7th Dec. 2021
How can you invest your money in good causes that boost the wellbeing of nature and local communities as well as your bank balance? Most of us have some investments. We typically invest in companies to make a financial return. But what if our investment could make a positive social and environmental impact as well as a financial return? It would be especially rewarding if we could then track the progress of social and environmental improvements as well as the financial return.
This article was written by Barry Coates and featured in Forest and Birds December issue
How can you invest your money in good causes that boost the wellbeing of nature and local communities as well as your bank balance?
Most of us have some investments. We typically invest in companies to make a financial return. But what if our investment could make a positive social and environmental impact as well as a financial return? It would be especially rewarding if we could then track the progress of social and environmental improvements as well as the financial return.
Welcome to the world of impact investing.
Impact investment is where you buy shares in enterprises that generate measurable social or environmental impact returns as well as a financial return. The intention and measures are outlined at the outset, so both parties know exactly what success looks like. Then the enterprise reports on both the impact and the financial return. That combination of social/environmental impact and financial returns makes impact investment an attractive option for many investors. As a result, there has been huge growth in the number of companies and funds internationally that identify themselves as impact investments. Some of them are greenwashing, but there has been significant investment into renewable energy, social housing, healthcare, and the circular economy.
Much of the funding has gone to the start-ups and SMEs that may otherwise struggle to find investment.
Investing your money in ethical funds can have a big impact.
The key is to shift funding from doing harm to doing good.
What are some examples?
There are some powerful examples of impact investment being channelled to low-income countries. For example, private equity funds that target microinsurance for African families emerging from poverty, loans to an NGO providing roof-top solar in West Africa, and a revenue-sharing model in Belize that boosts the income of small farmers through the export of sustainable cacao.
Closer to home, a number of new impact investment funds have been launched and more are planned. These include the Impact Enterprise Fund, Purpose Capital, Climate Venture Capital Fund, and Te Puna Hapori, as well as the government’s New Zealand Green Investment Finance. There are also some exciting impact ventures at the grassroots level, such as Te Pai Roa Tika, a Māori-led and owned model that respects and draws on tīkanga to support impact investing in Northland. There is huge potential to develop regenerative agriculture, native forests, and marine initiatives in Aotearoa. Investing in restoring our natural environment can also earn a financial return.
There are also start-up impact enterprises, initially funded through crowdfunding or venture capital and subsequently through private equity.
Successful companies such as solid beauty bar makers Ethique or carbon recyclers Lanzatech have been supported through New Zealand’s early-stage financing. A challenge has been a lack of capital to scale up impact funding. This is starting to come from mainstream KiwiSaver and retail investment funds that invest a small proportion of their portfolios in impact enterprises. For example, Generate KiwiSaver invested $20 million in a Salvation Army social housing loan to build 118 homes for homeless people in Auckland. The project organiser, Community Finance, has now launched a $100 million “Aotearoa Pledge” to enable community housing providers to ramp up their activity.
How do I invest for impact?
Despite these examples, New Zealand has been slow to embrace impact investing. Unfortunately, most of the New Zealand impact investment funds are only available to wholesale and professional investors – those who either have a large amount to invest or investment experience. Annual surveys show that members of the public are interested in impact investment opportunities, but the impact funds aren’t yet available.
A key is to shift funding from doing harm to doing good.
This process has started. Most KiwiSaver and investment funds have started to move along the “spectrum of impact” from ignoring social and environmental issues to progressively improve their impact. Mindful Money provides a free tool that allows anyone to see the company investments in their KiwiSaver or investment fund. Most people are shocked to see what kind of firms they are supporting with their hard-earned cash! They can then use Mindful Money to help find an investment fund that fits their values.
Mindful Money has put together a new free guide to ethical investing
How can you help?
The potential for impact investing in New Zealand is huge. There is now more than $87 billion in KiwiSaver funds, and two-thirds of this is in funds that say they take account of social and environmental issues. The challenge is to persuade at least some of these KiwiSaver and investment funds to go further and offer funds that have more of a positive social and environmental impact. The most common response is that they don’t think there are enough people who want impact funds.
So Mindful Money is joining together with our allies to demonstrate that there is significant public demand. If enough people say that they want impact investing, we can make it happen.
Please help by visiting our website and joining the growing list of Kiwis who want to see impact investment offered in New Zealand. We will present these names to all fund managers as proof that there is demand.
Barry Coates is a former Green MP and head of Oxfam NZ. He founded the charity Mindful Money in 2018 to encourage people to make their investments a force for good.