According to Larry Fink, CEO of the world’s largest asset manager BlackRock, “sustainable investing will become a core component of how everybody invests in the future”. He believes that this does not mean investors will need to sacrifice returns; on the contrary, investors will enjoy greater returns than from non-sustainable investments.
One of the dominant themes in global investment right now is the growing appetite among consumers (particularly millennials), private investors and institutional investors to buy and invest more responsibly.
The M&A sector is catching on. It’s no secret that large energy firms are snapping up smaller renewable power businesses. Industries like tech, motor and energy are scrambling to boost their green capabilities. They are witnessing major changes in their markets and, in some cases, the prospect of a complete turnaround in consumer demands over the coming decades.
For many growing companies it is difficult if not impossible to switch their modus operandi to ‘green mode’ overnight. An easier approach is to buy up smaller players with more ethical approaches to their business. Below we look at this phenomenon in more details and examine whether SMEs can take a similar approach to help them take a segment of the growing trend for ethical consumerism.
The tide is changing towards ethical consumerism
Businesses are starting to take the growing demand for ethical products and services very seriously. The Sustainability Consortium’s 2017 Impact Report found that 25 per cent more companies are now reporting on the environmental and social benefits of their products. They are aware that if consumers consider your business to be ethical, you may increase sales.
Some 90 per cent of British people regard themselves as ethical consumers, according to a study by hospitality industry software firm Fourth. Barclay's Global Head of Banking, Joe McGrath, has stated that the demand for investment in businesses with environment, social and governance (ESG) credentials has become “truly a commercially viable strategy” and that concern for ESG considerations among businesses had become a “phenomenon” as a result.
This means that there is a lot to be gained from being considered an ethical business, but it also means there is a lot to lose by being considered an unethical business. The Fourth survey found that 67 per cent of Brits said they would boycott a brand that was found to be unethical in its operations.
There really does seem to be a seismic shift in attitudes towards businesses and their responsibilities towards the environment and towards the people they work with and employ. Get it wrong and your business could be doomed to fail.
How can buying a business boost your ethical and green credentials?
Below we look at some examples of where organisations have successfully bought out ethical businesses to help improve their own reputation and ethical offering.
Moving towards renewable, one acquisition at a time
Let’s take energy businesses as our first example. In the past five years a huge number of deals have been made between larger energy firms and smaller renewable businesses that can help them to diversify.
SSE, one of the Big Six energy companies in the UK has announced it will be buying out its partner Fluor’s 50 per cent stake in the offshore wind farm project they have been developing together.
The move is part of its push towards greener energy at a time when the tide is noticeably changing towards a future led by renewables. The move coincides with Scottish Power’s announcement that it will now supply 100 per cent renewably-sourced energy to its customers.
Recycler responds to booming demand with acquisition
The packaging and, indeed, the recycling industry are among the sectors that have been dealing with enormous changes in consumer demands over the past few years. The general public is more aware than ever of the impact of plastic on the environment and are calling for greater opportunities to recycle the plastic that packaging firms still insist on using in their day-to-day products.
Packaging firm RPC has bought out PLASgran, which specialises in recycling rigid plastics. The £34 million deal has equipped RPC with greater recycling capabilities, allowing it to diversify away from its core business of recycling polythene film.
Gerry McGarry, the Managing Director of RPG explained the decision behind the takeover: “Many major brands and retailers, for example, are quite rightly demanding their packaging is produced and manufactured from genuine recycled used plastics. With our technology, expertise and newly enlarged business we can offer our customers a true ‘closed loop’ solution for the supply and recycling of their packaging.”
Cab firm saves its skin with eco-acquisitions
Addison Lee acquired an eco-friendly passenger car service called Climate Cars back in 2015 as part of a successful drive to boost its eco-credentials. It all came at a time when Addison Lee was attempting to win back customers following a shocking PR blunder by its Chairman John Griffin. He had single handedly managed to anger almost every cyclist in London by stating that inexperienced cyclists were to blame to recent cyclist deaths on London’s roads rather than careless drivers. The statement led to boycott campaigns backed by high profile environmentalists and the Green Party.
The move towards building a green fleet of vehicles was an effective comeback for the taxi firm and making acquisitions helped it to win back ethically-minded customers quickly and effectively.
Can you win customers’ hearts and minds with a strategic acquisition?
If your business is struggling to strike the right chord with ethical consumers, buying a business with a great ethical reputation, or a product with an established position in the ethical marketplace, could be the answer. Maybe purchasing a smaller rival could help you to diversify your offering, boost manufacturing or bring in the expertise or experience you need to become an ethical brand.
Global institutional investors are already moving their sights to sustainable investments. This will naturally be followed by private equity firms, who will be seeking out growing opportunities in this exploding sector. Whether or not you are concerned about ethical considerations, as a business owner you ought to be aware that as a sustainable business your brand & business will be worth more in monetary value than as a non-sustainable business - at least in the medium to long term.
Use examples of larger organisations buying their slice of the ethical marketplace to inspire your next business acquisition. By purchasing these businesses, organisations that are struggling reputationally have been able to boost their green and ethical credential and once again become part of the future of their industries.
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