Mastering Negotiation Standards: Attracting Impact Investors

All entrepreneurs, at some point, ask the question: How can I attract investment to grow my business? Answering this question is not easy since attracting investment for a venture is a complex process that takes a lot of work and time.

In the case of social entrepreneurs, the process of attracting investment is twice as complex. On the one hand, traditional investors fail to understand the impact component that the organization works and, on the other, impact investors who do understand and seek to carry out Investments that generate a social or environmental impact use a language that social entrepreneurs do not dominate.

How can social entrepreneurs attract impact investors?

The answer is to dominate the negotiation standards since these will allow the social entrepreneur to:

  • Establish a common language with impact investors.
  • Show how well the organization executes its social or environmental mission.

There is a wide variety of negotiation standards; here are some of the most used in impact investment markets:

Environmental, social and governance (ESG)

ESG is not so much a standard but rather a selection criterion that some investors use to determine in which companies to invest. This criterion analyzes three dimensions of the company: the environmental, which valued how well the organization performs in its relationship with nature. The social, which examines how the organization relates and operates with its employees, customers, suppliers, and communities. And finally, the governance, which analyzes how is the organization leadership, accountability, audit processes, among others.

SDG Sustainable Development Goals

Sustainable development goals are becoming increasingly relevant for impact investors as a form to select investment projects. Social entrepreneurs must determine whether their impact mission helps to achieve any of the sustainable development goals and establish mechanisms that allow them to measure the extent to which they are contributing to achieving that SDG. For more information on how to report with the SDGs visit: sdgreporting.org

Sustainability Accounting Standards Board (SASB)

SASB is a nonprofit organization that has set 77 industry-specific standards for environmental, social, and governance issues that allow social enterprises to measure and report their impact. For more information on how to report with SASBs visit: sasb.org

Global Reporting Initiative GRI

GRI standards are most used worldwide to report the sustainability practices of organizations and governments. They have a very robust platform and a methodology that guides entrepreneurs from the measurement phase to the communication phase. For more information on how to report with the GRI visit: www.globalreporting.org

International Integrated Reporting IIRC

In the words of its Chairman Professor Mervyn King, “The IIRC Framework is a tool for the better articulation of strategy, and to engage investors on a long-term journey to attract investment that will be crucial to achieving sustained, and sustainable, prosperity.” IIRC methodology measures how the organization creates value and places great emphasis on thinking about the organization in the future, that is, where it wants to go. For more information on how to report with the IIRC visit: https://integratedreporting.org/

The Planetary Boundaries Framework

The PB framework presents a set of nine planetary boundaries such as freshwater use, ocean acidification, climate change, biodiversity integrity, among others. Within which humanity can continue to develop and thrive for generations to come. In recent years, this framework has begun to gain relevance among companies and investors; for example, in 2016, the World Business Council on Sustainable Development implemented it to define its 2020 strategy. For more information on how to report with the IIRC visit: https: //www.stockholmresilience.org/research/planetary-boundaries.html

Implementing any of these standards can represent a significant investment of time and money for social entrepreneurs. For this reason, social entrepreneurs should follow these recommendations to master the negotiation standards:   

Choose the right standard

Some standards are better for large organizations, others are better for organizations working on an environmental mission, and others are better for showing where the organizations want to be in the future.

Social entrepreneurs must analyze each standard and select the one that allows them to show how well they are fulfilling their mission.  Also, they should keep in mind the cost of implementation and choose something they can afford; This could be a bit tricky since the social entrepreneur must find a balance between the standard that best suit his needs and the money he can spend.

Wrap it all in a Pitch

Once the organization has implemented the standard, the reports and data it will produce must wrap it in a pitch. This pitch must demonstrate how well the organization is performing to achieve its mission and what are the projections of future results. With this pitch, social entrepreneurs will be able to approach potential investors, and they will have enough weapons to demonstrate the potential of their organization and be able to start a conversation with a common language. Also, the data and reports generated will be handy if a stage of due diligence is reached.

It is important to remember that standards are a means to an end, and social entrepreneurs should not become slaves to measure and report everything that happens in their organization.

A company that has used standards very well to attract new stakeholders and allies is Pisos Mamut, a Bolivian social enterprise that recycles rubber from tires to create cushioning floors. Manuel Laredo, CEO of the company, says that they selected some aspects of different standards that would allow them to measure what they were interested in and that they could afford it. These data have allowed them to set a pitch that not only represents how well the company performs its mission, but also allowed them to create a value proposition based on the concept of sustainable cities. They now can demonstrate the environmental and social impact that the product has in the communities where it is used. With this pitch, they have won several international competitions, participated in investment rounds, and are now preparing for the internationalization of the company in several markets in South America.

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Bryan Bejarano, is a marketing professional, living in Costa Rica with a successful track record in marketing management, sales, digital strategy and creative problem-solving for commercialization and promotion of brands in the retail industry and also in the non-profit sector. Find out more: Viva Idea
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