Environment How Sustainability Is Changing Business

by Tom Anderson | October 25, 2021

Investors understand the emphasis on the bottom line from traditional rules of business. However, measuring the impact a company has on the world is another thing.

Are a company's practices sustainable? Does a business treat all its stakeholders well? Do they have equitable hiring practices? What is its strategy for dealing with climate change? This second set of metrics may become as important to investors and consumers as the first.

Companies with a double bottom line seek to do well and do good. While the first bottom line shows how revenue minus expenses leads to profit, the second is how a company measures its effect on society. As people and organizations look to create greater racial equity, fight climate change, and enable a more environmentally sustainable global economy, consumers and investors expect more from businesses.

Investors and consumers are looking at the double bottom line to measure progress on social and environmental priorities. The pathways to profit and purpose are converging, and it’s vital to understand where this trend is headed next.

Why the current buzz around the double bottom line?

Now more than ever, consumers want to buy from businesses that advance an environmental and social mission alongside their pursuit of profitability.

Consumers demand greater transparency and want to be more mindful of how they spend their money. And investors realize that they too can earn a profit while improving society. Meanwhile, businesses are providing the public with more data about their sustainability efforts to help consumers make informed decisions.

Cheryl L. Dorsey, president of Echoing Green, a global nonprofit that supports emerging social entrepreneurs, sees the growth of double-bottom-line companies driven by three main factors:

1. Investors are increasingly aligning their investments with their values. This tracks with changing norms around the roles of business in society as well as demographic shifts that will put women and millennials in control of most wealth in the coming years.

2. There is a deepening understanding among consumers and investors, especially women and younger generations, that considering social and environmental impact is simply good business for all stakeholders, especially over the long term.

3. Several global frameworks, such as the Paris Climate Agreement and the United Nations' Sustainable Development Goals, have explicitly called for private capital to finance solutions to social and environmental challenges have proven catalytic for unlocking investor interest and investment.

"Past strong performance, as well as the refinement of impact measurement and management practice, will drive more investment activity," Dorsey says. "Investors are 'voting’ with their dollars, believing capital has an important role to play in driving positive social and environmental impact."

The double bottom line and impact investing

The growth of companies that focus on the double bottom line fits into a long history of investors aligning their values with their investments.

Socially responsible investing, which traces its roots to abolitionist investors in the U.S. who opposed the slave trade in the 1700s, actively selects or eliminates particular investments according to specific ethical guidelines. More recently, institutions and individuals incorporate environmental, social, and governance considerations, known by the acronym ESG, into decisions throughout the investment life cycle of public companies.

Impact investing, a term coined in 2007, refers to investing in private companies with strong double bottom lines, says Vikram Gandhi, a Harvard Business School professor who teaches social entrepreneurship and sustainable investing. "I talk about impact investing from a private markets perspective, because actually if you look at public markets, it's all ESG and influencing outcomes from engaging public shareholders," he says.

The Global Impact Investing Network (GIIN) estimates that the impact investing market worldwide is more than $715 billion, which is roughly the size of the budget the Pentagon has requested for 2022 and growing steadily. Of the nearly 300 leading impact investors surveyed by GIIN last year, 7 out of 10 say the financial attractiveness of impact investing relative to other investment strategies is at least somewhat important to them.

Trees outdoors are reflected against a meeting room window

How the double bottom line impacts consumers and investors

More companies with an environmental and social mission are thriving, and consumers and the market have taken notice thanks to the double bottom line.

In January 2020, Citi established the $200 million Citi Impact Fund, which makes equity investments in private companies with double bottom lines. The fund focuses on addressing four main challenges: workforce development; access to the financial system; physical and social infrastructure; and sustainability.

"Whereas 10 years ago you could count the number of investors on two hands that would be interested in impact investing, and five years ago, maybe, with both hands and both feet," says Andy Ditton, managing director and head of Citi's Impact Fund. "Now I would say you're hard-pressed to find investors who don't care about it."

For companies committed to the double bottom line, being environmentally friendly or selling eco-friendly products to consumers is not enough. They back up that pledge with sustainability reporting that investors and consumers can use to track their progress, much the way a company will issue reports about financial statements.

What does a company with a double bottom line look like in action? For the first investment that the Citi Impact Fund made in 2020, this commitment came in the form of an affordable 3D-printed home created by ICON. This Austin, TX-based company uses 3D printing robotics, software, and advanced materials to build housing in the U.S. and Mexico for people at a fraction of the cost of traditional construction.         

In addition to demonstrating profitability and a commitment to affordable housing, ICON has also been awarded a government contract to ​​work with NASA to research and develop a space-based construction system that could support future exploration of the moon. "The idea that one of our companies could within a few years, because NASA's shooting for 2025, be building homes on the moon, I think is pretty cool," Ditton says.

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More companies with an environmental and social mission are thriving, and consumers and the market have taken notice thanks to the double bottom line.
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The future of the double bottom line

"Even though the industry has both grown significantly and attracted widespread interest, it is delivering only a fraction of the impact we need it to in order to address global challenges, including climate change, income inequality, and racial, gender, ethnic and class divisions, " Dorsey says.   

While still early days for the double bottom line, companies do recognize the value. For example, many large publicly traded companies, including Citi, have pledged to have net-zero greenhouse gas emissions by 2050 to combat climate change.

As public companies report on their progress to ESG investors and private businesses track their social contribution for impact investors, the business community, as a whole, leverages its might toward a better future.

An environmental engineer reviews designs in her office
Tom Anderson

is a New York-based writer and has written for CNBC.com, Forbes, Kiplinger's Personal Finance, Money, Monocle and Wired.