Why Investments That Maximize Impact And Returns Will Be Especially Important For COVID-19 Recovery

Bridges Fund Management is a London-based fund manager founded on the belief that “business and investment could play a vital role in tackling some of our most pressing social and environmental challenges.” Since its founding in 2002, Bridges has been investing in solutions that help to build a more inclusive and more sustainable economy. In 2015, Bridges became a Certified B Corporation by meeting standards of verified social and environmental performance, public transparency, and legal accountability—formalizing its commitment to community, customers, environment, and other stakeholders as well as shareholders.

This commitment to a larger group of stakeholders gained new traction in the mainstream investment world after Larry Fink of BlackRock issued his 2019 letter, which included a focus on the importance of purpose to a company’s profit. In 2020 he went further and emphasized the importance of environmental, social, and governance (ESG) measurement and accountability to mitigate long-term risk factors for investment firms. 

Bridges also has made accountability an area of focus, including using ESG assessment tools such as the B Impact Assessment (BIA), as part of its evaluation of potential investments, and participating in the Impact Management Project, an industry-wide effort to build consensus on global standards for impact measurement and management. Bridges demonstrates how environmentally and socially conscious business also provides a foundation for stronger long-term financial performance. These assessments also help Bridges in its risk assessment across its portfolio.

Over the past decade, I have spoken with scores of leaders at different companies about the ways in which a stakeholder approach is the reform capitalism needs for the long term. More recently, I have heard such ideas are even more important post-COVID-19. The epidemic has disproportionately affected companies heavily dependent on supply chains, employees and local communities. For a successful recovery, business will need to learn how to better attend to such diverse sets of stakeholders. The findings, forthcoming in Better Business, includes what I learned about how Bridges Fund Management has made this broader, purpose-minded investment a reality—and why it encourages other companies to do the same—from Antony Ross, a partner at Bridges who until recently led its sustainable growth and social sector funds. Below are excerpts from our discussion.

Christopher Marquis: Why did B Corp certification resonate with Bridges?

Antony Ross: The holy grail for Bridges is mission-driven, profit-making enterprises — businesses able to both maximize impact and maximize returns. That’s what we look for with our enterprises. The tricky bit is delivery—how you get the businesses really engaged and passionate about impact, and how they get value from it with their customers, so their customers really believe they’re doing something different.

We thought certifying as a B Corp was a great idea, and that the best thing we could do was to make the commitment before proposing it to our investees. We were one of the first B Corps in the U.K. We’ve seen a greater emphasis from both managers and employees, commissioners and customers, on businesses that are behaving better. 

This connection has been even more evident since the onset of the COVID-19 crisis. We’ve been really proud of our companies’ efforts not only to adapt to the current challenges but also to support those hardest-hit – whether that’s through new delivery models, or additional health and well-being measures for staff, or philanthropic work within their local communities. A good example of this is Vegetarian Express, a specialist supplier of plant-based ingredients to the catering sector: in the last month it has launched a brand-new direct-to-consumer service, while also donating over £50,000 of stock to food banks, and providing food parcels and volunteer chefs to its local hospital.

We’ve always believed that a focus on driving better outcomes for all stakeholders helps to create more resilient businesses that are better-placed to succeed over the long term.

Marquis: During your investment process, how does Bridges assess companies on their social and environmental impact?

Ross: We start by thinking critically about what impact the business has on all its stakeholders – their customers and employees, the community they operate in, the environment more broadly, and so on; we find the B Impact Assessment, a helpful starting point for that.

We then ask which stakeholder the business drives the most positive change for, and where the risks of negative impact might also be material.  For those stakeholders, we will do a deeper impact analysis using the five dimensions identified via the Impact Management Project. This helps us understand what outcomes the business is contributing to, for whom and to what extent.  Finally, we ask, “Does this model – coupled with our support as an investor – enable the company to deliver these outcomes more effectively than someone else?” 

We also find the B Impact Assessment (BIA) is useful for our due diligence. It is a great tool to help us understand areas of strength and potential risks and, importantly, what can be done to build on the strengths and mitigate some of the negatives. 

For example, a few years ago we invested in World of Books, a business that resells or recycles used books. As part of the due diligence we helped management go through the BIA process. They learned a lot; for instance, they identified that in addition to averting carbon through its business model—making sure books didn’t end up in landfills—they could also reduce their overall carbon footprint by reducing mileage and fuel consumption during book delivery. These responsible business practices have also generated significant cost savings, improving the company’s bottom line.  

Marquis: How has becoming a B Corp helped Bridges manage its portfolio’s risk assessment?

Ross: Over time, we’ve gained confidence in asking about a company’s impact from the start. When we talk to a business, we say, “We’re talking to you because we think you’re an impactful business. We’re interested in making you more impactful, and if that doesn’t resonate, fine, go and talk to somebody else.” 

That becomes very self-selecting. It becomes very differentiated with the two engagements, being able to say, “We’re a B Corp,” and being able to say “We’re going to help you become a B Corp.” That’s where it’s driving value.

We put all our investments through the initial B Impact Assessment. We also encourage those that we think can qualify as a B Corp to do so. This can be a bit of a challenge in some sectors. But for businesses that want to better engage their employees, or whose customers are going to care about their product or service provider, it’s seen as a real asset. 

Marquis: Can you share some of the work that you have done to help the companies to evaluate and improve the whole business?

Ross: We’re looking at areas where we know every business would benefit, in terms of some of the things that the B Impact Assessment would examine. It could start with surveys, then could lead on to tangible actions they could take that we’ve seen work elsewhere and can push across the portfolio.

We’re also considering whether we can drive some of these value-adding initiatives across businesses, particularly around environmental and human resource capabilities. 

As part of our planning process, we identify key metrics and then we review progress against these metrics annually. If they’re not already B Corps, our portfolio companies are required to complete the assessment every year; this helps us track performance over time and identify opportunities for improvement. Based on the results (plus a regular ESG materiality assessment, which is closely aligned with the BIA) we agree on a set of new or existing impact initiatives for the next six to 12 months.