Inside the Rise of Impact Investing, Ethical Fashion’s Controversial Trend

Image: Fashion For Good

We’ve all heard the phrase voting with our money, but when it comes to investment, how can we ensure that where we put our money is doing good? Megan Doyle investigates the rise of impact investment and what it means for the sustainable fashion industry.

With consumer appetite for ethical clothing flourishing, the sustainable fashion movement is entering a new phase of its evolution. Now more than ever, consumers care about the environmental and social consequences of their fashion spending, and so too do a burgeoning group of investors.

The last few years has seen a rise in impact investing — venture capitalists and funds injecting cash into businesses that have an emphasis on social and environmental causes — is booming, driven largely by high net worth, socially conscious Millennials. In 2019, European investors poured €120 billion into ethical investments, up nearly €75 billion on the year prior.

“In the last year in particular, we have been introduced to a lot more impact investors who focus on sustainable fashion,” says Steph Stephenson, co-chair of the Cordes Foundation, founded in 2006 by her parents. Steph joined the foundation in 2014, and was instrumental in pivoting its funding towards ethical fashion businesses, with an emphasis on women’s economic empowerment. “I have really noticed that as the sustainable fashion conversation and the impact investing conversation are growing, people are discovering the opportunities for overlap between the two.”

Jason Keehn, the founder and CEO of US-based ethical online marketplace Accompany, has looked into receiving investment in the past, and is currently reconsidering it in order to ride the wave of funding opportunities that once were scarce for a business like his. “Consumers obviously want to purchase purposefully and investors want to invest purposefully,” he says. “Especially right now, people who have the means and money to invest in things, their conscience is awake.”

It seems a global pandemic, political and economic uncertainty, social unrest and environmental crises have done nothing to slow down the movement, if anything they’ve fuelled the rise of impact investment. “Money going into early stage ventures is owned by high net worth individuals, pension funds and insurers that have part of their mandate dedicated to venture capital,” explains Rogier Van Mazijk, Investment Director for Fashion For Good, a Dutch sustainable fashion accelerator and investment group that focuses on B2B textile and manufacturing innovation. “That money will still go into venture capital — I don’t think there are enormous changes in the amount available to ventures,” he says.

However, investors are raising the bar when considering where to park cash, all too aware of how quickly a business can fall victim to unforeseen circumstances. “One thing that will change fundamentally is how investors look at these businesses,” says Van Mazijk. “The ones that are dispersing money will ask more questions when doing their due diligence. They’ll want to know about the robustness and to what extent these businesses are resistant to outside events.”

While the rise of impact investing in the fashion industry is a promising sign that sustainability isn’t a passing trend, it’s not without critics. A look deeper reveals underlying tensions between the fundamental values of investors and the values entrenched in the sustainable fashion movement. 

While many funds are investing in sustainable fashion because they believe in the movement, there are inevitably those who jump on the bandwagon when they spot a trend. Keehn says he has experienced a misalignment of values in his encounters with potential investors in Accompany. “I think venture capital is counterintuitive to some of the social impact goals. There are some investors that are looking to invest in mission driven concepts, but most of the money is just looking for the next new thing, because sustainable brands are hot right now.”

This causes problems when, after receiving funding, sustainably minded companies are pushed to scale rapidly in ways that are counterintuitive to their business model. “There are investors who are expecting incredible returns and rocketship growth in the first year,” says Keehn. “But that doesn’t work with an ethical business [like Accompany] that is trying to support indigenous communities — it’s not a tech concept that you can increase by 20x the revenue in a year.”

Ayesha Barenblat, founder and CEO of Remake, a non profit advocacy group that is responsible for campaigns like #PayUp, has had a similar experience with investors. “I have been advised by impact investors to monetize our Seal of Approval process, and run our brand directory with affiliate marketing dollars,” she says. “But as an advocacy organization, I believe it muddles the mission to take money from impact funds that are focused on scale and return.”

Barenblat has noticed a shift away from philanthropy and towards impact investing in recent years. Her observation is backed up by evidence from Nexus, an international network of young investors and social entrepreneurs. Since launching in 2011, Nexus has found that almost half of self-identifying philanthropists now identify as impact investors. “I actually find the overall trend to move away from charitable donations to impact investments troubling,” says Barenblat. “There are certainly some business models that are better served to be impact investments, but I don’t believe foundations should pivot toward impact investments and treat some of the world’s most intractable societal and environmental problems with an impact lens.” It’s a concern shared by others, including Jane Wales, chief executive of the Global Philanthropy Forum, who told the FT last year: “The fear is that financial return will be the metric of success, and social return will become secondary.”

There does seem to be a pervasive push and pull between priorities: can the emphasis be placed on both impact and shareholder profit without compromise? “The deals that we like the most are the ones that generate both the impact and the financial return,” says Van Mazijk. “But there are a lot of people that say that trade off doesn’t exist.” Stephenson believes otherwise. “We’re definitely looking for the return alongside the impact, because we believe that sustainable businesses are good businesses,” she says.

Finding, negotiating and securing investment from a fund that respects a businesses vision can be a significant barrier that holds ethical fashion companies back from receiving investment. “Fundraising and raising capital is hard, period,” says Keehn. “It’s a full time job on top of running your business. It’s not like you can walk up to the right investor and see if they’re interested, you have to hunt them down and court them.”

For those that do find the perfect match, the support and guidance offered in addition to funding can be invaluable. “When we invest, we think of it as beyond financial capital,” says Stephenson, whose family foundation has invested in businesses like Kenyan jewellery brand Soko and ethical fashion collective Maiyet. “We’re pretty involved — we do events with our partners, we make connections for them and we’re always there to be sounding boards.”

Regardless of motive or priorities, impact investors are in an undeniably powerful position to push forward the sustainable fashion movement and catalyse faster change than if a business was to grow organically. The more support ethical businesses have, the more good they can do. But impact investors can’t do it alone. As with all movements, collaboration is imperative to long term success. “It’s a multi-stakeholder movement, so we need all aspects: investment, entrepreneurs and nonprofits, all aspects need to come together,” says Stephenson. “I hope that one day, it’ll just be investment into fashion and the ethical impact part will just be inherent.”

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