Rise of im­pact in­vest­ments

So­cially con­scious in­vestors have to bal­ance re­turns with their de­sire to leave the world a bet­ter place

Money Magazine Australia - - CONTENTS - STORY SU­SAN HELY

‘“We be­lieve the most suc­cess­ful busi­nesses are the ones that make money by do­ing good”

In­vestors with a strong so­cial con­science are turn­ing to a grow­ing group of in­vest­ments that not only of­fer a solid per­for­mance but also a so­cial and en­vi­ron­men­tal im­pact. They don’t want to be pas­sive in­vestors in com­pa­nies that aren’t do­ing the right thing. They are known as im­pact in­vestors and they want their in­vest­ments to change lives and help the en­vi­ron­ment.

At the end of the fi­nan­cial year they want to know how their in­vest­ment per­formed but also the “out­put” gen­er­ated by their in­vest­ments. For ex­am­ple, how many low-in­come fam­i­lies have been helped with mi­cro fi­nanc­ing or how many hours of re­new­able en­ergy have been gen­er­ated and tonnes of green­house gases avoided? How many life­sav­ing med­i­cal de­vices has their in­vest­ment pro­duced or how much waste has been re­cy­cled in­stead of go­ing into land­fill?

There is a smor­gas­bord of im­pact in­vest­ments in many dif­fer­ent mar­kets at vary­ing stages of de­vel­op­ment, from com­mu­nity fi­nance, ded­i­cated im­pact in­vest­ing funds, green and climate bonds, and re­spon­si­ble bank­ing prod­ucts.

“We be­lieve that the most suc­cess­ful busi­nesses are the ones that make money by do­ing good, and those are the ones we are go­ing after,” says Will Richard­son, chief in­vest­ment of­fi­cer at Im­pact In­vest­ment Group (IIG). “The tide is turn­ing on busi­ness that comes at the ex­pense of so­ci­ety or the planet.”

In­vestors range from the well heeled who meet ASIC’s def­i­ni­tion of a “so­phis­ti­cated” in­vestor to phil­an­thropic foun­da­tions, fam­ily trusts and self-man­aged in­dus­try and re­tail su­per funds. Richard­son says mil­len­ni­als (born be­tween 1980 and 2000) are lead­ing the charge for com­pa­nies to be a force for good, with the ma­jor­ity be­liev­ing that a busi­ness’s fi­nan­cial per­for­mance is no longer the sole mea­sure of suc­cess.

Kerry Se­ries, chief in­vest­ment of­fi­cer of fund man­ager 8IP, says that in his ex­pe­ri­ence a younger mem­ber of a wealthy fam­ily typ­i­cally drives im­pact in­vest­ing.

To also ap­peal to peo­ple with less money, in­vest­ment groups are rolling out re­tail prod­ucts for smaller amounts.

Im­pact in­vest­ing is an emerg­ing area, reach­ing $4.1 bil­lion in 2017, up from $3.7 bil­lion in 2015, ac­cord­ing to the lat­est re­port by the Re­spon­si­ble In­vest­ment As­so­ci­a­tion Aus­trala­sia (RIAA). But im­pact in­vest­ing ac­counts for only a small por­tion of the $622 bil­lion in re­spon­si­ble or eth­i­cal in­vest­ments, which make up 44% of Aus­tralia’s as­sets un­der man­age­ment and use neg­a­tive screen­ing, sus­tain­abil­ity themes and en­vi­ron­men­tal, so­cial and gov­er­nance (ESG) con­sid­er­a­tions, says Si­mon O’Con­nor, chief ex­ec­u­tive of RIAA.

Of­ten im­pact in­vest­ing means that portfolio man­agers part­ner with cre­ative en­trepreneurs or com­pa­nies with new tech­nolo­gies to help them build suc­cess­ful busi­nesses for a pos­i­tive change. This can mean higher fees than with tra­di­tional in­vest­ments, as well as more risk. It is im­por­tant that in­vestors find an ex­pe­ri­enced im­pact in­vestor with a strong track record or a fi­nan­cial plan­ner who spe­cialises in the area.

Kylie Charl­ton, chief in­vest­ment of­fi­cer of Aus­tralian Im­pact In­vest­ments, a fi­nan­cial ad­vi­sory group, says in­vestors want a com­pa­ra­ble mar­ket re­turn along­side the so­cial and en­vi­ron­men­tal ben­e­fits. She has ex­am­ined over 200 im­pact in­vest­ments for her clients and se­lected 22. They are all whole­sale prod­ucts with high min­i­mum in­vest­ment thresh­olds of at least $50,000, with the ex­cep­tion of one re­tail in­vest­ment in the so­lar panels of Syd­ney’s In­ter­na­tional Con­ven­tion Cen­tre, which paid back an in­come-like re­turn.

Charl­ton’s choice of im­pact in­vest­ments are in­volved in a range of so­cial is­sues, from home­less­ness, poverty and men­tal health to out-of-home care and dis­abil­ity. En­vi­ron­men­tal in­vest­ments in­clude best prac­tice wind and so­lar in­vest­ments as well as or­ganic agri­cul­ture and wa­ter.

How bonds im­prove lives

One of Aus­tralian Im­pact In­vest­ments’ projects was rais­ing cap­i­tal to fund the Sy­camore School, a new fa­cil­ity in Bris­bane for chil­dren with autism. It brought to­gether char­i­ta­ble foun­da­tions with the Cat­a­lyst Fund of Im­pact In­vest­ment Group and Foresters Com­mu­nity Fi­nance.

Aus­tralian Im­pact In­vest­ments likes the re­li­able re­turns of so­cial bonds, which range from 5% to 8% a year, from providers such as So­cial Ven­tures Aus­tralia and West­pac and Na­tional Aus­tralia Bank. Sev­eral so­cial bonds have been re­leased so far, in­clud­ing the Re­solve So­cial Ben­e­fit Bond, which gen­er­ates a com­pet­i­tive fi­nan­cial re­turn while im­prov­ing the lives of peo­ple suf­fer­ing men­tal health is­sues in New South Wales. The tar­get of the pro­gram is to re­duce hos­pi­tal­i­sa­tion and re­lated health ser­vices. In re­turn the state gov­ern­ment, which saves the cost of ex­pen­sive hos­pi­tal beds, pays the provider for a good out­come.

In­vestors fund the work­ing cap­i­tal of the Re­solve pro­gram, run by Flour­ish Aus­tralia, a ser­vice that pro­vides

res­i­den­tial pe­ri­odic cri­sis care with psy­choso­cial, med­i­cal and men­tal health sup­port. It also runs a helpline for after-hours sup­port from peers. Each par­tic­i­pant gets sup­port for two years.

Within the spec­trum of im­pact in­vest­ments, there are de­grees of so­cial and en­vi­ron­men­tal ben­e­fits. There are in­vest­ments that di­rectly help peo­ple but there are also arm’s length projects that in­vest in pri­vate projects, while some in­vest­ment groups claim to be im­pact in­vestors even though they in­vest in listed com­pa­nies.

From so­lar power to fash­ion

Im­pact In­vest­ment Group has a num­ber of pri­vate in­vest­ments worth around $730 mil­lion from a fund that in­vests in in­no­va­tive green busi­nesses to re­new­able en­ergy and ef­fi­cient build­ings. It is build­ing one of Aus­tralia’s big­gest so­lar farms at Swan Hill in Vic­to­ria with 50,000 panels op­er­at­ing on a sin­gle-axis track­ing sys­tem. In its first year of op­er­a­tion the farm is ex­pected to pro­duce 37,700MWh, enough to power about 6300 homes. Over its 25-year ex­pected life­time, the $32 mil­lion project will avoid cre­at­ing around 1 mil­lion tonnes of car­bon emis­sions and IIG’s mod­el­ling es­ti­mates it will save 14,300 peo­ple from pol­lu­tion-re­lated dis­eases. The farm will cre­ate 60 jobs dur­ing con­struc­tion, and the same num­ber again through in­di­rect em­ploy­ment dur­ing its op­er­a­tion.

IIG has prop­erty syn­di­cates in­vested in green build­ings such as 100 Broad­way in Syd­ney’s Ul­timo, which is de­signed with ef­fi­cient sys­tems for power, heat­ing, cool­ing and re­cy­cling grey and black wa­ter for re-use in laun­dries, toi­lets and gar­dens. The build­ing also used re­cy­cled ma­te­ri­als and en­vi­ron­men­tally cer­ti­fied prod­ucts dur­ing con­struc­tion. It is de­signed with ther­mal and acous­tic fea­tures as well as power-sav­ing ini­tia­tives that will cut car­bon diox­ide emis­sions.

Richard­son says IIG in­vests in B Cor­po­ra­tions, a term for a type of com­pany that uses the power of busi­ness for so­cial and en­vi­ron­men­tal good.

IIG has a ven­ture cap­i­tal fund called Gi­ant Leap, which has in­vested in groups such as GlamCorner, an on­line fash­ion busi­ness that rents out pre-owned de­signer clothes, and YourGro­cer, a home de­liv­ery ser­vice al­low­ing shop­pers to buy prod­ucts from lo­cal in­de­pen­dent butch­ers, del­i­catessens, green­gro­cers and bak­ers.

Many im­pact in­vest­ment funds are only avail­able for so­phis­ti­cated in­vestors or those that have been cer­ti­fied by an ac­coun­tant as meet­ing the ASIC re­quire­ments of a gross in­come of $250,000 a year or more in each of the pre­vi­ous two years or net as­sets of at least $2.5 mil­lion. Of­ten the min­i­mum in­vest­ment is be­tween $50,000 and $100,000.

For ex­am­ple, 8IP of­fers a whole­sale fund, the 8IP Aus­tralian Eq­uity Im­pact Fund, which has a min­i­mum in­vest­ment of $100,000. It in­vests in 25 listed Aus­tralian com­pa­nies that Kerry Se­ries, chief in­vest­ment of­fi­cer of 8IP, says have a pos­i­tive so­cial im­pact. They in­clude Genex, which has so­lar farms and pumped hy­dro stor­age.

While pri­vately man­aged im­pact in­vest­ments can be found, listed ones are harder to come across. Of­ten they tend to be a more akin to re­spon­si­ble or eth­i­cal funds with a pos­i­tive screen.

The WHEB Sus­tain­able Im­pact Fund has been go­ing for 12 years in the UK. Since Au­gust it has been avail­able in Aus­tralia as the Pen­gana WHEB Sus­tain­able Im­pact Fund (for­merly the Hunter Hall Global Deep Green Trust). With a min­i­mum in­vest­ment of $10,000, it tar­gets qual­ity growth com­pa­nies that con­trib­ute to the chang­ing world and will have a bet­ter im­pact, says Ge­orge Latham, chief in­vest­ment of­fi­cer of WHEB. The fund holds 60 com­pa­nies and the big­gest sec­tor is re­source ef­fi­ciency (28%), which in­cludes en­ergy-ef­fi­cient prod­ucts, ef­fi­cient build­ings and tech­nol­ogy to im­prove man­u­fac­tur­ing. The next big­gest sec­tor is health (21%), which in­cludes com­pa­nies that aim to re­duce costs in health­care, un­der­take re­search and di­ag­nos­tics work with age­ing de­mo­graph­ics and tackle obe­sity and pre­ven­ta­tive care.

Mon­i­tor the re­turns too

Im­pact in­vestors want to hear about the so­cial and en­vi­ron­men­tal re­turns or out­put of their in­vest­ments and WHEB sets out what $1 mil­lion has de­liv­ered. Latham says the fund gen­er­ated 703MWh of re­new­able en­ergy (the av­er­age us­age of 35 UK house­holds), treated 937 litres of waste wa­ter (53 house­holds), pro­vided 17.6 mil­lion litres of drink­ing wa­ter (100 house­holds) and avoided 938 tonnes of car­bon diox­ide emis­sions (equiv­a­lent to tak­ing 195 cars off the road). The money also went to en­sure that 82 tonnes of waste ma­te­rial was re­cy­cled, which equates to the to­tal waste of 35 house­holds.

When in­vestors seek in­vest­ments that match their pas­sions, of­ten it means that they have to keep an eye on re­turns too. They could be com­pro­mised, par­tic­u­larly in early-stage pri­vate ven­tures.

While re­spon­si­ble in­vest­ments have been per­form­ing a bit bet­ter than gen­eral in­vest­ments, there are few bench­mark­ing mea­sure­ments for the per­for­mance of im­pact funds. Re­spon­si­bly in­vested Aus­tralian share funds and bal­anced multi-sec­tor funds have out­per­formed their equiv­a­lent main­stream funds over three, five and 10 years, ac­cord­ing to RIAA. “It is a long-out­dated myth that fi­nan­cial re­turns must be sac­ri­ficed to in­vest re­spon­si­bly or eth­i­cally,” says O’Con­nor. “The per­for­mance fig­ures and trends we are now see­ing each year are telling us the op­po­site story.”

It is im­por­tant for im­pact in­vestors to put pa­ram­e­ters in place to stay fo­cused on their pas­sions but not to go broke.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.