Investing in impact: a sustainable pathway to growth
Society and investors win big when interests align
Impact investment is geared towards the creation of a quantifiable impact that deliver societal and financial returns.
A term first coined by the Rockefeller Group in 2007, impact investment is growing exponentially. The Global Investment Impact Group reported a global total of $US114 billion assets under management in mid 2017. In 2018, it reports $US228 billion.
And it’s only set to rise. Alongside smaller firms and entrepreneurs with big visions, mainstream investment houses such as Bain Capital, BlackRock, Credit Suisse, Goldman Sachs and JPMorgan Chase all have business strategies that demonstrate both profit and purpose.
Impact Investment Group CEO Daniel Madhavan says financial returns and social impact must work hand in hand. “Some investors are looking for impact first, and the financial considerations for them are definitely secondary,” Madhavan says. “You have other investors who are still very finance-first driven but would like to have some impact. We are looking very specifically for businesses where the impact and the financial performance of the business are inextricably linked. It means that through the business model itself, they only financially succeed when they're driving impact, and they're only driving impact when they financially succeed.”
Simon O’Connor, CEO of the Responsible Investment Association of Australasia, reports Australian impact investment growth mirrors global trends. “We’ve had a quadrupling of funds flowing into impact investing in the past two-and-a-half years in Australia,” he says. “The total quantity of impact investment at the end of 2017 was $5.8 billion.”
Impact investment is more than simply a differentiator for a new kind of investment product. It marks the beginning of an enduring transformation to the very fabric of our global economy, paving the way for a more stable economy and equitable society.
Says O’Connor: “I think fundamentally one of the great shifts is occurring. There is a no zero-sum game here. If one company profits massively from environmental damage, then many of our biggest investors are also going to pay the cost of that environmental damage through another part of their portfolio.”
What society seems to be really moving towards is this idea of backing businesses that are restorative or regenerative by design and intent. We are seeing a flourishing global start-up community that is both mission and profit-driven being supported by these new investors.
Flow Hive is one such example. A custom-built beehive featuring patented technology, Flow Hive offers an easier and gentler way to harvest honey from bees. Uniquely, its early stage was crowdfunded through the platform ‘-Indiegogo’- and surpassed its target figure dramatically within 24 hours of launch. An indication of public intent to support well-designed purpose-driven approaches to business.
Monica and James Meldrum also reflect this new breed of impact-driven entrepreneur capturing investor attention. Their business Whole Kids is driven by a mission to create a happier, healthier world for kids by providing healthier food options. Boasting the respected title of being Australia’s first B-Corp, they are transforming lunchboxes around Australia by ‘unjunking’ food. As with all B-Corp organisations, Whole Kids’ intent is strong.
Madhavan sees investor intent as paramount. “If we can influence the capitalist system to produce better outcomes, it's only going to be by attaching some intent to that capital, by being thoughtful and conscious about what outcomes I want to promote,” he says.
“It's a mindset. It's about intent. It's about being deliberate about the type of world that I want to live in, and the world I want to leave my children and their children.”
There is still some way to go however in transitioning to this mindset. “I would say cynicism and skepticism are probably the biggest villains here,” Madhavan says. “People just go, ‘you can't do good and make money at the same time’. That’s probably villain No.1. Villain No.2 would be the pervading paradigm to this point which has been you make money over here, and you do good there and never the twain shall meet.”
The enormous success of solar farms shows that this ideology can be defied. “Solar is a great example where the more electricity its generating, the more money its generating, but also the more renewable energy is being generated so it’s a good example where impact and financials are aligned,” Madhavan says.
The market is driving this shift in intent and focus. Where money goes, attention flows. O’Connor sees the future in this direction. “There’s a lot of appetite by our clients to ensure their savings are invested in a way that can contribute and be more sustainable,” he says.
Madhavan sums it up this way: “Over time, the data will show that the more successful companies will have thought more broadly and more holistically about their place in the community, the environment and society at large. That's why they'll succeed, because they've just been smarter and more thoughtful about the responsibility they have more broadly, rather than just having a singular focus on shareholder value.”
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