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A sustainable alternative to the financial meltdown

Although the global financial problems are causing trouble for investors now, they could lead to something better – for investors and the environment.

But those non-financial benefits often raise the financial costs. Training farmers costs money; so does paying a living wage. For a company trying to turn a profit, that’s a challenge. As one option, they can absorb the higher costs and book smaller profits. Griswold’s annual coffee summit, where he convenes coffee growers, roasters and retailers for a three-day discussion of industry trends, can eat almost 80 percent of net profits. Or companies can pass higher costs to the consumer. Many people say that’s only fair, a $10 T-shirt can’t reflect a living wage on the factory floor. Products tout their sustainable bona fides—organic, local, fair trade, in part so customers understand why they’re paying more. But higher prices make such goods luxuries, nearly out of reach for all but the affluent.

Griswold does a bit of both, absorbing costs and passing them on, but it’s hard on the balance sheet. He needed financing from institutions that understood that. Shut out of the traditional channels, he borrowed from a so-called 'green bank,' ShoreBank Pacific, and from a sustainable investment fund, RootCapital. Both are dedicated to the same principles as Sustainable Harvest: doing good and making money. In other words, that didn’t mean Griswold got a sweetheart deal; his interest rates are high. It just means he got a deal, period.

That’s the point of these mission-based banks and investment funds: to look at more than just the bottom line. "An entrepreneur needs a bank that understands his mission," says Triodos’ Blom. "The values of the bank, the mission of the bank, has to support the mission of the company." (For a profile of another 'green' financial institution, New Resource Bank, see 'Making money a renewable resource' on page 28.) In return, depositors know their money’s being put to work in line with their priorities, and for that, they’re often willing to make small financial sacrifices of their own, like forgoing top returns for rates that are simply competitive.

Borrowing money isn’t the only option for growing sustainable ­businesses. There’s always the capital markets, selling shares of the company to outside investors. But that means giving up a measure of control, and that’s never easy for a company’s founder. And because investors inevitably want to see returns on their investments, social entrepreneurs worry they’ll have to sacrifice their commitment to people and planet in favor of profits. "Once you ­enter the traditional capital markets, you’re ­rewarded for growth, period," says B Lab’s Coen Gilbert. "The more growth, the better, and all the incentives are to do that as rapidly as possible."

Enter the mission-driven venture capitalists. These early-stage investors say they understand that a social ­entrepreneur’s growth might not look like that of a traditional small business. That means they might not want to go public, or to get bought by a bigger company, the ­traditional ways a venture fund cashes out. Mark Finser, founder of TBL Capital, a $50 million socially responsible venture fund, says he’ll never push for that. Other return streams, like a dividend, or growth by acquisition, might suit his fund as well.

That’s because, like the social enterprises in which they invest, mission-driven venture capital funds exist to make money. And they have to invest in companies that will, at some stage, turn a profit. At TBL, Finser told his investors to expect a positive rate of return, and while he wasn’t willing to "get nailed down on 20 percent, I do think it’s going to be quite good," he says. To get there, he floats an idea that could sound like a mixed blessing to a small, socially responsible business owner: encouraging a partnership between a small manufacturer of solar panels and multinational telecoms like Verizon or Nokia.

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