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4

New Year Prediction: 2007 to be remembered as the year that marked the “arrival” of Ethical Business

January 4, 2008 |

For some years now, commentators such as ourselves have been talking about businesses which operate in the social, ethical or environmental (SEE) domain as if they were somehow pervasive. The reality was dramatically different, they were largely invisible. Absent to all but a microscopically small group of observers who wish them into the mainstream, we can and did all dream that the day would come where they would become significant enough to matter to how the world worked.

In the last few years a sea change took place in the environmental sector, particularly around alternative energy, where dozens of flotations followed years of investment and an important new sector was born. The capital markets took to this sector but, in addition, major changes in personal behaviour followed. The drought of the summer of 2006 in the UK caused a surge in those purchasing “water butts” to conserve rainwater. A personal anecdote will also underscore this point-?my builder, who has had his own business for 20 years, said none of his clients had ever asked for solar panels before-?and in the last 12 months, 13 had done so. The environmental sector had clearly arrived.

Social and ethical firms remained very much a backwater, with a few quirky organisations (Cafe © Direct, Divine, Justgiving.com, etc) struggling to make some progress. Yet by and large such firms remained relatively unknown. In 2007 this has, thankfully, begun to change. At the beginning of my Chairmanship of Justgiving.com, back in 2004, I used to ask nearly everyone I met if they had ever heard of it-?and with a few exceptions nobody had. Today it is nearly ubiquitous-?I have not come across a single individual employed in any professional capacity that has not either heard of or received an email solicitation via Justgiving.com.

But trends cannot (much as I would wish) stem from anecdotes alone. A considerable number of ethical businesses have entered the mainstream by conducting meaningful financial transactions. Perhaps the best known was the purchase by private equity firm Phoenix Equity Partners of a meaningful (but undisclosed) stake in Abel & Cole, the UK home-deliverer of organic produce. This transaction is very significant. Phoenix generally invests tens of millions in companies and like most VCs it is probably hoping for an exit in 3-6 years. This will be very important for the sector.

Significantly, the fashion retailer, Adili, raised £1.5 million and secured a listing on AIM. Valuing this fast-growing firm at about £4.5 million, this listing demonstrates meaningful demand for ethical shares, taking into account the fact that in the period ended 30 April, 2007 Adili had revenues of £65k and losses of £456k. In the final days of 2007 PointOV Limited, the parent of The Ethical Superstore, another ethical “e-tailer”?, announced it was conducting a £3 million fund-raising.

Our affiliate Catalyst is involved in a similar fund-raising for Belu Water. Belu”s unique aspects mean that it actually straddles both the ethical and environmental sectors. Finally, just days before our annual conference for Social Business CEOs, it was also announced that Sir Tom Hunter, reportedly Scotland”s richest man, made a meaningful investment in Liberation Foods (formerly known as the Ethical Nut Company). Liberation”s new MD, Ceri Willmott, presented at our conference. This is not even to mention the buyout by L”Oreal of The Body Shop for over £700 million in 2006. There are a range of other smaller transactions which we could have mentioned-?and if any of you think there are some others we should be talking about please let us know.

The New Year is normally an appropriate time for predictions-?for gazing into the crystal ball and attempting to speculate on what might lie ahead. So let me take a stab. I predict that in the next five years financial market transactions in the social/ethical sector will be as significant as those from the environmental sector have been over the last few years. I predict that consumer goods will be dominant, with food, drink and fashion items in the lead. Agribusiness, particularly in the organic area, will also see substantial activity as will those businesses, like e-tailing and online giving, where susceptibility to the internet is high.

What do you think?

Rodney Schwartz

Comments

9 Comments so far

Livepaths on January 5, 2008 12:57 am
Great blog!

If the economics don’t work, recycling efforts won’t either.
As our little contribution to make this economics of recycling more appealing, http://LivePaths.com blogs about people and companies that make money selling recycled or reused items, provide green services or help us reduce our dependency on non renewable resources.
Rob hopcott on January 5, 2008 4:14 pm
Perhaps social innovators will always be outsiders, invisible to the mainstream.

As soon as ethical business becomes just another factor habitually considered as part of a normal business plan, I suspect we may see the label largely disappear and those who have fought so hard to get this concept recognised will be battling on new frontiers.

My particular hobby horse is that improved local communications can play a large part in the regeneration of local rural areas, in my case, Exmoor and West Somerset.

I believe that the better the systems we have to talk locally and the more people talk together, the more solutions will be identified and the more projects will be generated for local social benefit.

Few seem to agree and I’m often criticised for seeking ‘talk not action’ and it is easy to sometimes wonder whether the criticism might be accurate.

However, each fringe idea that becomes mainstream, as ethical business now has, provides encouragement to ‘keep the faith’ in our ‘fringe ideas’ in the hope that one day they too may become mainstream.
admin on January 5, 2008 4:24 pm
Dear Rob

Really enjoyed your comment. Great innovators are frequently outsiders. “The system” does not work for them or meet their needs, so they strive to create something which does. By doing so they make the world better for us all.

Good luck to you and all that you are doing in beautiful West Somerset. In terms of “local conversations, may I recommend UKVillages and, with a more specific focus, NetMums.

Best wishes in 2008!

rod
Rob hopcott on January 7, 2008 4:27 pm
Rod

Thanks for the suggestions. I will check them out today.

Rob
Thor on January 8, 2008 11:38 am
Rodney,

Interesting piece and I agree with a lot of what you’re saying. However, isn’t five years a bit optimistic? I think that we will definitely see an increase in financial market transactions in the social/ethical sector, but I’m not sure if it can expect to follow in the footsteps of the environmental sector. I think the environmental issue will continue to grow and perhaps even “steal” some of the attention from the social/ethical sector. On the other hand, these areas are often complementary so I guess one could see the environmental issue creating a wave for the social/ethical sector to ride on.

Don’t you think though, that the variety of different social/ethical investment areas hinders the same explosive growth like we’ve seen in the environmental sector? I mean, yes there is a lot of sub-categories under environmental issues, but there seems to be many more issues areas in the ethical/social sector.

Thanks for a great post!
admin on January 8, 2008 12:00 pm
Dear Thor

Thanks for a very thought-provoking comment
Let me mull it over
I may even make a blog post out of the reply, if you do not mind–with credit of course to you for the challenge!!

best, rod
Thor on January 9, 2008 11:02 am
Don’t mind at all, looking forward to it!
I Patel on January 10, 2008 1:53 pm
Interesting…

Isn”t it the case that these social and ethical” businesses usually have products that are over priced and aimed at the middle classes? Wouldn”t it be a better investment to provide an ethical product -� price it competitively -� even if it generates a loss -� on the condition that it will have a comparative advantage over its competitors and will gain a market advantage -� thus providing a profit in the long run!

The day this theory becomes workable and someone takes that risk, will be the day that marks the arrival” of ethical business.
admin on January 10, 2008 10:16 pm
Mr Patel

Thanks very much for your comment

You are right that many of these products are targetted at middle class consumers–a nd the wealthy. As these goods are currently priced at a premium to the mainstream it is a sad truth that only those with excess disposable income, by and large, will be able to afford these products.

Your strategy would require an enormous amount of capital, simply unavailable to social businesses at this time. In any event, I still do not think it would be a successful strategy because one of the issues with most of the ethical/fair trade brands is that they would simply be unable to supply into a commodity-priced product market. Their supply chain, by and large, does not allow for that and could not handle it.

However, i think your challenge is a great one and I appreciate it. The “arrival” of these businesses into the mainstream comes when we cease to talk about them as anything special, I guess, and they become the mainstream. And non-ethical businesses become the quirky ones. Ah, that would be the day!

thanks again–rod

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