The Environmental Impact Nursery delivering deal flow a new construct for a truly sustainable planet 20181102

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2 November 2018
The
Environmental Impact Nursery™
“Delivering Deal Flow”
A new construct for a truly sustainable planet
"Freedom lies in being bold" Robert Frost
Contents
Abstract ........................................................................................................................................................ 4
The Challenge ............................................................................................................................................... 5
Background ............................................................................................................................................... 5
Natural Capital .......................................................................................................................................... 5
Natural Capital Accounts .......................................................................................................................... 6
Business as Usual Risk ............................................................................................................................... 7
The United Nations Sustainable Development Goals (SDG’s) .................................................................. 8
Mobilising Private Capital ......................................................................................................................... 8
Philanthropy.......................................................................................................................................... 8
Impact investing .................................................................................................................................... 8
Investment risk...................................................................................................................................... 8
Challenges ............................................................................................................................................. 9
Deal flow ............................................................................................................................................... 9
The Environmental Impact Nursery™ ........................................................................................................ 10
EIN Background ....................................................................................................................................... 10
The EIN Process ....................................................................................................................................... 11
EIN Deal Flow Development ................................................................................................................... 12
Creative Problem Solving ........................................................................................................................ 12
Initial investment themes ....................................................................................................................... 13
Accountability ......................................................................................................................................... 13
Business-for-Purpose .............................................................................................................................. 14
STEM ....................................................................................................................................................... 15
Greenwashing ......................................................................................................................................... 16
EIN Business Development ........................................................................................................................ 17
ESG .......................................................................................................................................................... 17
Governance ............................................................................................................................................. 17
Ethos ....................................................................................................................................................... 17
E-Suite ..................................................................................................................................................... 17
Regional Network.................................................................................................................................... 17
External Opportunities ............................................................................................................................ 17
The EIN Model V the incubator/accelerator models .............................................................................. 18
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Marketing ................................................................................................................................................ 18
Education ................................................................................................................................................ 18
Global Network ....................................................................................................................................... 18
Valuations ............................................................................................................................................... 18
Social Impact ........................................................................................................................................... 18
The Humanities ....................................................................................................................................... 18
Investing in the EIN Model ......................................................................................................................... 19
Conclusion .................................................................................................................................................. 20
Glossary ....................................................................................................................................................... 21
References .................................................................................................................................................. 22
This whitepaper is dated 2 November 2018 and is the 10th edition.
This document is continually updated as this construct evolves.
Please visit www.naturalimpactgroup.com/whitepaper to ensure you have the latest version.
Author: R.J. Holden, Founder, CEO & Managing Director, Natural Impact Group™ Pty Ltd.
Email contact regarding this whitepaper: [email protected]
© 2018 Natural Impact Group™ Pty Ltd. All Rights Reserved.
Copyright Natural Impact Group™ Pty Ltd. This work is the intellectual property of the author. Permission
is granted for this material to be shared for non-commercial, educational purposes, provided that this
copyright statement appears on the reproduced materials and notice is given that the copying is by
permission of the author. To disseminate otherwise or to republish requires written permission from the
author.
Citation
Holden R.J (2018). The Environmental Impact Nursery™; delivering deal flow – A new construct for a truly
sustainable planet.20181102
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Abstract
This whitepaper is based on three statements:
1. Natural Capital is the basis for all biological, social and economic activity on earthi and;
2. On the 25th of September 2015 the United Nations General Assembly adopted the Resolution
Transforming our world: the 2030 Agenda for Sustainable Development which sets out a plan to
achieve global sustainability via 17 Sustainable Development Goals (SDG’s)ii. The UN estimates
the cost to be $75 trillion to $105 trillioniii between 2015 and 2030 and;
3. The Oxford Dictionary defines the verb “risk” as “Expose (someone or something valued) to
danger, harm, or loss”iv.
Based on point 1, to achieve all 17 of the SDG’s a focus must first be made on the 11 goals that deliver the
best care and management of the world’s Natural Capital. This should enable the remaining 6 SDG’s to be
achieved more easily. But to do so, an increase in professional investor risk appetite is required.
It appears that global initiatives currently being developed will deliver a catalyst to increase investor risk
appetite as it becomes clear the cost of business as usual creates other risks far greater than the risk of
(any) return on investment. Clarity on total system failure (ecologically, economically and socially)
combined with a looming deadline to technically achieve sustainability and the time lag to scale new IP
and business models increases the risk of panicked investment, greenwashing and mission drift.
Rather than a catalyst, a better option may be a formal process to mobilise capital and address the
fundamental risks to Natural Capital now. Private capital is best placed to lead and this whitepaper
outlines a new construct designed to deliver the methodology, clarify risk & measurement metrics and a
way to determine the correct solutions that should be pursued to achieve true sustainability.
Figure 1: The 11 Sustainable Development Goals that provide the best management of Natural Capital
“We cannot solve our problems with the same thinking we used to create them”
Albert Einstein
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The Challenge
Background
The start of the first Industrial Revolution (~1760) marked a major turning point in humanities use of the
earth's resources, especially fossil fuels. The next 250 years saw the development of technologies and
business models designed to extract more from the earth’s Natural Capital, under the banners of
productivity, growth and wealth generation which aimed to raise the standard of living. This has led to
overconsumption of natural resources, extreme levels of pollution, habitat loss and the spread of invasive
species.
Ironically, the process of working out how to 'extract more' has delivered an unprecedented expansion of
deep technical knowledge related to Natural Capital, Ecosystem Goods & Services and Biodiversity. Due
to this knowledge expansion, we now know that the current path is unsustainable and will end in system
failure. The evidence is already presenting in anthropogenic produced climate changevand the earth’s
sixth mass extinction eventvi
Natural Capital
Please see the glossary for a definition of Natural Capital, but essentially, it’s one of 5 capitals and
ultimately the basis for all biological, social and economic activity on Earth.
Figure 2 source Forum for the Future, 5 capitals overview
The World Forum on Natural Capital website explains the importance of Natural Capitalvii.
Why is natural capital an issue?
With financial capital, when we spend too much we run up debt, which if left unchecked can
eventually result in bankruptcy. With natural capital, when we draw down too much stock from
our natural environment we also run up a debt which needs to be paid back, for example by
replanting clear-cut forests, or allowing aquifers to replenish themselves after we have abstracted
water. If we keep drawing down stocks of natural capital without allowing or encouraging nature
to recover, we run the risk of local, regional or even global ecosystem collapse.
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Poorly managed natural capital therefore becomes not only an ecological liability, but a social and
economic liability too. Working against nature by overexploiting natural capital can be
catastrophic not just in terms of biodiversity loss, but also catastrophic for humans as ecosystem
productivity and resilience decline over time and some regions become more prone to extreme
events such as floods and droughts. Ultimately, this makes it more difficult for human
communities to sustain themselves, particularly in already stressed ecosystems, potentially
leading to starvation, conflict over resource scarcity and displacement of populations.
The key point is, in relation to the 5 Capitals, when Natural Capital, especially Ecosystem Services and
Biodiversity, become unavailable due to over-exploitation or system collapse, Manufactured and Financial
capital must combine with Human and Social capital to fill the gap. This adds substantial pressure to the
economics of business as productivity declines and fixed and marginal costs rise as the ecological footprint
expands. The negative impact to return on investment (ROI) of business will be significant and potentially
exponential as Natural Capital is exhausted.
Natural Capital Accounts
Wealth is what underpins the income and production (GDP) that a country generates. It includes the five
capitals and net foreign assets. The System of National Accounts (SNA) is the international standard for
measuring national income and savings and is followed by all countries, but it does not include
comprehensive cover of total wealth or natural capital.viii
Figure 3 Wealth, GDP and long-term prosperity
In 2012 the United Nations Statistical Commission adopted the System of Environmental-Economic
Accounting (SEEA)ix. SEEA contains the internationally agreed standard concepts, definitions,
classifications, accounting rules and tables for producing internationally comparable statistics on the
environment and its relationship with the economy. The SEEA framework follows a similar accounting
structure as the System of National Accounts (SNA) and uses concepts, definitions and classifications
consistent with the SNA in order to facilitate the integration of environmental and economic statistics.
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The SEEA Experimental Ecosystem Accounting (SEEA EEA) constitutes an integrated statistical framework
for organizing biophysical data, measuring ecosystem services, tracking changes in ecosystem assets and
linking this information to economic and other human activity. The SEEA EEA was formally published in
2014 as a joint publication of the United Nations, European Commission, Food and Agriculture
Organization of the United Nations, Organisation for Economic Co-operation and Development (OECD)
and the World Bank.
The SEEA EEA complements the SEEA Central Framework by taking a different perspective. The Central
Framework looks at “individual environmental assets”, such as water resources, energy resources, etc.
and how those assets move between the environment and the economy. In contrast, the SEEA EEA takes
the perspective of ecosystems and considers how individual environmental assets interact as part of
natural processes within a given spatial area.
The UN Committee of Experts on Environmental-Economic Accounting (UNCEEA) determined in June 2017
that a revision of the SEEA EEA was appropriate with the intention to reach agreement on as many aspects
of Ecosystem accounting as possible by 2020x. That revision has now started with Revision Issue Notexi
and Technical Recommendations available onlinexii
While these two projects are best in class, science has a very limited understanding of the
interconnectedness between all the forms of Natural Capital and anthropogenic impacts. Human caused
impacts may take hundreds of thousands or even millions of years to become apparent, especially with
the synthetic mutagens that have been introduced into the environment. Due to this fact, the final
numbers from the SEEA EEA study must be grossly underestimated in its truest sense.
“You'd be surprised how much it costs to look this cheap.” Dolly Parton
Business as Usual Risk
The complexity of natural systems and irreversibility of some environmental change mean that replacing
natural capital with other forms of capital is often impossible (a phenomenon known as nonsubstitutability) or carries significant risks. It’s clear that the risks and costs from continued degradation
of ecosystems and their services have not yet been properly integrated in our economic systems, social
systems, and decision-making.
Global use of material resources has increased ten-fold since 1900 and is set to double again by 2030.xiii
The demands of a growing global population with rapidly changing consumption patterns for food,
mobility and energy are exerting ever-increasing pressure on the Earth's natural capital.
Exacerbated by climate change and large-scale pollution, rates of global habitat destruction and
biodiversity loss are predicted to increase. Continued degradation of global ecosystems and their services
will drive the scale of poverty and inequality and drive increased migration.xiv
Recent changes in the global climate are unprecedented over millennia and will continue. Climate change
is expected to increasingly threaten natural ecosystems and biodiversity, slow economic growth, erode
global food security, harm human health and increase inequality and conflict.
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Globally, levels of air pollution and releases of nutrients from agriculture and wastewater remain high,
causing acidification and eutrophication in ecosystems, and losses in agricultural yield. In the coming
decades, overall pollution levels are projected to increase strongly, particularly in Asia.
The risks of pervasive and irreversible impacts are expected to increase and the cost of these impacts will
eventually outweigh the ROI of any and all current investment themes.
The United Nations Sustainable Development Goals (SDG’s)
The United Nations has set the task of achieving global sustainability through 17 goals; the SDG’s.
The challenge and cost (up to $105 trillionxv) of meeting the SDG’s is substantial, with an annual funding
gap of $2.5 trillionxvi. We now have significant technical understanding of the issues and in a lot of cases
the seeds of technological solutions may be either in development or available.
While new legislation and regulation would support achieving the SDG’s and provide significant impetus
to attract investment, the lack of political courage and vision, short election cycles, the rise in populist
politics and lobbying by vested interests means this framework is slow to move in the desired direction.
The reality of the risks of not meeting the SDG’s is gaining traction with politicians and business leaders
and it’s been shown that legislation and regulation can change quickly if political will aligns with vested
interests. A movement in the right direction should mean massively increased investment…but how?
Mobilising Private Capital
Philanthropy
Philanthropy remains an important part of funding for environmental projects and with recent advances
in impact investing; measuring environmental or social impact of grants is increasing. The key issue with
philanthropy is grant funds provide a limited pool of capital when compared to the growing demand.
Impact investing
Currently the available capital for impact investing (US$114 billion)xvii is relatively low when compared to
negative screening and environmental, social governance (ESG) investing (US$68.5 trillion AUM).xviii
Impact investing is set to increase with the UBS/PwC Billionaires Insights 2017 reportxix estimating that
the next generation (millennials) will inherit US$2.4 trillion over the next 20 years. The Morgan Stanley
Sustainable Signals 2017 reportxx found that 86% of millennials are very interested (38%) or somewhat
interested (48%) in impact investing.
Studies show that 66% of impact investors seek a risk adjusted market rate return.xxi
Approximately 60% of investors reported that they actively track the financial performance of their
investments with respect to the Sustainable Development Goals (SDGs) or plan to do so soon.xxii
Investment risk
Although very few investors report significant risk events in their impact investing portfolios, business
model execution and management is by far the most often cited contributor to risk.xxiii
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Challenges
The key challenges for impact investors arexxiv:
•
•
•
•
•
•
Understanding funding gaps and related opportunitiesxxv;
Impact measurement and evaluation;
Co-investment opportunities and collaboration;
Finding good organisations to support and funding innovative solutions;
Scaling successful projects and businesses;
Mission creep and greenwashingxxvi.
Deal flow
Due to the nature of the current investment process from concept to exit, deal flow of opportunities in
any sector or industry is a disjointed, adhoc process that relies on two distinct stages coming together.
In the initial stage entrepreneurs see an opportunity, aim to get all of the factors right, survive the first
half of the ‘valley of death’ and become investment ready. In the latter stage of venture development
professional capital managers become involved due to the previous mitigation of project risk.
The entry point and participation stage of professional investors is based on the acceptable risk profiles
of the managers and owners; it’s also where most of the above challenges for impact investors originate.
On the expected trajectory, current risk profiles will become irrelevant as the real costs of business-asusual (mismanagement of Natural Capital) become known. Reassessing risk profiles now is the key to
mitigating these challenges, engaging the right deal flow and achieving the SDG’s.
Fund Manager/Private Capital participation
Figure 4 source UC Davis Graduate School of Management - Institute for Innovation and Entrepreneurship
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The Environmental Impact Nursery™
The Environmental Impact Nursery™ is a business-for-purpose model implementing a goal orientated and
mandate driven methodology to deliver qualified deal flow. This allows private capital to better engage in
impact investing via the appropriate deal size and themes.
In a nutshell, for private capital to access the right deal flow it’s best to be part of the deal flow
development rather than wait for adhoc opportunities to present themselves!
Vision - To make the business of sustainability the most superior performer of any investment class
Mission - Leveraging internal capital to provide qualified SDG/ESG/RI deal flow for investors
Mandate – To develop and invest in IP and business models that decarbonise the economy and protect
biodiversity
EIN Background
The Environmental Impact Nursery™ (EIN) model is a mixture of two very successful enterprises; NASA
and the IP Group Plc. Its approach (vision) is like NASA and its method (mission) is like the IP Group.
In 1961 President John F Kennedy announced a goal of landing a man on the moon and successfully
returning him to earth within the decade. NASA implemented that goal and the Apollo Project achieved
it in 1969. Although it took only 8 years to achieve this substantial goal, the associated R&D delivered a
myriad of new technologies over the next 50 years.xxvii
The IP Group listed on AIM in 2003 with a portfolio value of £7.5m and cash of £38m. Those assets were
valued at 30 June 2016 at £880m (almost 20 X in 12 years). The IP Group works with universities and
research organisations to provide patient equity capital for the commercialisation of newly develop IP. It
provides financial capital from its balance sheet (and managed funds), strategic and commercial expertise,
E-suite services, corporate finance and a range of administrative services. xxviii
"Opportunities multiply as they are seized" Sun Tzu
Both the IP Group and the EIN model seek to unlock and commercialise IP, but the IP Group works to
commercialise already developed IP. Therefore, they must apply a backward thinking process to assess
the risk and reward potential of IP. Because the EIN models (and NASA) are essentially Creative Problem
Solvers, it naturally uses a forward-thinking process to assess the risk/reward of the same (potential) IP.
This change in mindset allows the model to understand the funding gaps, generate unique solutions to
the world’s environmental problems and minimise the business risk going forward.
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Figure 5 – the model comparison in deal flow development
The EIN Process
3. Incorporate a subsidary company (new Portfolio Company) and establish the board,
management teams and expert group. Keep overheads at a minimum and initiate design
thinking & lean start-up. Provide financial capital, strategic and commercial expertise, Esuite services, corporate finance and a range of administrative services.
4. The final step is to raise private capital for the Portfolio Company and, depending on
the situation, this may be debt or equity. Based on the business model and market
fundamentals, build the Portfolio Company business, enable follow-on investment and
aim for an exit within 5 to 7 years through either a trade sale or IPO.
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IP Group Model
2. Research the problem, seek out all the experts in each field associated with the problem,
identify potential team members and ways to collaborate with existing stakeholders. Seek
out potential technical solutions (IP) and identify where current research may be
associated with a problem. Develop a business model
NASA Model
1. Think about the environmental problems in the world. Think global and act local. Define
one where a solution could be scaled globally, determine a competitive advantage and
set a goal
EIN Deal Flow Development
The Environmental Impact Nursery™
Fund Manager/Private Capital Opportunities
Figure 6 – the EIN model value proposition – identifying SDG funding gaps/opportunities and delivering qualified deal flow
Creative Problem Solving
Creative Problem Solving (CPS) is a proven method of solving problems or identifying opportunities in an
imaginative and innovative way. It encourages us to find fresh perspectives and come up with innovative
solutions, so that we can formulate a plan to overcome obstacles and reach our goals. It adds creativity
to knowledge and thinking.
CPS has been used with great affect by people like Aristotle, Archimedes, Charles Darwin, Alexander
Graham Bell, Marie Curie, Sir Isaac Newton, Thomas Edison, Albert Einstein, Mozart, Wernher von Braun,
Benjamin Franklin, Gandhi, Leonardo da Vinci, Stephen Hawking, Galileo, Barbara McClintock, Chomsky,
Nikola Tesla, Henrietta Swan Leavitt, Johannes Kepler, Steve Jobs, Bill Gates and Elon Musk.
Although this small group of high profile people have possibly delivered greater benefits for humanity
than the rest of humanity put together, CPS has delivered successful results to the millions of people that
use it. For example, the person that started a small business service that resulted in a better community
where they live used CPS at some stage in its development; the entrepreneur that developed a new app
to address an issue used CPS; the farmer that moved the broken implement by holding it together with
fencing wire because that was all that was available in a remote location, used CPS. The famous users of
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CPS spent their lives using CPS and gained widespread attention because of the global implications of their
solutions, which is why these names stand out. Anybody can use CPS to great effect.
In large complex problems, CPS requires time for solutions to evolve, so a short process of assess and then
accept or reject doesn't always allow time for this to happen. In some instances, it may take years for
solutions to evolve, so the EIN process of working on several projects at once supports this evolution. This
point is critical as of the 5 key factors that generate success in new start-up ventures, timing is rated the
most important at 42%.xxix
Initial investment themes
To identify the funding gaps and best opportunities to deliver the 11 SDG’s in focus, all projects must be
designed to directly decarbonize the economy or protect biodiversity. The following initial investment
themes broadly align with the World Bank Group Climate Change Action Planxxx. Other themes (relating
to SDG’s 3 & 4) will follow and be designed to bridge the gap for the final 6 SDG’s.
Investment themes are:
(A) Agribusiness & Natural Capital, Ecosystem Services and Biodiversity
(B) Asset Recovery & Recycling
(C) Clean Technology & Efficiency
(D) Environmental Markets & Services
(E) Remediation & Management of Natural Capital, Ecosystem Services and Biodiversity
To ensure projects and investments are designed to properly aligned to the vision, mission, and mandate
(and not "greenwashed") the selection criteria must be prioritized in the following order of importance,
with 1 being the top priority:
1. The best care of Natural Capital, Ecosystem Services and Biodiversity
2. Global scalability with a competitive advantage
3. Potential IRR of +20%
Accountability
If the mandate is followed religiously, with IP and business models that directly decarbonize the economy
or protect biodiversity, then measuring environmental impact is relatively straightforward. The opposite
is also correct. The further away from nature a project or product becomes the harder it is to measure.
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As impact investors, it's important to measure impact transparently. The EIN model allows this process to
start at the planning and implementation stages. Conducting regular evaluations ensures the intended
impact continues to be positive as the business builds and is readably available for due diligence purposes
when attracting new capital. The following are the preferred tools.
The SDG Compass to measure and manage the contribution against the UN
Sustainable Development Goals.
The IRIS platform for measuring and reporting environmental impacts.
The Natural Capital Protocol to measure the impact on Natural Capital.
The Gold Standard for SDG project/product certification
The B Corporation certification to provide public relations acceptance
Business-for-Purpose
The concept of a business-for-purpose model is that it uses a financial engine (business) to provide cash
flow to deliver an intended outcome (purpose). Profit is very important, and almost a dual, but second
priority; it’s simply a change in investor mindset that has the capacity to deliver above average returns
(plus a significant positive impact) via an adjusted risk/time analysis.
The structure of the EIN model is designed to deliver exponential growth of the parent entity, while
supporting new and innovative solutions identified in stages 1 and 2 in the EIN Process (page 11).
The purpose of the EIN model is to fund its own Foundation and exponentially grow its corpus for
environmental & sustainability projects that align with the Mandate. The core goals of the foundation are
to fund its own Network to drive education and innovation, give 20% of annual profit within 5 years,
increasing to 80% in 10 years. The grant funding is structured to generate deal flow back to the parent
company.
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Figure 7 – the EIN structure including the Foundation and Ecosystem Network
STEM
Each industrial revolution step change built on the previous revolution to generate “progress” and is
directly related to the global populationxxxi creating market opportunities. The current industrial
revolution of Science, Technology, Engineering and Maths (STEM) presents as the best opportunity and
enabler to achieve the SDG’s, although, as in the past, substantial challenges arise in this theme.
The first three Industrial Revolutions have culminated in the advent of the internet of things, artificial
intelligence, genetic modified organisms, synthetics (especially petro-chemicals and pharmaceuticals).
Generally, these technologies remove the human connection to Natural Capital and are based on
improving productivity to meet economic and population growth demands (business-as-usual). Other
STEM themes (e.g. DNA, big data, cleantech) have the potential to understand the problems in detail, and
drive solutions on the scale required to meet the required timeframe.
Figure 8 – is sustainability the next Industrial Revolution?
Natural Capital has evolved over billions of years to autonomously function at its highest level. The view
that humanity can economically improve on Natural Capitals function through artificial means does not
fully take into consideration the value of the interconnectedness of all forms of Natural Capital and
therefore the full costs. The true cost of the last three industrial revolutions is about to become very clear.
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The culmination of the last three revolutions over the last ~260 years has led to massive overconsumption
from an exponentially growing population. According to the Global Footprint Networkxxxiihumanity uses
the equivalent of 1.7 Earths to provide the resources we use and absorb our waste. This means it now
takes the Earth one year and seven months to regenerate what we use in a year. The EIN Model offers
the opportunity to take this equation back to below 1.
The ultimate aim of the EIN model is to use STEM to reconnect humanity to Natural Capital (Nature),
provide for a Fourth Industrial Revolution in true sustainability and advance humanity’s tenure on Earth
while retaining (and improving) the standard of living and quality of life of ALL its inhabitants.
The alternative can only be the collapse of civilisation as outlined in the history of Easter Island.xxxiii
Greenwashing
Green washing and mission drift are substantial risks to the successful engagement of private capital and
achieving the SDG’s. Again, it’s worth reinforcing that Humans are biological creatures that rely on Natural
Capital for its existence. Humanity has also developed various physiological, spiritual and cultural
connections to Natural Capital (Nature) and greenwashing taps into these connections to gain traction.
To mitigate greenwashing and mission drift, a litmus test process should be used in Stage 1 of the EIN
Process before a potential solution is developed further. This is carried out via 3 simple questions:
1. Does the potential solution aim to “provide the best care and management of” or “extract more
from” any form of Natural Capital and;
2. Does the solution aim to provide a “business-as-usual” advance in productivity to support growth
demands and/or capitalise on population growth or does it have at its core a new approach to
Natural Capital and;
3. Does the solution support humanity’s connection or disconnection (spiritual, cultural or
biological) to Natural Capital?
The correct answers to these questions are (1) provide the best care, (2) a new approach and (3) it
supports a human connection to nature. Having some answers incorrect may simply mean more time and
CPS is required to create the right solutions. But until it has three correct answers the solution must
remain within the Nursery. This core tenet provides the underlying integrity to the EIN Model.
“A new type of thinking is essential if mankind is to survive and move toward higher
levels…” Albert Einstein, New York Times, 1946
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EIN Business Development
For Portfolio Company development a combination of CPS, Design Thinking and Lean Start-up
methodologies are used to achieve a successful solution and/or final product in the fastest and cheapest
possible way. It involves identify, empathise, define, ideate (Design Thinking) and build, measure and learn
(Lean Start-up).
Overall the EIN Model subscribes to the key findings in books like Built to Last.xxxiv
ESG
The EIN Model delivers one of the best forms of ESG investing possible as ESG (Environment, Social and
Governance) are at its centre.
Governance
Governance encompasses the system by which an organisation is controlled and operates, and the
mechanisms by which it, and its people, are held to account.
Each EIN must become a leader in governance and risk management committed to effective governance
and administration of the parent entity and its Portfolio Companies. Full and effective corporate
governance must be developed and employed at the earliest stage of the formation of the Environmental
Impact Nursery™ and each Portfolio Company.
Ethos
The ethos of the EIN Model is to be entrepreneurial with a high level of governance, ethics, integrity,
accountability and respect. Aim to lead by example and demonstrate that business will deliver the
solutions. Don't just accept the status quo, ask why? Look at all the parts and question why they exist and
can they be better. Understand risk and use it to our advantage.
E-Suite
The E-Suite (CEO, CFO, etc.) is central to the business building methodology of the parent entity and each
Portfolio Company. A core tenet is to identify the best talent for the given opportunity by using the best
practice in human resources and corporate cultural development.
Regional Network
Each EIN develops its own regional network of entrepreneurs, universities, research organisations,
incubators and accelerators to help drive opportunity to the parent company and foundation. This will
also assist in mainstreaming the model.
External Opportunities
While the EIN Model is based on starting projects from scratch an acceptable alternative is to bring
together external opportunities. Furthermore, a funded parent company may seek external opportunities
to grow its portfolio or subsidiary companies may seek vertical or horizontal growth. The key point is to
ensure that any external opportunities meet all criteria of the EIN Model.
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The EIN Model V the incubator/accelerator models
The EIN Model is vastly different from the incubator and accelerator models, which also operate in the
start-up space. The closest existing model is an Innovations Labxxxv, although it doesn’t include the
business-for-purpose aspect of the EIN Model.
Model
Equity
Mode*
Aim
Stage
Support
Investors
Time
EIN Model
100%
CPS
Goal
Concept
Internal
Internal
>2years
Incubator
<10%
BBS
Develop
Plan
Consultants External
<2 years
Accelerator
>10%
PC
Scale
Model
Mentors
External
<1 year
*CPS = Creative Problem Solving, BBS = Basic Business School, PC = Pressure Cooker
Marketing
Marketing of the EIN Model is important to help the model into the mainstream. The approach will use
processes outlined in Marketing without money – de Bono and Lyonsxxxvi
Education
A longer-term goal will be to drive education in Natural Capital and Sustainability at the various school
levels (primary, secondary and senior secondary) and help the development of these themes in tertiary
education. This is in line the SDG 4 Quality Education
Global Network
A global network of Environmental Impact Nurseries (under development) will assist in cross pollinating
ideas, expertise, IP, business models and investment opportunities and provide exponential growth of the
model. It will also enable effective and consistent governance across all EIN’s globally allowing for
standardised global product development and investment themes.
Valuations
The EIN Model uses the International Private Equity and Venture Capital Valuation Guidelines 2015 (The
IPEV Guidelines) to determine Fair Value for Portfolio Companies.
Social Impact
The EIN model has the benefit of providing significant social impact alongside environmental impact,
especially in developing countries (e.g. local jobs to collect plastic pollution in a vertically integrated
business model involving plastic to energy technology)
The Humanities
Valuing the humanities (see glossary) as much as STEM disciplines is a key component in building
successful teams of innovative problem-solvers. According to Eric Berridgexxxvii this mixture of STEM and
the humanities has the capacity to bring creativity and insight to technical problems.
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Investing in the EIN Model
The EIN model requires a founder to bootstrap at least three projects to the firm formation stage. Once
the three projects are at a reasonable development stage, the Environmental Impact Nursery™ parent
entity would be formed and attract debt funding on the basis of the 3 projects strengths. Ideally, a core
project would be developed as the financial engine of the EIN Model.
As the model requires a portfolio of at least 3 projects, the entrepreneur or team must take on significant
risk over a substantial amount of time (3 to 4 years) to build the portfolio to the investment ready stage
(unless a group of external projects are bought together). Building a project to the point where value can
be quickly added and then parking it until the other projects are ready takes patience, and includes some
risk, but ultimately develops a diversified value proposition. A parent entity is then formed and each
project is housed in a wholly owned subsidiary company.
Having a portfolio of companies, each at the start of the value curve, makes the valuation discussion
difficult, so the best option is to debt fund the parent company start-up via a convertible note. Debt
funding the parent entity allows for subsidiary valuations to be quickly built with minimal dilution to the
entrepreneur and minimum risk to the investor. It provides an immediate investment return via the
coupon, security over the assets, diversified exposure to the potential upside and priority in follow-on
investment opportunities relating to the subsidiaries. To further mitigate risk investors could come
together through a syndicate structure.
After initial due diligence, the start-up stage uses a 3-year Secured Senior Convertible Note with a coupon
rate at market rates. The note issue would be large enough in value to allow reasonable time and capital
(say $10m) to develop the value curve across the portfolio. The investor or syndicate would appoint a
single Non-Executive Director to the board of the EIN parent upon execution of the Convertible Note.
The goal is to build sufficient value in the parent entity, within 3 years, to ensure conversion of the notes
to equity. The conversion of debt to equity ratio would be based on the potential of the core projects and
reflect a reasonable and attainable valuation goal.
Upon the conversion of notes to equity investors could receive an agreed annual dividend yield at least
equal to similar alternative investments. A dividend would be based on allowing sufficient capital to
remain in the EIN for operational and growth purposes.
At the end of 10 years, the investors exit the parent company via a management buyout, trade sale or
IPO.
Variations to the above investment model should be done so within the spirit of the EIN construct, which
is to bootstrap, debt fund and convert to equity. The ultimate goal is to provide funding that allows new
project and product development that has the capacity to achieve global sustainability within the EIN
mandate, investment themes, selection criteria and overall construct.
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Conclusion
Private capital is best placed to show the way in achieving global sustainability, but a risk adverse financial
system has created a bottleneck for the required investment to move within the timeframe set by science.
This model demonstrates a way to clear that bottleneck.
The introduction of new environmental laws and taxes on greenhouse gas emission, as outlined by some
countries, would have the capacity to deliver a step change in mobilising the $105 trillion required to
achieve global sustainability. This model delivers a simple plan to roll out this funding with the minimal
relative investor, economic, social and ecological risk.
Currently the best attempt to value Natural Capital is through the development of new environmental
accounting methods. Unfortunately, these models must significantly underestimate that value due to
science’s limited knowledge of the vast interconnectedness of Natural Capital and the lack of
understanding of the anthropogenic impacts (>500 years) humans have created since 1760. We simply
don’t know what we don’t know. We do know that we must try and this model cuts through the need to
apply a valuation methodology to Natural Capital.
The Environmental Impact Nursery™ sets out a clear investment methodology that addresses the six core
concerns of impact investors. It addresses the understanding of funding gaps and related opportunities,
impact measurement and evaluation, co-investment opportunities and collaboration, finding good
organisations to support, funding innovative solutions, scaling successful projects and businesses and
mission creep and greenwashing.
Through a simple mandate of mitigating greenhouse gases and protecting biodiversity, following five core
investment themes and applying three simple selection criteria we can address these issues while
delivering the best care and management of Natural Capital with minimal relative risk across the
spectrum.
We have a chance to regain true sustainability for ALL species on Earth. We owe it to our children to try.
#actionnotrhetoric
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Glossary
Biodiversity is the variability among living organisms from all sources, including terrestrial, marine, and
other aquatic ecosystems and the ecological complexes of which they are part. Biodiversity includes
diversity within species, between species, and between ecosystems. Biodiversity may be described
quantitatively, in terms such as richness, rarity, and uniqueness. Biodiversity provides functionality to
ecosystem services.
Ecosystem Goods and Services are the direct and indirect contributions of ecosystems to life on earth.
There are four categories Provisioning (food, raw materials, fresh water and medicinal resources),
Regulating (local climate and air quality, carbon sequestration and storage, moderation of extreme
events, waste-water treatment, erosion prevention and maintenance of soil fertility, pollinations and
biological controls), Supporting (habitats for species and maintenance of genetic diversity)and Cultural
(recreation and mental and physical health, tourism, aesthetic appreciation and inspiration for culture,
art and design and spiritual experience and sense of place).
Greenwashing is the use of marketing to portray an organization's products, activities or policies as
environmentally friendly when they are not. The act of greenwashing, also known as "green sheen,"
entails the misleading of consumers about the environmental benefits of a product or policy through
specious advertising, public relations and unsubstantiated claims. Greenwashing is a play on the term
"whitewashing," which means to gloss over wrongdoing or dishonesty or exonerate without sufficient
investigation or spurious data.
Impact Investing refers to investments made into companies, organizations, and funds with the intention
of generating a measurable, beneficial social and/or environmental impact alongside a financial return.
NASA is an independent agency of the executive branch of the United States federal government
responsible for the civilian space program, as well as aeronautics and aerospace research. It was formed
in 1958
Natural Capital is the limited stocks of physical and biological resources found on earth. It includes land,
air, water, living organisms and all formations of the Earth's biosphere that provide us with Ecosystem
Goods and Services and Biodiversity. Therefore, Natural Capital (and by extension Ecosystems Goods &
Services and Biodiversity) is imperative for the survival and well-being of all living species.
Sustainable Development is development that meets the needs of the present without compromising the
ability of future generations to meet their own needs.
The humanities is described as the study of how people process and document the human experience.
This is done through philosophy, literature, religion, art, music, history, language and other creative
endeavours.
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References
i
Forum for the Future https://www.forumforthefuture.org/project/five-capitals/overview
United Nations http://www.un.org/sustainabledevelopment/sustainable-development-goals/
iii
United Nations World Investment Report 2014 - Investing in the SDGs: An Action Plan
http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=937
iv
Oxford Online Dictionary https://en.oxforddictionaries.com/definition/risk
v
NASA Global Climate Change https://climate.nasa.gov/causes
vi
Centre for Biological Diversity
http://www.biologicaldiversity.org/programs/biodiversity/elements_of_biodiversity/extinction_crisis/
vii
World Forum on Natural Capital 2017 https://naturalcapitalforum.com/about/
viii
SNA https://unstats.un.org/unsd/nationalaccount/sna.asp
ix
UN Statistical Commission of the System for Environmental and Economic Accounts (SEEA)
https://seea.un.org/
x
SEEA EEA Revision https://seea.un.org/content/seea-experimental-ecosystem-accounting-revision
xi
SEEA EEA Revision Issue Note
https://seea.un.org/sites/seea.un.org/files/seea_eea_2020_revision_issues_note.pdf
xii
SEEA EEA Technical Recommendations in support of the System of Environmental-Economic
Accounting 2012–Experimental Ecosystem Accounting
https://seea.un.org/sites/seea.un.org/files/technical_recommendations_in_support_of_the_seea_eea_
final_white_cover.pdf
xiii
European Environment Agency - Intensified global competition for resources (GMT 7)
https://www.eea.europa.eu/soer-2015/global/competition
xiv
European Environment Agency - Growing pressures on ecosystems (GMT 8)
https://www.eea.europa.eu/soer-2015/global/ecosystems
xv
United Nations World Investment Report 2014 - Investing in the SDGs: An Action Plan
http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=937
xvi
United Nations World Investment Report 2014 - Investing in the SDGs: An Action Plan
http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=937
xvii
GIIN - Annual Impact Investor Survey 2017
https://thegiin.org/research/publication/annualsurvey2017
xviii
UN Principles for Responsible Investment https://www.unpri.org/about
xix
UBS/PwC Billionaires Insights 2017 https://www.ubs.com/microsites/billionaires-report/en/newvalue.html
xx
Morgan Stanley “Sustainable Signals” 2017 report
https://www.morganstanley.com/pub/content/dam/msdotcom/ideas/sustainablesignals/pdf/Sustainable_Signals_Whitepaper.pdf
xxi
GIIN - Annual Impact Investor Survey 2017
https://thegiin.org/research/publication/annualsurvey2017
xxii
GIIN - Annual Impact Investor Survey 2017
https://thegiin.org/research/publication/annualsurvey2017
xxiii
GIIN - Annual Impact Investor Survey 2017
https://thegiin.org/research/publication/annualsurvey2017
xxiv
UBS Factsheet https://www.ubs.com/global/.../philanthropy/philanthropy.../global-philanthropistsco...
ii
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xxv
UBS whitepaper Mobilizing private wealth for public good
https://www.ubs.com/global/en/about_ubs/follow_ubs/highlights/mobilizing-private-wealth-for-publicgood.html
xxvi
GIIN - Annual Impact Investor Survey 2017
https://thegiin.org/research/publication/annualsurvey2017
xxvii
NASA History https://history.nasa.gov/
xxviii
IP Group website http://www.ipgroupplc.com/
xxix
Bill Gross – CEO, IdeasLab, TedTalk - The single biggest reason why startups succeed
https://www.youtube.com/watch?v=bNpx7gpSqbY&t=219s
xxx
World Bank Group Climate Change Action Plan http://www.worldbank.org/en/news/pressrelease/2016/04/07/world-bank-group-unveils-new-climate-action-plan
xxxi
World population growth https://ourworldindata.org/world-population-growth
xxxii
Global Footprint Network website https://www.footprintnetwork.org/our-work/ecological-footprint/
xxxiii
The Smithsonian Website article - The Mystery of Easter Island
https://www.smithsonianmag.com/travel/the-mystery-of-easter-island-151285298/
xxxiv
Built to Last: Successful Habits of Visionary Companies is a book written by Jim Collins and Jerry I.
Porras https://en.wikipedia.org/wiki/Built_to_Last:_Successful_Habits_of_Visionary_Companies
xxxv
Stanford’s Social Innovations Review - Innovation Labs: 10 Defining Features
https://ssir.org/articles/entry/innovation_labs_10_defining_features#
xxxvi
Marketing without money: how 20 top Australian entrepreneurs crack markets with their minds /
John C. Lyons and Edward de Bono https://trove.nla.gov.au/work/10365658
xxxvii
Eric Berridge – CEO of Bluewolf, an IBM Company - TEDTalk – Why tech needs the humanities
https://www.ted.com/talks/eric_berridge_why_tech_needs_the_humanities?utm_source=twitter.com
&utm_medium=social&utm_campaign=tedspread
THE ENVIRONMENTAL IMPACT NURSERY™ - 2 NOVEMBER 2018
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