Success will be built on understanding climate change

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The purpose of making a positive impact is to bring about widespread and long-lasting social changes that improve the wellbeing of people and the environment. Ilona Lundström, Director General at Finland’s Ministry of Economic Affairs and Employment, and Heli Kerminen, Tesi’s Director, Venture Capital, discuss the requirements for being impactful and Finland’s carbon neutrality target from two perspectives: the reality perceived by companies, and developments in the investment world. How do you view the relationship between sustainable development and profitable business?

The Finnish government wants Finland to lead the way in mitigating climate change and to become carbon neutral by 2035. Katri Kulmuni, Minister of Economic Affairs, believes the work needed to mitigate climate change will be implemented hand-in-hand with Finnish industry.

Ilona Lundström points out that the Government Programme calls for swift systemic change, and envisages road maps towards a low carbon economy formulated for specific sectors in collaboration with companies. The forest and chemical industries, as well as the metal refining industry and possibly others, have already agreed to cooperate. Finland’s sights are set not only on sustainable development, but also on solutions that will be long-lasting, far-reaching and promote exports.

“This raises questions, of course, about whether achievement of the goals will necessitate restraints on growth – in energy use and transportation, for instance – instead of sustainable growth. Nevertheless, I’m convinced that companies refusing to address environmental issues will be losers in the long run, in business terms also,” emphasises Lundström.

Lundström refers to Sulapac, a company that makes fully biodegradable and microplastic-free packaging materials. In June, Sulapac gave a presentation at an informal EU ministerial meeting on competitiveness. She cites it as a good example of anticipating opportunities, because the EU will ban single-use plastics in 2021.

“Sulapac clearly demonstrates how more stringent environmental legislation is, at its best, an opportunity and not an obstacle,” adds Lundström.

She doubts, though, whether all negative impacts can be fully avoided. It depends on what certain products are assumed to be like in the future: properties are determined by materials.

“The state will support new materials, products and solutions – that, for instance, replace plastics – reaching global markets. The products and solutions also need to be scalable in terms of quality and manufacturing,” Lundström points out.

VC & PE market must be developed to enable global solutions

It is essential that companies switch from current practices to more sustainable operations, and simultaneously open the market to those that can solve major global problems. Achieving zero net emissions requires investment in, for example, renewable forms of energy, the circular economy, energy storage and infrastructure.

“Climate problems will be solved effectively through companies’ activities and innovations. We want to develop the venture capital market so that companies get the resources needed for that. Financing should be purposely targeted at promoting sustainable development,” says Heli Kerminen.

She believes that innovations in industrial processes and material technologies are the most demanding in terms of financing. Commercialising them will take time and capital, since technologies need verification through demos and pilots before industrial-scale adoption.

Tesi has a Circular Economy investment programme for providing financing of MEUR 75 to companies in the circular economy sector. In addition to direct investments, the target is to create venture capital funds investing in Finland’s circular economy. Partnership with the European Investment Bank allows financing guaranteed by the European Fund for Strategic Investment (EFSI) to be channelled into Finnish SMEs and innovative midcaps as equity investments, bringing also very large projects within reach.

The EU is seeking ways of creating a financing system that supports climate change mitigation and sustainable development. The Commission estimated that EU funding of EUR 180 billion a year should be targeted at increasing investment in sustainable development projects in order to meet the Paris Agreement’s emissions targets. Horizon Europe – the EU’s next research and innovation framework programme – aims for an innovation-driven transition towards sustainable development and getting inventions to market more rapidly.

“At its best, public financing is co-sharing risk with private capital. The state enables larger risk-taking than is usually possible with private capital alone. Utilising European financial instruments is also pivotal to a small country like Finland. Fortunately, the volume of financing available for sustainable solutions is growing. Tesi has worked strategically and successfully, so I see a clear remit for it in European cooperation scenarios,” says Lundström.

Positive impact must be genuine – so must the meters measuring it

Despite constant talk about climate issues, some companies settle for creating the impression of responsibility instead of aiming for genuine impact. Even if the direction seems right, measurement is essential for verifying real change. Navigating the jungle of potential criteria is far from easy.

”We are remodelling Tesi’s impact evaluation methods. We aim to promote impactfulness in funds’ management companies and in our portfolio companies. We want to highlight how investments affect the environment and society. Economic impact alone, as measured by the growth in portfolio companies’ net sales, jobs or exports, is not sufficient,” says Kerminen.

“At the end of the day, the euro is a very narrow meter. It’s a fact that Tesi’s operations are legally obliged to be profitable over the long term, but maximising profits is not the one and only goal. We need instead to balance the different components for making a positive impact,” explains Lundström.

A lot is happening on the global scale with regard to performance indicators. Evaluating impact will increasingly become more widely adopted as a component of targeted investing. The EU is preparing a classification system for use as a tool in sustainable financing and investment.

“I believe there will be a shift towards environmental accounting. Other environmental impacts, not only climate change, will be reported and their overall importance evaluated. In twenty years’ time, people will wonder was there ever a time without it. When the impacts are measured and verified, development can be more precisely targeted,” says Kerminen.

“Alongside environmental aspects, we also want to promote performance meters for social impact, in collaboration with the Finnish investment industry,” she adds.

Network leadership opens developing markets to SMEs

The largest environmental impacts in absolute terms are produced by population growth and rising living standards in the developing economies of Africa and Asia. Finland is considered to be lagging behind other Nordic countries – especially Sweden and Denmark – in exporting solutions to developing markets. How can an SME enter the arena of sustainable solutions for developing countries?

“An individual SME is often too small for large markets. So we need to create networks and bundled packages. Our large companies can help by opening the door for smaller players. Also, the public sector and companies must work side-by-side. The Finnish state’s presence is an advantage in, for instance, Asian markets,” points out Ilona Lundström.

“There is a demand for Finnish expertise, but even the very best expertise is not sufficient if it’s fragmented. Now we need business-based management of bundled expertise and a bold approach to the market. The bundle must be harmonised and the solutions must fulfil their promises,” she adds

Ilona Lundström

Who she is:

Director General heading the Innovations and Enterprise Financing Department of Finland’s Ministry of Economic Affairs and Employment. Responsible also for government ownership steering of players implementing Finland’s innovation policies (e.g., Tesi, Business Finland and Finnvera).

Education: DSc (Admin), University of Tampere.

Work experience: In her present position since 2016. Previously in management positions in Tekes (Finnish Funding Agency for Technology and Innovation) and the Association of Finnish Local and Regional Authorities. In Tekes, she was responsible for financing decisions and customer service for large corporations, universities, research institutes and public service providers.

Why the Ministry of Economic Affairs and Employment in particular: A ringside seat on the corporate world, watching Finns grow and succeed on the world stage.

Memorable impression: At the Scouts’ Leadership Seminar in the Forest without PowerPoints (Partiolaisten Johtajatuli) a couple of years ago she heard Suvi Haimi, founder and CEO of Sulapac, tell the company’s story.

Heli Kerminen

Who she is:  Director in Tesi’s Venture Capital team.

Education: MSc from Helsinki University of Technology, MBA from Aalto Executive Education.

Work experience: Has worked at Tesi for 11 years. Previously worked at Tekes (Finnish Funding Agency for Technology and Innovation), most recently as director responsible for growth companies and the commercialisation of innovations. Before Tekes she worked at Sonera.

Why Tesi in particular: Believes that Finnish companies’ growth and internationalisation can be supported and Finland’s investment industry developed by a partnership between companies and public sector players.

Memorable impression: Finnish family companies that promote solutions to environmental challenges and foster sustainable development, such as Sinituote, the John Nurminen Foundation, Baltic Sea Action Group’s players and ST1’s Mika Anttonen. “They represent the right type of ownership, that leaves its distinctive mark.”