Impact investing is for people, planet and profit. This is how four industry leaders make it happen.
Rod Schwartz: ‘this is the next disruption in finance’
Schwartz is the founder and CEO of ClearlySo.
“At ClearlySo, we call ourselves an impact investment bank. What that means is that we do all the regular stuff that any investment bank does: connect investors, and they could be institutions or high-net-worth individuals, with organisations looking for funding. What’s unique about our organisations looking for funding, or clients, is that they all generate significant impact. For example, one of our clients is [online giving platform] Just Giving. I think it has seen about US$6bn pass through its website on its way to charity. At the same time, those who invested in that company have seen the value rise by about 20 times. There are great things that can make a lot of money and can also have a lot of impact at the same time.”
“Before, investors looked at return and risk. Now, more and more investors are looking at return, risk and impact. There is a big shift. High-net-worth individuals are asking questions about the world their children will grow up in, not least because their kids are forcing them to think this way.”
“I used to be on the board of the Global Economics Symposium, an annual conference, like the World Economic Forum but not as grand. We were going around the table and everybody was introducing themselves. I got up and said, ‘I’m involved in impact investment, and this is what we do. Next to me was a Chinese billionaire. He stood up and said, ‘I’m an impact investor.’ We all sort of chuckled to ourselves, some less so. He said, ‘No, I’ll tell you the story.’ He said, ‘My wife and I have only one child, our daughter. She told me that if I’m not starting to think about impact in the way we invest our money, that she’s just going to give it all away.’ Those conversations are happening in families all over the world, and millennials have different views than their parents.”
“The sector is small but growing rapidly. We did six deals during the four years from 2009 to 2012; we’re currently working on 60. Last year, the Global Impact Investor Network estimated that there was US$80bn of impact investments outstanding, out of a total of about $120tn in managed assets. That $120tn will grow probably at about five per cent per annum, whereas our market is probably growing at 40 per cent per annum. That gives you a sense of how small it still is, but it’s growing really fast. I think that impact investing is the next disruption in finance.”
Debbie Wosskow: ‘building and backing women CEOs’
Wosskow is chairman of AllBright, a female-focussed investment platform launched in 2016 to encourage investment in, and the creation of, more female-led businesses.
“For me and my team, impact investing is about backing women in the UK. Women CEOs are an untapped asset class with a great risk profile. If all the women in the UK who say they want to start a business did so, that would be an extra £10bn to UK PLC annually. So, it’s really important that we build an ecosystem of female founders and also important that we get more women investing. Women aren’t at the table in terms of making investment decisions if, as is the case today, only 7 per cent of investors are female.”
“Only 10 per cent of capital allocated globally goes to businesses with a woman in the senior leadership team. In the UK, only 2.7 per cent of capital raised is by a female CEO. And yet, on average, women CEOs get 35 per cent better returns than men.”
“I actually don’t like the term ‘impact investing’ when we describe what AllBright does. I think it’s a term that can have negative connotations, and that’s one of the challenges when you talk about the importance of backing women. The impact we want to make is getting better access to capital for fantastic female-led businesses, and to have more women investing. We’re not a charity or a foundation. Even if you put the moral or philosophical arguments about ambition and access to one side, this is about profit and purpose, and it makes great financial sense.”
There are great things that can make a lot of money and can also have a lot of impact at the same time
Ketan Patel: ‘engaging with companies to make change’
Patel is a fund manager at Eden Tree, a specialist small and mid-cap investment management firm with the motto ‘profits with principles’. In 1988, it launched one of the UK’s first ethical retail funds, and is fully owned by the Allchurches Trust, a charity.
“Years ago, people thought if you invest in this way, it’s binary: ‘for me to do good things, I’m going to have to give up some capital return.’ The last 10-20 years, the people with money in this sector have proved it’s the other way around.”
“We choose our investments via positive and negative screening. The negative screen is ensuring investment avoids things you don’t want to finance, and the positive screen looks for companies that are doing well on ESG, which is environmental, social and governance. ESG helps to manage risk better, and also get a return.”
“Our job is to find the companies delivering solutions to the problems that society, or the world at large, faces. The directors have to run them for the benefit of all, not just for themselves. Most of the mainstream financial world is focussed on what makes a large amount of money now. We are looking, especially in terms of the environment, at firms providing solutions to what’s going to be happening over the next 30 or 40 years. Over the last five years, most of our funds have beaten the industry benchmark, and in some cases, particularly in Europe, we’ve done extraordinarily well.”
“Another huge part of our work is engaging with companies to make change. That’s something hard to explain to clients, actually taking stakes in a business. We have investment in Hotel Chocolat. The board asked us to engage on the sourcing of their cocoa, and how they could articulate that to the general public. We invest in a company called Borregaard, which makes a wood-based product made out of cellulose, which can be used to make a recyclable disposable coffee cup. Current disposable cups have a polymer lining and can’t be recycled, so they end up in landfill. It’s a growing problem, and here is a real example of a company with a solution – and also making money out of it. At the end of the day, the whole point of investing is to have a return on your capital.”
Matt Black: ‘achieving social goals deliberately’
Black is Head of Community at Numbers For Good, a social investment advisory firm that recently set up an LLP to help fund early-stage ventures and an accelerator programme.
“For us, impact investing has to be targeted and not done accidentally. Some firms will say they are making an impact through, for example, job creation. Job creation is a social goal, but we would say that impact investing takes place where jobs are created deliberately in impoverished areas with long-term unemployment.”
“There are three strands to our work: helping social enterprises get the investment they need; managing accelerator programmes for early-stage social ventures, so they can grow to get follow-on investment; and consulting on social impact bonds, which involve public or private commissions for outcome-based projects.”
“If you look at the developing world, there is a chance of greater impact and higher returns available. There are good return opportunities in the UK market, and there are funds targeting 10-15 per cent returns for their investors, and delivering those as well. But impact investment is more complicated there. You’ve got an established public sector, and a much more complex environment of ownership issues. Investment returns on social enterprises are more difficult because the equity opportunities are limited and the marketplace is established already. It discourages social investment.”
“There are more growth opportunities in the developing world, because there’s less infrastructure, and less fake infrastructure, and where infrastructure is needed you can set up social businesses that provide it and, at the same time, grow the economy. Of course, you have to cast your lens on these projects to see that they are ethical. But if you have, say, an ethical company providing safe, solar-powered lamps to replace kerosene lamps in a developing nation, you can see direct improvements in people’s lives and significant economic impact.”