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It´s not broken; it´s working the way it was designed (part 2)

Jennifer Schwalbenberg

Strategy, Governance, Sustainability, Trustee, Advisor, Consultant Giants’ Shoulders Capital

In Part 1, I highlighted an example of the need for innovation in the financial system. Innovation necessary to channel funding to those start-ups working to present answers (or at least potential solutions) to our questions surrounding biodiversity, habitat preservation, emissions reduction, waste repurposing and deforestation (to name a few). I recently spoke about this at Anthropy23 at the Eden Project.  As I spoke about the struggle of these smaller initiatives to find funding, I noticed so many heads nodding.  Anyone working (or trying to work) in this space understands. 

This is something we´ve been speaking about for years already. During the first-ever Finance Day, Day 4 of COP26 in Glasgow, the focus was “mobilising money”.  One of the sub-themes focused on directing funds from private philanthropy to climate-focused solutions.  Part of that looked at philanthropy to fund small start-ups in the global South to grow them to a stage where they could be aggregated into a larger investments, and of a risk level that better met the requirements of public and private investors.  This is still an idea we should push forward, but now across geographies, across developed and developing nations and across investor communities. 

Collaboration between public funders, institutional investors, family offices and foundations and other charitable and philanthropic organisations can provide the answer to our innovation conundrum.  The necessary financial innovation could be created by bringing various players together. Each with a different skillset, risk appetite and investment horizon, their collaboration and the alignment of their strategies would maximise the impact of their contributions.  

An institutional investor doesn´t want to come in at the beginning alone, but aggregating several initiatives with various risk profiles might be more attractive to a consortium of small to medium investors, such as a family office.  A foundation could come up to support the due diligence or a charity donates their expertise, in exchange for a percentage of the returns. When one starts to look at what each player does best, and brings those skills to the table, one begins to see how their collaboration could be harnessed to support the growth and development of these start-ups, from seed to, potentially, unicorn.  

If the mention of a unicorn (i.e., an exit for more than USD 1 billion) seems strange when speaking of philanthropy and sustainability, then there´s a good reason.  There´s a significant gap in current thinking when considering allocating funds from foundations and charities to sustainability initiatives.  There´s the feeling that this is just charity, and not business. But there are significant returns to be made. 

One example is Iceland´s first unicorn. A start-up in the Westfjords of Iceland, Kerecis uses intact cod skin to produce an alternative to skin grafts for wounds and burns. Founded in 2009, Kerecis was sold to Danish pharmaceutical company Coloplast for USD 1.3 billion in July 2023.  Fish skin was once a waste product after filleting but now commands high prices when turned into leather, gourmet treats, cosmeceuticals, or life-saving medical treatments, like those from Kerecis.  This company is part of the 100% fish movement, which by the way was just nominated for the 2024 Earthshot Prize. All of this from a country which two generations ago was one of the poorest in Europe. 

Whilst this might appear like a one-off to many, and too hard to replicate, I call attention to Intesa Sanpaolo Group´s circular economy fund. Worthy of its own blog post, Intesa Sanpaolo formed a collaboration with the Ellen MacArthur Foundation to provide a multi-faceted financing facility to support businesses in their transition or businesses assisting others in their transition.  These facilities support not only large corporations, but also SMEs in Italy and abroad.  It is a consortium of philanthropy, a sustainable bond issuance, and private funding, with some government support thrown in.  First established in 2015, it was renewed in the Group´s 2022-2025 business plan.  This signifies EUR 8 billion dedicated to changing the way business is done. 

Now, as we prepare to gather in-person and virtually for COP28 in Dubai, let´s try to get as many of these players in the room, and start talking. 

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