Impact investment: How can Kiwi businesses get involved?
According to Darren Walker, the outspoken President of the Ford Foundation at the Global Steering Group meeting (of the Global Impact Investing Network) in Chicago three weeks ago, philanthropy is “stroking the vanity of rich people”, and “the need to scale requires different behaviour.” It’s interesting to hear him speak, because his take on things is quite different from that of many – and while the statement above may seem perhaps alien to us in New Zealand, it resonates with many Americans and Europeans.
But the most interesting message coming out of this conference (about 450 people there for two days, with a 12 strong Aussie delegation and two of us from this side of the Tasman) was the consistency of the message that it needs both philanthropy, government and the private sector to work together. Sustainable and impact (both social and environmental) investing are becoming mainstream – people want to see where they put their money making a difference, and with a potential need of USD 2.5 trillion per year globally for the next twelve years if the UN’s Sustainable Development goals are to be met, then everyone needs to work together. The message echoed what I’d seen over the last three or four years in financing third world farmers in crops such as coffee, maize and cashew nuts – the balanced approach with DFI’s, donors and the private sector is the only way to provide the scale and type of mixed support needed.
As the world gets smaller, and the scale of funding in the impact world grows – nobody was batting an eyelid in Chicago as fund managers talked of 1 or 2 billion dollar funds – it’s clear that pension fund managers are also sitting up and taking notice. Millennials want answers – they want to know that their savings are helping, are being used to good purpose and are making a difference – either at home or abroad (and today, there’s still a higher proportion of impact investing going to the developing world than to home markets), and are buying the argument that the combination of financial and non-financial returns is an attractive one. There’s a big move underway to find effective non-financial measurements of impact – via the Social Performance Task Force, the ACCSR, Mastercard’s Sandbox, Acumen, Impact Alpha and the GIIN itself, inter alia. Today there’s still a difference between expected and realised impact among funds, but part of that is definition – for instance, if we could agree in NZ on a common set of measures for housing impact funds, it would become much easier to assess them. Data, sharing data and measurement are likely to be big factors in how the sector moves forward over the next few years. In France, the government now requires pension funds to invest up to 10pct of their funds in impact or sustainable investment – and it’s making a big difference.
One of the mid-size Australian pension funds articulates well the four stages of the investment journey that they look at – excluding “harmful” stocks (tobacco, fossil fuel and others), then ESG screening on all portfolios, then activist investor behaviour and finally impact investing. Today, this particular fund has between 12 and 15pct of its investments in this fourth category.
So the message for us in NZ seems to be this is a movement we can be part of, and can both give to and learn from. And imagine if we could use international impact investing for some of our own major infrastructure projects, as they’ve started to do in Australia and are already doing in North America and Europe. It’s early days here, but we have all the tools that bigger countries have, and our size makes adaptability easier – if countries like Finland and Argentina can go from zero to full participation in the global movement in two years, then shouldn’t we be at the table as well?
David has significant experience managing and overseeing various business functions including finance, change management, people development, and is a frequent keynote speaker.