We are seeing significant shifts in consumer behavior due to COVID-19. Sustainability and creating a positive social impact are becoming increasingly important. Concurrently, we are facing a lot of uncertainty. Many companies are facing difficult challenges that require them to pivot and respond to these shifts with creativity and urgency. I would like to highlight some of the ways the impact innovation ecosystem can contribute to economic recovery in the region.
From Unicorns to Green Zebras
There has been a lot of emphasis on unicorns – startups valued over $1 Billion dollars like Uber and AirBnB. Yet in the past few years we have seen a growing interest in Zebra companies, a term coined by Zebras Unite in 2017. These companies focus on responsible and sustainable solutions for social and environmental problems. They combine profit with sustainability and impact, and they are more likely to revive our economies than unicorns. There are many examples of startups in the region that currently fit into the Zebra category but need the right support. Using conventional investment methods will not allow them to prosper as their success should not be measured by their financial return only, but also by the positive impact they create.
Amit Bouri, Global Impact Investing Network CEO remarked: “This pandemic only makes the needs of our world more pressing – and only makes clearer the world’s need for the work of this impact investing community.”
Impact investments provide capital to address social and/or environmental issues with financial returns. We are witnessing a growing trend for impact investments. According to J.P. Morgan, shifting wealth dynamics will drive demand for impact investing.
● $58.7 trillion of wealth will transfer primarily to women and millennials over the next 35 years.
● 90% of women believe making a positive impact on society is important.
● 45% of wealthy millennials want to use their funds to help others and consider social responsibility a factor in making investment decisions.
According to a discussion at the MENA Impact Investment Forum, the IRR of impact driven startups is 20-25% compared to 7-9% of non-social or environmental impact startups. Many organizations and investors are tapping into this space such as Venture Souq Conscious Collective Fund. Women4Impact, a global initiative I co-founded in 2020, is launching a program to increase female impact investors in the MENA region.
From Social Responsibility to Corporate Impact Innovation
Large corporations are shifting from focusing on maximizing shareholder value to maximizing stakeholder value (customers, communities, and suppliers). This plays a vital role in shaping the impact innovation ecosystem. I personally noticed this shift while working on corporate innovation projects in the region. Companies are shifting from a traditional CSR philanthropic strategy to a more proactive strategy.
Whilst entrepreneurs and specifically impact entrepreneurs can help come up with solutions for economic recovery, the urgency of the matter makes it critical to come up with solutions that can be implemented quickly. Large corporations have access to a large number of consumers, they have the funding, and they have the resources to do that. What they lack, in general, is the ability to find innovative solutions.
There are several ways corporations are tackling this such as collaborating with startups, conducting corporate innovation programs, and investing in startups. One of the many examples is the Cartier Women’s Initiative in 2006. This is an annual international entrepreneurship programme that aims to drive change by empowering women impact entrepreneurs.
Impact Corporate Venture Capital
Impact CVC is becoming increasingly popular in the US and Europe. Large corporations are investing in innovative ideas that are aligned with their corporate strategy. An example is the Salesforce Ventures impact fund. The company announced its second impact fund in 2020. This is a $100 million impact fund to accelerate the growth of cloud companies addressing some of the most pressing needs including education and reskilling, climate action, diversity, equity and inclusion, and providing tech for nonprofits and foundations.
What Problems Can We Solve Now
Thanks to the convergence of industries, companies can solve problems related to their industries and adjacent industries. They can solve one or more goals from the UN Sustainable Development Goals. As an example, The United Nations World Travel Organization (UNWTO) is working with innovative startups to accelerate recovery in the hospitality sector while promoting inclusivity and sustainability to reboot the sector post pandemic.
Some of the interesting challenges we can focus on include sustainable supply chains, economic growth, affordable quality education, and sustainable cities and communities. I am optimistic about what can be achieved in Bahrain and the region, as the new normal will give us an opportunity to collectively create a better future for everyone.