Ethical investing learns how to turn a profit – at last
Greed can also do good. Simon Evans reports
Sunday 02 November 2008
Pursuing social good while making money is an art that few have ever mastered. Investing in a fund with a supposed ethical bent has typically been a one-way ticket to miserable financial returns with little tangible social benefit.
But one venture capital firm claims to have married these twin goals together. Bridges Ventures, which is backed by financial luminaries including Sir Ronald Cohen, a pal of Gordon Brown and founder of private equity giant Apax, is making plenty of money for its investors, while achieving measurable social benefits to boot.
Run by former Square Mile financiers and bankers disgruntled by the City's myopia on social investing, Bridges has already launched three funds and promises more to come.
It provides growth capital to ventures such as The Gym, a new fitness chain based in deprived areas charging just £14.99 a month to members, and the Hoxton Hotel, a phenomenally successful operation in the run-down but trendy East London area.
The hotel has proved such a success – 96 per cent occupancy – that it now boasts blue chip corporate clients, including Royal Bank of Scotland, which is shunning more expensive venues for its down-at-heel bankers.
Bridges has also invested in a business called The Office, a Regus-style outsourced office group with a difference. Located in worn-out renovated buildings, its latest operation boasts a green roof that harvests rainwater and recycles it throughout the building.
"There's a real appetite for the supply of ethical services," says Michelle Giddens, a director at Bridges. "All our investments have a dedicated social or environmental goal at their core. We invest in deprived areas directly or with companies that have links to deprived areas, whose activities benefit the local communities. But we aren't doing this out of the goodness of our heart. We aren't the funders of last resort doling out grants. We are here to make money for our investors too. We exit investments on the best commercial terms."
Giddens says the success of Bridges proves that there is a role for the private financial sector in the City to tap into previously ignored areas.
"There is a real problem in the size of the growing gap between the wealthy and the poor in this country," says Giddens. "Large parts of the country are getting left behind, which is in nobody's interest. Hiking taxes isn't the answer. Rather, there is a fantastic opportunity for the financial sector to play a role and make money at the same time."
Bridges has benefited from the fallout of the recent financial turbulence, with fed-up, one-time star financiers, realising that the pursuit of profit doesn't always have to be follow the Gordon Gekko mantra.
"We've had a lot of people interested in coming to work for us," she says. "They realise that there is a financial bottom line but there is a social and environmental bottom line that has to be considered too. This is something that investors are increasingly realising too."
Giddens is confident that these investors will continue to support ethical investing during the financial downturn, typically a time when investors retrench to more familiar investment arenas.
"There is a danger that some people will consider the environment less important in this financial climate," says Giddens. "We might see a short-term fall off but in the long term this isn't going away. Consumer behaviour has changed. Just look at Fair Trade sourcing as an example."
Ethical venture capital remains a tiny fragment of the overall buyout space, but the success of Bridges is spurring others on. And with the traditional avenues to making money running into cul-de-sacs, it seems that traditional players could be turning their attentions to the space too.
"There are some fantastic entrepreneurs needing backing for some great ideas that simply wouldn't get off the ground through traditional financing," says Giddens. "If the number of firms playing in this space grows, it can only benefit us all. Ethical investing isn't about losing money and people need to realise that."
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