From food to fashion, this is what sustainability-minded retail investors are looking for

As retailers push toward becoming more sustainable, many startups promising to help make the industry greener have emerged, and they’re looking for a little green themselves.

For this, they’ll need the support of impact investors. Retail Brew caught up with investors from Alante Capital, S2G Ventures, and Closed Loop Venture Group to hear how they’re wading through the many sustainability-minded startups across categories like food and agriculture and fashion and beauty, and the due diligence processes they employ to differentiate the change-makers from the greenwashers.

Karla Mora, founder and managing partner, Alante Capital

Alante Capital is an early-stage venture capital fund aimed at establishing a “decarbonized and circular future” for the consumer goods industry, founder and managing partner Karla Mora said. Its first fund has been focused on apparel (its second fund will move into outdoor gear and home goods), addressing the inefficiencies from design to production to point of sale.

• Investments include FIT:MATCH—digital fit technology that helps returns, which has partnered with Savage x Fenty—and Circ, which recycles post-consumer apparel waste and released a collection with Zara this year.

“There is not one silver bullet for sustainability in apparel or in any retail,” Mora said. “There are incredible inefficiencies across the entire system that could benefit from modernization and innovation.”

• Alante also works as a solutions provider for retailers including Lululemon and Chico’s, Mora said, which gives them insight into what kinds of services retailers are actually looking for.

Mora said Alante evaluates the “level of certainty” that science or products it’s investing in actually work, and whether the service or tech “drops into the supply chain or requires a full outside build of a system.” Alante “always” has to see a path to profitability “within a timeframe that makes sense for us,” she said, though companies don’t necessarily have to achieve this on day one.

Chuck Templeton, senior managing director, S2G Ventures

Since 2014, S2G Ventures has been digging into the food system, from “soil to shelf,” its managing director Chuck Templeton said. With ~70 investments spanning CPG companies like sustainable coffee company Atomo and Seth Goldman’s Eat the Change to startups focused on agriculture analytics and vertical farming infrastructure.

The firm participates in rounds from seed to series A and B, and late-stage growth rounds, writing checks from $50,000 to $50 million, Templeton said.

Its criteria and process for vetting companies has “certainly gotten more sophisticated,” over the years, Templeton said. At first, it considered a company making a low-sugar product as impactful, which was a driving force for its investment in kids-food brand Once Upon a Farm, Templeton admitted. But that brand has since proven more tangible impact through efforts in food-waste reduction, he said, while more recent investments like Flashfood have more quantifiable impact from the get-go.

For very early stage companies, it’s hard to know how much of an impact they’ll make, so you have to guess or take a leap of faith, Templeton said. He calls this the “Patagonia principle,” referring to outdoor clothing brand Patagonia, which was a relatively small company that “dramatically changed” the cotton supply chain. “They have to build the impact of what they're doing alongside the viability financially of the business,” Templeton said.

• Metrics like B Corp or Public Benefit Corp status, as well as alignment with UN sustainability goals, have become more important for S2G, he said.

“Each company is a little bit different, and it’s part of our diligence process to figure that out.”

Danielle Joseph, managing director, Closed Loop Venture Group

Closed Loop Ventures Group, the VC arm of investment firm Closed Loop Partners, is focused on establishing a circular economy through pre-seed and seed stage investments across consumer goods and packaging, fashion and beauty, food and agriculture, and supply chain. That means companies that reduce waste created in the supply chain or post-consumer waste.

• Its portfolio includes Mori, which makes an edible food coating that extends shelf life to cut down on food waste, and Hyran, which uses AI for fashion supply-chain planning.

When evaluating companies, Danielle Joseph, the group’s managing director, said Closed Loop considers whether they make “either a direct contribution or an indirect contribution” to that circular economy goal, followed by a “pretty thorough impact analysis.” That includes determining who benefits from this service and if adding a new material or service to the market has any unintended environmental impacts.

The VC group invests in many companies that it believes could directly partner with Closed Loop’s partners like Coca-Cola, PepsiCo, and Walmart, Joseph said.

Once companies receive investment from Closed Loop, it keeps an eye on four metrics—greenhouse gas-emissions reduction, waste diversion, water saved, and jobs created—and reports that impact on a quarterly basis, Joseph said.