We propose a collaboration of impact investors and business advisory organizations. The experience of Small-Medium Enterprise (SME) business assistance experts over 30 years shows that SMEs often reject high-impact internal investments that are actually profitable because they use inadequate / wrong financial analysis tools. Important costs are overlooked, risks not recognized, time frames are too short, discount rates too high, and more. When shown a high-impact and profitable solution, SME managers say, “We can’t afford it”. They are often wrong. But they welcome better analysis if helped.
In the 1990s the US EPA sponsored a tool to help better CapEx in its Pollution Prevention (P2) program. “P2 Finance” is a spreadsheet with a structured user interface that compares the financial performance indicators of the current operations’ costs and revenue (the Base Case) to two alternatives (the CapEx). Each one is compared by Net Present Value, IRR, and Discounted Payback. Uniquely, P2 Finance includes a populated inventory of “green” costs that are often overlooked, including permitting, utility hookups, facility floorspace, compliance training, etc. This encourages users to think beyond their traditional CapEx templates. Field use showed that P2 Finance did “convert” CapEx opportunities to positive, and that users were happy to have another and sharper tool for all their CapEx analysis. They started making more high-impact improvements.
Now we can update the P2 Finance spreadsheet to include impact metrics from SASB and GRI, to start. Now called CapEx Impact, Users begin by selecting their industry type from SASB’s 77 sectors. A macro then populates a Metrics Inventory with the specific SASB metrics for that sector that are useful in CapEx analysis. It includes additional relevant GRI metrics. Users are thus educated in impact metrics relevant to them and encouraged to standardize their own sustainable performance metrics. They’ll make more profits by not wrongly rejecting good projects. C
Impact investors can help businesses in their communities learn about tools like these. In most communities there are Business Assistance Organizations covering many topics. By educating them about impact investing and CapEx they can pass on the information to their clients. The Small Business Administration is a place to start. They help over 900 other organizations help SMEs, such as SCORE and the Manufacturing Extenion Partnership, both found in all US states.
Immediately, impact investors can start conversations with SME advisors in their communities. The advisors may suggest local companies that are trying to improve and will appreciate assistance. The investors can suggest how to counsel early-stage companies about managing impact in growth. There are many opportunities for SoCap members and others to be good neighbors helping SMEs along the sustainability road. But how? Discuss!
