Mainstreaming impact investment project underway

Ethical investing information provider Mindful Money is interviewing retail fund managers to find ways to accelerate impact investing.

Wednesday, April 19th 2023, 8:00AM

Impact investing differs from ESG and other forms of responsible investing by putting positive environmental, social and/or cultural returns on a par, rather than second, to financial returns. The requirement for a financial return, or at least to make one’s money back, distinguishes impact investing from philanthropy or donating.

Mindful Money CEO Barry Coates says he is keen to start the conversation on opportunities to invest in companies making a positive impact in the world.

“We want to support dedicated impact funds. Right now that is mainly happening in wholesale investment and the funds are relatively small – around $10 million. We want to know how we can get the mainstream fund managers investing in companies that create positive outcomes.”

Coates says while there are listed positive impact companies such as the ASX-listed solar and wind generator Tilt Renewable (currently trading at around A$7.50), there are increasing opportunities in private equity or unlisted companies.

The start of this decade saw a flurry of activity around social housing. In 2020 Generate KiwiSaver invested $15 million in a Salvation Army Community Bond to fund the build of 118 housing units in Auckland. The $40m bond is paying investors, including the Tindall and Lindsay Foundations, 2.3% per annum.

Coates says, “It’s a sound investment because of government backing in terms of payment for social housing rentals and it's a decent rate of return particularly at the time, given how low interest rates were.”

The facilitator of that bond, impact investment platform Community Finance, brings together investors with community housing providers (CHPs) to build affordable homes. In 2021 Community Finance launched the Aotearoa Pledge to raise $100 million to tackle the housing crisis. ANZ, Generate KiwiSaver, Pathfinder Asset Management, Simplicity, Forsyth Barr, the Lindsay Foundation, Clare Foundation and Waikato’s WEL Energy Trust have all chipped in to the tune of $71 million.

Also that year Community Finance and its associated Positive Capital were joined by investment firm Alvarium and subsidiary KiwiSaver provider Pathfinder to build $200 million of new public housing through a shared equity programme. Meanwhile Simplicity has partnered with construction company NZ Living to form Simplicity Living aiming to build 10,000 homes over 10 years at a cost of $450,000 each and Generate KiwiSaver partnered with not-for-profit Community Finance to invest $14 million to help Christchurch-based Ōtautahi Community Housing Trust finance housing for people in need.

On the environmental impact side, Pathfinder has launched a Green Bond Fund which invests in bonds that allocate money to green purposes, including clean transportation, clean water access, increasing resilience to extreme weather events and renewable energy supply networks.

“All this is starting to happen in a small way,” says Coates. “What else can be done? What would it take to really accelerate this, what is the case for doing so and what are the barriers for doing so?”

Charitable foundation Whakatupu has funded Mindful Money to carry out research and facilitate a meeting bringing together fund managers to explore potential areas for collaboration on projects that yield a public benefit as well as financial returns.

Coates and sustainable finance/impact consultant Justine Sefton, who has been brought on for the project, are targeting the 20 biggest retail fund and KiwiSaver managers in the country and have interviewed 11 so far. The goal is to feed back to them in June.
Coates says impacting investing is nascent in New Zealand compared to Australia, Europe and the United States.

“Impact investment is kicking off in the rest of the world and I think it would be fair to say we’re a fair way behind.”

Coates says going to the deeper level of impact investing can present a challenge for fund managers which are used to investing in public markets which have different measures and considerations. This will require building capability. Another issue when investing beyond listed companies is the impact on liquidity.

“The rules for KiwiSaver in particular say that people need to be able to redeem their money. That means constraint on liquidity.”

He is also keen to explore the opportunities, and how many listed impact companies represent a good opportunity for investment.

Coates cites a couple of examples of different approaches taken by fund managers on impact investing. One is Booster’s Innovation Fund which primarily invests in unlisted companies and the other Is Harbour Asset Management’s Sustainable Impact Fund which invests in listed companies and bonds that have an impact intention or orientation.

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