So what really is Impact Investing? A short explanation …
(This is the transript of the episode and all the links mentioned in it)
Having now interviewed almost 400 guests on Seeds Podcast a recurring theme which has emerged is how they are using impact investing to effect positive change in our society. A question I get all the time though – both from companies, charities, directors and Trustees is – what exactly are you meaning when you keep talking about the rise of Impact Investing?
So let’s break it down and give you some further listening if it does interest you.
First the traditional approach. Someone has a spare $10 million dollars – now this is a hypothetical scenario rather than being my situation. Anyway, they have a choice about where they put that money. One option is a traditional approach which means they put it into a long term deposit which makes interest. They get some financial return, even if it is relatively low, and the offshore owned banks recycle that money to make themselves a nice profit.
Impact investing steps in at this point and offers another approach. What if that person has a particular cause that they care about – unfortunately the list is long – social housing, food deprivation for children, education on mental health and suicide prevention, climate change and green tech – there are many needs. Let’s choose social housing because I know it really well.
So what if our friend took a portion of that $10 million and invested it into a startup company that wanted to provide social housing – this could be as equity and result in owning shares, or it could be as debt and they would have a loan they make. The crux of the difference with traditional investing is that they would be able to make a financial return because it is not a donation, it is an investment. But at the same time they would be able to have impact which is far greater and more satisfying than the interest they make from that long term deposit.
I am not saying they invest the full $10 million they have, but they do invest a portion of it – doing so may involve some risk but often ethically motivated companies that provide real solutions to our most wicked problems perform better, not worse, than traditional investments – and a tsunami of consumer support for such initiatives is on its way as people consider the supply chain and where their products come from.
Even easier than a direct investment might be joining a fund which has those ethical lenses and thinks about where they put their money – and this is a choice that each of us can easily make with our Kiwisaver – I’ll put the links to Pathfinder, Simplicity and Generate as examples of that.
A real life example of this approach is Community Finance where I am the Chair of the Board. We identified social housing as a massive need and we support Community Housing Providers by providing them with finance at a lower rate than mainstream banks, which we get from philanthropic investors and Kiwisaver funds like those I just mentioned. Have we raised $50k or $100k for this? No, actually in just a few years we have pulled together more than $160m for this. Before you all knock on the door this is for wholesale investors, rather than retail investors.
So that is what impact investing is – simple, right? We may be on the cusp of going even further though.
Recently I released a legal opinion on how I think Trustees of large Trusts or Foundations that sit on large untapped pools of wealth now have a duty to consider Impact Investing and where their funds are invested – Shamubeel Eaqub interviewed me about that and why I think the law itself has changed for Seeds and will put a link to that in the show notes. The point is that those funds that have billions of dollars in aggregate often were set up by a founder who wanted to tackle one of those problems in society, but the Trustees only think about how they can use income from their traditional investments – instead they should have a blue skies moment to think about how they invest the capital itself because where they invest it might be a means to advance their purposes.
If all this is intriguing but you are after real lives and understanding the people who are leading the way then I can recommend the following seeds episodes, among many dozens of others:
Shamubeel Eaqub in conversation with Steven Moe on the rise of Impact Investing: https://theseeds.nz/podcast/shamubeel-eaqub-in-conversation-with-steven-moe-on-impact-investing/
Impact Investing Legal Opinion as audio book: https://theseeds.nz/podcast/impact-investing-legal-opinion-audio-version-read-by-steven-moe/
Brianne West and Esha Chabra on Regenerative Business https://theseeds.nz/podcast/brianne-west-esha-chhabra-on-regenerative-business-seeds-conference-session/
John Berry on Ethical Investing https://seeds.libsyn.com/john-berry-on-ethical-investing
A post-growth future and what it means for larger business: Seeds Conference session with Jennifer Wilkins, Dr Katherine Trebeck & Dr Donnie Macluran
https://theseeds.nz/podcast/a-post-growth-future-and-what-it-means-for-larger-business-seeds-conference-session-with-jennifer-wilkins-dr-katherine-trebeck-dr-donnie-macluran/
Regenerative and Blended Finance: Seeds Conference Session with Rosalie Nelson from EHF and Andrew Hewitt, Satya Kumar, Brad Leibov and Laina Greene https://theseeds.nz/podcast/regenerative-and-blended-finance-seeds-conference-session-with-rosalie-nelson-from-ehf-and-andrew-hewitt-satya-kumar-brad-leibov-and-laina-greene/
Safe Wongsunopparat on measuring Social Impact and proactively making decisions that change your life https://theseeds.nz/podcast/safe-wongsunopparat-on-measuring-social-impact-and-proactively-making-decisions-that-change-your-life/
Nathaniel Calhoun on preserving Biodiversity and effecting system change: https://theseeds.nz/podcast/nathaniel-calhoun-on-preserving-biodiversity-and-effecting-systems-change/
Bill Murphy on the Purpose Capital Impact Fund https://theseeds.nz/podcast/bill-murphy-on-the-purpose-capital-impact-fund/
Tā Tipene O’Regan on the people who shaped his life https://theseeds.nz/podcast/ta-tipene-oregan-on-the-people-who-shaped-his-life/
Joanne McEachen on Joy and Innovating in Education, and bringing an Indigenous perspective to global conversations https://theseeds.nz/podcast/joanne-mceachen-on-joy-and-innovating-in-education-and-bringing-an-indigenous-perspective-to-global-conversations/
Israel Cooper https://seeds.libsyn.com/israel-cooper-on-home-community-people-and-purpose
Impact investing Network https://www.impactinvestingnetwork.nz
