By Ditte Lysgaard Vind
IREMEMBER THE FIRST time I went into a meeting with our family portfolio managers. It was weird. Our advisors, my family and I all sat at a long table looking at a beautiful waterfront view; the beauty of the water being the familiar in the situation, unlike the conversation and the numbers.
At that point, I did not know how important a role the water played. I do now, as it seems that all financial advisors and the like choose their office space based on the prerequisite of a meeting room with a view (preferably water) to one side. The one side is important as it allows for the gesture of letting the clients have the view. It works – the view was gorgeous. Everything else was so distant, so abstract. Numbers on a piece of paper that we had inherited. What a privilege and what a responsibility.
What an amazing privilege to be financially safe and sound regardless of what career one does or doesn’t choose. What a responsibility to use that opportunity and privilege to create a positive impact in the world with respect for the legacy of my grandparents.
My journey started a few years ago and at that point I really did not know much about investing and financial markets. However, what I did instinctually know was that it had to be possible to do it differently. It had to be – because the world needs change and money is a powerful tool to create it. At least it can be, but it takes vision and the effort to go against the current. Luckily for me, while the notion of impact investing was still new to the traditional financial sector, several people before me (many of whom have participated in this book) had paved the way and started building momentum and infrastructure for impact investing.
So, when I began my journey as an investor a few years ago, neither I nor the people around me had heard of the notion of impact investing and much less of the successful business case for looking at anything but financial returns when investing. So what I was initially guided towards was philanthropy, where the notion of catalytic philanthropy as a tool for change quickly resonated with me. But when looking more into the field, new books started popping up in Amazon’s recommendations and so it came to be that when I went on holiday to Tanzania and Zanzibar in 2012 the books I packed included Judith Rodin’s (from The Rockefeller Foundation) book on impact investing as well as Richard Branson’s Screw Business As Usual and not least Yvon Chouinard’s book Let My People Go Surfing. Together these books confirmed that it was in fact possible to do things differently. And what’s more there was already an outline of a road map and vocabulary to plug in to. It changed my perspective and now knowing for a fact that it was doable, I started my journey towards transforming the portfolio towards impact investing. For me my natural focus is climate, and how the philosophy of circular economy can be used as a framework and tool to design production and consumption in such a way that business and sustainability are each other’s prerequisites, not opposites.
The first investment
Through a friend, my brother was introduced to an investment opportunity and brought it to the family. It was a circular economy-based baby clothing brand where you subscribe to the service of babywear as opposed to buying the individual clothes. It made so much sense to me, as it turned the incentive of business around. Normally the more products the business produces, the more money the business makes. Here it was the opposite: the better quality of the clothing, the more times it could be circulated, the less clothing had to be produced – and essentially the better the business case. So, we invested, and along with my mother I entered the board. It was a wonderful experience exploring the potential of circular economy. So much so that I have now dedicated my portfolio and made my investment strategy around the idea of circular economy.
The reason I believe so strongly in circular economy is due to four current important global trends. The first is the rapid growth of the population and rise of the middle class in the third world, creating an enormous rise in demand and consumption. To make the growth in human population more tangible, try and visualise that every minute the global population grows by five school classes of 28 students. Or put differently, three times a day, a full Old Trafford stadium of babies are brought into the world.
Secondly, we must lower our carbon footprint radically to avoid a fatal rise in temperature that will change the world as we know it today. At the moment, global emissions of greenhouse gases are rising. According to the Intergovernmental Panel on Climate Change (IPCC) emissions should be lowered by 40 to 70% (compared to 2010) by 2050 if we are to succeed in lowering emissions to an acceptable level. Meanwhile our population and its demand for housing, consumption and transportation are increasing, which require us to start consuming resources and goods in a fundamentally different way – a circular way.
Thirdly, climate change is taking place and at a rapid speed. We see how biodiversity and weather phenomena are changing while the full consequences are still unknown. What we do know is that it is of utmost importance that we prevent temperature rise above two degrees if we are to avoid the most fatal changes. The challenge is huge and the consequences frightening, but it is also an enormous opportunity for businesses to be part of the sustainable solution catering the growing demand, without negatively impacting the planet.
And fourthly we have so much waste that we have no idea how to handle. The oceans are filled with plastic, beaches are filled with landfill waste and in general we continuously throw so much away that it is difficult for global waste management to keep up.
The circular way
But it doesn’t have to be that way. Instead of an emphasis on waste management, we can start looking towards designers, resource brokers, etc., to make sure that we no longer have a waste problem – instead we have an abundant amount of resources ready for their second, third or fifth reuse.
So what is this circular economy and how can it make sustainability and business each other’s prerequisites? Circular economy essentially decouples growth from the use of new resources and materials by extending the life-cycle of resources in use and bringing them into circulation. One might think that this is simply a new fancy word for recycling. That is not the case. The core of circular economy is that the product or material is designed to create value through circulation. The Ellen MacArthur Foundation puts it this way: “A circular economy is restorative and regenerative by design, and seeks to keep products, components, and materials at its highest utility and value at all times.”
Traditionally many of the concepts around sustainability have looked at the world from a perspective of resource scarcity and limits to our resources, making limited competition a key part of their perspective. I see it differently. Instead the thesis is that we have all the resources we need. What needs to change is how we use and value them. In other words, we need to start valuing all the resources we are currently disregarding as waste and start using them as the resources they are.
What I see is a unique and enormous opportunity to design the future we need to ensure good sustainable products for everyone without compromising quality, cost or aesthetics. This would enable us to mitigate climate change while catering to global demand by decoupling growth from material consumption – and make a ton of money doing it.
A non-zero-sum game
In other words, we need to change the rules of the game, and make it that of non-zero sum, where there don’t have to be losers to have winners. We are instead creating a game of win-win for all, where sustainability and business are each other’s prerequisites not opposites or enemies. The circular economy helps us solve many global challenges, as outlined at the COP21 in Paris and the United Nations’ sustainable development goals (SDGs), but this is not just about doing good. If we succeed to innovate and transform our economy to be circular – and thus scalable – there are massive economic gains to be had. But for this to be the case we need to shift focus from investments doing ‘less bad’, to investments doing good. This involves supporting the businesses that have sustainability at their core, not as an add on – and whose footprint on the world will only get better as the business grows. The better the business, the bigger the impact.
But it is not easy. We need to fundamentally revisit our consumption and production patterns – and to move from a linear to a circular economy. We need to adopt an economic system where resources and products are put into circulation rather than thrown out and wasted. Imagine, for example, a house built of champagne corks, old newspapers and other recycled products. It sounds strange, if not impossible. Nevertheless, such a house has been built in the Danish city of Nyborg, without compromising aesthetics, price or quality. The possibilities are too many to list. An analysis by the Ellen MacArthur Foundation and McKinsey & Company suggests that by minimising the materials used for consumer goods, we will be able to save no less than $700 billion globally. Let me give you an example.
Concrete: global problem or opportunity?
We see it day in and day out all over our urban cities. Building on the rise of industrialisation, concrete is the physical manifestation of our modern way of life and as such a testament to a better world with endless possibilities and resources.
Except for water, concrete is the most commonly used material in the world. It has been for a very long time and global trends suggest that it will remain so in future. With concrete already being responsible for almost 5% of global CO2 emissions, this is a challenge that needs solving if we are to succeed at making business and sustainability each other’s prerequisites and enable growth without a footprint. Not only do we need to decrease the 5% but more importantly we need to ensure that emissions do not increase, as the need for new buildings and concrete increase in concurrence with the growing population and middle class.
It is estimated that 60% of the buildings needed to handle the current levels of growth and urbanisation have not yet been built. Furthermore, it took only three years (2011–2013) for China to use more concrete than the USA used in the entire 20th century.
At the same time resources are limited and climate change is in full effect largely due to our modern way of life and the enormous amount of emissions we inject into the atmosphere as a result. If we are to mitigate this, changing our use of concrete matters greatly.
With this growing demand, we need to make a concerted effort to ensure that the bond between emissions and growth is indeed broken, and instead show the way to sustainability-led growth decoupled from emissions and materialisation. Make no mistake: while this is indeed a challenge and an obstacle for a prosperous world, it is also an opportunity. An opportunity to create incredibly impactful sustainability-led growth, that can bring added value not just from a financial perspective but for our well-being and quality of life as well. That is why I saw a unique investment opportunity in a circular economy business upcycling concrete.
The company is currently constructing a new 8,500m2 building on the site of a former paint factory. But based on the circular design principles they started by looking for resources in the surroundings and from there a question arose: imagine if we could use the 3,000 tonnes of concrete waste from the old factory that needed to be demolished to build the new warehouse? The company, Lendager Group, discovered it was not only doable but was cost efficient and convenient as well. So a new type of concrete was created, an upcycled version where the concrete from the old building was used to make the new one, giving new value to a material that would otherwise have been downcycled at a value loss both economically and naturally.
Thus, they set out to develop Denmark’s first circular building site and a unique upcycled concrete that makes it possible to pour new foundations, ground decks and walls using 65% recycled aggregate, and to cast elements from defective castings using 80% recycled materials. Altogether, these efforts achieved a reduction in carbon emissions of just over 95%.
The result is a building made of 100% upcycled concrete, sourced locally and produced on the spot in a circular economy based building site. By building on the circular design principles that waste is more, and local is global, it was possible to lower ejected emissions by more than 50% without compromising on aesthetics, price or quality. However, the goal was to reach for the stars making sure that the building was not only doing ‘less bad’ than traditional construction but also contributing positively to our global well-being. So, construction was made to create forest scenery adding both beautiful nature and capturing CO2 from its surroundings.
New frontiers
This way of building and the innovation of uprecycled concrete did not just happen overnight. It started with an idea and with a high level of industry knowledge. When Lendager Group started working with upcycled concrete, they saw a market opportunity as well. At that point they had experienced the concrete sector at first hand and seen how the traditional concrete industry considered themselves to do a great sustainability job, since they reuse 65% of concrete from demolished buildings, but it is often simply crushed and used as road aggregate. It is therefore not just a question of how much we reuse, but also of how we reuse it, and whether or not we capture the full value of the recycled material from a financial as well as an environmental perspective. Crushing the concrete for road filling when we could instead upcycle it to new concrete is not capturing the full value, while also knowing how dire the global problem is and how big a role the traditional usage of concrete plays in accelerating as opposed to mitigating climate change.
But obstacles do indeed become opportunity and Lendager Group set out the ambition to prove that things could be done differently. What the traditional sector felt content with doing is downcycling – crushing the used concrete and using it for filling in roads – in effect missing out on a huge potential for reducing the environmental footprint, an enhanced financial value of the material and at the same time exposing themselves to the risk of being disrupted. What Lendager Group saw was an opportunity to create sustainability-led growth, and thus ventured out of their architectural comfort zone and embarked on the adventure of being a producer of upcycled materials. Much to the surprise, disbelief and push back of the traditional industry, they have succeeded in creating a new sustainable upcycled concrete without compromise.
This is an example of the kind of business I strongly believe will play a key role in mitigating climate change: combining innovation with industry knowledge and last but definitely not least making it impactful by bringing it to commercial scale. Which brings me to a rather recent but very important realisation: being an impact investor has the enormous added value that it enables me to be an optimist, seeing the outline to a prosperous world for all to thrive in.
Added value to the investment
Let’s be clear: I would not consider investing in Lendager if I did not see a great business case and a huge potential to scale. But I am becoming increasingly aware of the great added value of conscious investing. The constant exposure to great innovations and business ideas enables me to be an optimist. I believe that the approaches I have mentioned above are doable not just due to the increasing amount of reports and papers on circular economy, but because I get to meet and work with the people who are actually doing it – making it happen on a daily basis. In a modern world where there are more than plentiful facts highlighting the enormous challenges we are facing as a global population, from my point of view there is much value in being able to be an optimist, knowing that I am doing my best to enable a prosperous world, and the constant exposure to the most amazing people gifted with the talent and ambition we need to change the world.
What I have also realised is that as a family our conscious approach makes the investments much more tangible and exciting, giving added meaning to being an investor or a portfolio owner. I think investment managers will have a key role to play in transforming our financial systems and ultimately our global society, if they can succeed at engaging and truly enabling the empowerment of individual investors in choosing the causes, people and region they wish to support and balancing the need for qualitative and quantitative impact measurements in an engaging way.
The rainy days
Like with all investments and most else in life for that matter, rainy days do happen and they are difficult. I am still struggling with how to balance my excitement for impact investing and desire to help the products, people and ideas I believe are playing an essential role in pushing the frontiers and concurring more and more ground for impact investing, and the disappointment when everything does not go as I would have hoped. Impact investing is still investing and the people doing it still human beings not superheroes. And the space of impact investing is still growing and it is still not the norm, which unfortunately means that for every ten good stories about impact investing it takes only one negative story for advocates of traditional investing to concur their old frontiers and move impact investing back to its starting point.
The way I see it, it is a constant balance between mitigating risk while at the same time pushing new frontiers. These new frontiers can be through innovation, like in the case with the upcycled concrete, or in terms of asset classes or geography. What is essential to me is that we keep concurringly pushing new frontiers, covering new ground for impact investing to make it more and more mainstream, and thus enabling more and more investors and investments to join the impact investing journey.
Next-gen insecurities
I have the enormous privilege of having the opportunity to invest money in what I believe in and live a great life while doing so. While my own business is doing well, it is not what has enabled me to invest. Instead it is my grandparents’ hard work and smart business sense. That makes a difference, at least to some extent. Because at the end what I and the investment strategy should be judged upon is the results that are made, and how they correspond with the goal of the strategy. For me that means being judged by the financial returns I make and how they should be driven by sustainability as the core competitive advantage. But one of the ways it does make a difference is my ability to achieve those goals. Do I have the skillset it takes? And what blind spots does it create for me?
The first one is difficult to answer, but I believe that part of my responsibility having been given this opportunity is to do my best. I try to think long and hard about what I want to do, what I don’t want to do and how I can do it best, whether this is by looking at a wide range of deals, through educational programs, reading and continuously staying up to date or participating in networking events learning from other investors. All of these enable me to say yes, I am doing my best and, as such, feel empowered to continue my journey of transforming the portfolio.
The other question, in terms of the blind spots this creates, caught me a bit more by surprise and not least by how much it could affect my ability to achieve my investment goals. A few years ago, when I had recently started on the journey as an investor, not yet having my own portfolio but with my family, we invested in a circular economy based business and I took a seat on the board. I tried to do my best to prepare and contribute as valuably as possible but felt a bit inadequate or inferior to the other board members. One day, after having been on the board for about six months, I was at a spa retreat (yes I know, how clichéd) and picked up a copy of the monthly Danish business magazine Berlingske Business. In it was a long interview with a Finnish woman who had held many board positions in large Danish companies. One of the things highlighted was a quote from her stating how happy she was that she had never been offered a board position based on anything other than merit. Ouch. There I was sitting on a board enabled by investing family money that my grandparents made. I realised that would never be the case for me. I had not been conscious about how that made me feel, but putting two and two together and giving it some reflection, I realised it made me feel inadequate. What had I done to deserve a seat at the table? While I couldn’t initially answer the question. I tried to use it as a motivator and promised myself that I would give it 130% effort. I did – and more importantly it opened my eyes, not only to see my own value but also to see the other board members in a new light, and thus our individual and collective shortcomings in need of fixing to have the proper conditions for the company to prosper. In short, this experience made me more conscious and thus better at my job as a board member and investor.
This eventually enabled me to lead our profitable exit not too long after. Today the company is doing well, we have maintained a good relationship and I enjoy seeing the organisation leading the way for a new type of sustainable circular economy based business. Finally, I learned an important lesson about my own insecurities and blind spots without suffering losses.
But my journey of coming to terms with being a next-gen investor did not end there, it is still ongoing. With the risk of sounding like a presumptuous brat, on a trip to Marin in January 2017 I learned something new about my own role and journey. While taking the time to think through my journey, I at one point closed my eyes and talked to a friend about the tools I have available to create change. It might sound strange, but what I realised was that although the money was not made by me, the positive impact it can create does not happen automatically – on the contrary a lot of investments have a negative impact on climate and contribute to sustaining unhealthy societal structures. Therefore the money becomes impactful when combined with my thoughts and actions, which is my raison d’être in investing. Regardless of how the money was achieved, we all have an opportunity to create much-needed change, and it is our responsibility to take it and partake in the journey of conscious investing.
I cannot recommend highly enough that, if you have the means and opportunity, you embark on this adventure. The world needs it, but it is also such a fulfilling experience for you and the people whom you include on your journey. We are doing well financially, but more and more I am realising that there is no current measurement available to measure the return of investment in the sense that it enables me to be an optimist. Creating the innovation, changing the ways we produce and consume to a circular way – making it feasible in my mind for business and environment to be each other’s prerequisites and as such believing that united we will globally be able to mitigate climate change. A lot of things need to fall in to place, but sustainable innovation driven by business is the main driver. That is also why impact investing is so incredibly important. And last but not least, rest assured that if you do choose to embark on this journey of being conscious about the impact you create when investing there is such a community to help and guide you. We are all working for the same goal: pushing new frontiers for impact investing, and making our money matter to ensure a prosperous world for all to thrive in.
Remember the water view I described in the beginning? I actually think it is quite fitting that financial managers locate themselves near water, and not just because of the beautiful view. The role of water in nature is like the role of money in our modern economy. When they flow, surroundings prosper but when they are gone areas, industries and businesses become desolate.
“Like the ocean, the steppe fills the mind with the feeling of infinity, and through this feeling, as if pulling free of sensory impression, with intellectual and spiritual inspiration of a higher order. But while the clear ocean surface in which ripples the graceful, softly foaming wave is a friendly sight, dead and stiff lies the steppe, stretched out like the naked rocky crust of a desolate planet.”
– Alexander von Humboldt, Views of Nature (1849)
The global divestment campaign is an example of actively trying to remove money from the fossil fuel industry making it desolate, as opposed to being part of making it prosper if our money is invested there. Similarly, investing in solar is trying to make the renewable industry prosper. Jointly highlighting that we have a choice to make. And if you wish, like I do, for a prosperous future for all to thrive in, we need to start taking better care of each other, our resources and our nature and start being conscious of our investments and make sure our money, like water, flows in the right direction.
“How wonderful would it be if solidarity, this beautiful and, at times, inconvenient word, were not simply reduced to social work, and became, instead, the default attitude in political, economic and scientific choices, as well as in the relationships among individuals, peoples and countries. Only by educating people to a true solidarity will we be able to overcome the ‘culture of waste’ which doesn’t concern only food and goods but, first and foremost, the people who are cast aside by our techno-economic systems which, without even realising it, are now putting products at their core, instead of people.”
– The Pope, in a 2017 TED talk
About Ditte Lysgaard Vind
Ditte Lysgaard Vind founded the niche consultancy The Circular Way that specialises in advising businesses working within the circular economy on communication and stakeholder engagement in order to succeed through sustainability and increase their competitive advantage.
Furthermore, she co-founded the Danish Network for Circular Economy with MP Ida Auken. The Danish Network for Circular Economy is a network connecting the leading Danish actors within The Circular Economy across sectors while at the same time working to increase public awareness of circular economy and the possibilities that lies within. Simultaneously Ditte is an impact investor with a particular expertise in the financing circular economy.