It's time for more Australian fund managers to invest in social outcomes
Text by Amit Bouri, chief executive and co-founder of the Global Impact Investing Network (GIIN) / Retrieved from The Guardian
It’s an idea whose time has come. Around the world, the impact investing movement is coming of age, and it is getting increased attention in Australia.
The movement encompasses investors such as superannuation funds, banks, fund managers, foundations and governments, all seeking financial returns while using capital to solve pressing social and/or environmental issues. This could be in areas such as affordable housing, healthcare and renewable energy. And it’s also capturing the imaginations and hearts of those looking for ways to align their assets with their values.
But there’s more to be done. In Sydney last month, I spoke at the Impact Investment Summit Asia Pacific and spent the week hearing from those building the market in the region. There were a number of stand out points that made me realise while there is plenty happening in this sector, it’s time for more Australians to get on board with impact investing.
Fighting climate change means financing solutions
Australia – an island country facing significant environmental threats in areas such as water security, coastal flooding, and agriculture – already understands far too well the dangers of inaction when it comes to climate change.
With a focus on renewable energy, conservation strategies, and water markets, investors in the region are taking a stand against climate change. I was particularly inspired by New Forests, a fund manager with more than US$2.3bn in assets under management focused on sustainable strategies in forestry, land management and conservation.
It’s also heartening to see the development of specialised vehicles, such as the Australian Balanced Water Fund, launched by NatureVest. The US$20m fund is the first impact investment-driven solution in Australia to use markets to balance the water needs of farmers, communities and nature.
The increased focus on environment is a trend seen around the globe. Data from the Global Impact Investing Network’s (GIIN) 2016 Annual Impact Investor Survey show a 25% increase in the number of investors that seek to have an environmental impact, either through operational improvements or through the products and services their investees sell. We need more investors to prioritise fighting climate change through their portfolios. Seeking out and executing on environmentally focused investments is necessary if we are to protect the planet.
Collective action is key
Having seen how the industry has evolved and grown in other countries, such as the Netherlands, the UK and the US, it’s apparent that collaboration is a critical element of success. It is encouraging to see such multi-stakeholder collaboration in Australia under the guidance of groups such as Impact Investing Australia, which builds key infrastructure and helps influence local policy.
There is a continuing need for experts to help structure and design investment products suitable for the challenges at hand, community groups to help identify opportunities for investment, government bodies to support regulatory infrastructure that encourages investment, researchers to deliver market intelligence, and more investors to provide capital. It’s going to take all types of players working together to ensure impact investing reaches its full potential.
Big investors need to tackle the big issues
Institutional investors such as superannuation funds and large insurers will be critical to scaling impact investing. In Australia, the pioneering activity of impact investors such as Christian Super, QBE and Hesta along with the sheer size of the superannuation market (AU$2tn in 2016 and growing) positions the country to potentially serve as a prominent example for the rest of the world’s institutional investors.
With products such as the recent AU$30m impact investment fund capitalised by Hesta and managed by Social Ventures Australia, or the “Premiums4Good” product launched by QBE, investors are both responding to client demand and innovating with financial products. This will ensure better lives that not only include healthy future retirements but also a healthy future society.
Institutional investors are also helping to develop impact investing fund managers who can direct capital to high-impact enterprises. A prominent example is LeapFrog, a fund manager with a founding office in Sydney. LeapFrog manages over US$1bn in impact capital targeted at improving financial inclusion in emerging markets. Its investors include institutional investors such as Zurich Insurance Group, TIAA, Prudential and Axa.
This is one area of impact investing where consumers could really make a difference by communicating their interest in impact investments to the managers of their retirement funds. More consumers can seek out ways to best align their assets with their values.
Think local but be inspired by global
Australian impact investors demonstrate a clear focus on issues important to the country, such as affordable housing, conservation and supporting Indigenous community needs.
However, as in many developed countries, local investors also show a strong interest in international challenges, especially those affecting the greater Asia Pacific region.
Indeed, the Australian government’s Department of Foreign Affairs and Trade is playing a pioneering role in driving Australian impact capital towards addressing challenges in its geographic neighbourhood.
Many impact investors are also motivated by the United Nations Sustainable Development Goals (SDGs) and are eager to explore the role impact investing will play in achieving that global agenda. GIIN research shows impact investors see the SDGs as a valuable global framework that helps to ensure individual deals add up to something bigger – that the whole will be greater than the sum of its parts. Still, there is a clear need for more capital in order to achieve these ambitious goals. As such, the GIIN recently put out a call for all investors to make at least one SDG-focused impact investment – and to get started on this effort immediately.
The most evident trend around the world in this sector is an increased interest in unleashing the power of capital to drive social and environmental change. We live in an exciting time for social progress, though that excitement is tempered by great need.
Today there is a real opportunity to create a more integrated view of finance where people see that aligning their money with their values not only makes sense, but that it is critical to building the kind of world we want to live in.