment and to understand what they mean to business planning and efforts to attract capital.

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