The future is bright for impact investing! And that’s not just industry hyperbole, (we all know the dangers of greenwashing).
It’s a clear-eyed forecast for an ascendent investment approach that has pushed beyond the nascent development stages. Impact investing has negotiated boom and bust, and come out the other side stronger and more resilient. It’s been vaccinated against hubris and is now armed with a harmonised set of tools.
We finally have a broadly accepted definition, and mainstream investors are engaging in earnest. We’ve seen multi-hundred-million-dollar-funds launched that fit snuggly in super-fund portfolios, as well as highly targeted lending and equity platforms that make impact investments available to retail investors.
The obstacles have been bulldozed, chipped away and the sharp edges smoothed away. The delta between supply and demand has narrowed and we’re approaching a moment when impact sits alongside risk and return in the calculus of financial analysis.
I was hired to be the inaugural editor and writer of OnImpact in May 2021, and as I pass-on the baton to someone else, I wanted to use my final edition of this venerable newsletter to both look back at how far we’ve come, and to then look forward to the huge potential going forward.
Harmonisation of Impact Frameworks
One of the earliest, and loudest, complaints about getting started with impact investing was the impenetrable mess of impact frameworks. New entrants didn’t know where to start with this ‘alphabet soup’, but, as with most infant industries, the plethora of models soon consolidated and harmonised.
Today, we have a clear set of leading frameworks that offer an easy on-ramp for new entrants, and they make clear what leading practice looks like.
Local managers like Giant Leap have compressed this challenge even further, offering a simple Impact Calculator that anyone can use. Standard-setters like the Global Impact Investment Network (GIIN) have begun the huge challenge of building ‘impact benchmarks’ for certain sectors. Plus, I explored this topic in a major research project, alongside Dr Jodi York from Kilara Capital, to produce The Impact Stack, a model for best-practice impact measurement and management.
Impact Pioneers – Charities and Foundations Embrace Investing for Impact
One of the first stories I published for OnImpact was about the first impact deal that the charity Save-the-Children invested in, supporting the growth of Ngutu College. Paul Ronalds was leading STC at the time, and his energy to find new ways for charities to sustainably fund their projects has not only allowed StC to grow and flourish, but it has represented a pioneering approach for charities worldwide.
Fast forward to 2023 and I published an interview with STC head of impact Julianne Wilkin where she laid out the huge progress that’s been made, including Paul Ronalds having moved to launch a global impact investment platform that would offer the service to STC chapters around the world.
With a similar urge to disrupt the status-quo we have the Paul Ramsay Foundation. Abhilash Mudalier returned from his time running research at the GIIN to launch the impact investment arm of Australia’s biggest charity. Since then Ben Smith has taken over, and PRF continues to show Australia’s roster of foundations there’s far more opportunity for impact than just distributing grants from an endowment. The corpus itself can be utilized to invest in enterprises that are driving forward the organisation’s mission.
And of course this movement was formalised with the launch of the Foundations Group for Impact Investing which I wrote about only last week.
Impact Funds Go BIG
While the world of impact investing prefers to focus on positive outcomes as the preferred metrics of success, we can’t deny that big funding commitments also signal success in this space. So when Palisade Impact Partners closed a $400 million impact infrastructure fund, suddenly it looked like impact had hit the mainstream.
The super funds had come on board, clearly lured by the reliability and familiarity of infrastructure as an investable asset, but also sold on the Palisade impact philosophy that promised to scale impact along with deploying such large flows.
Intermediaries, like Australian Impact Investments, are vital at this juncture. Working as analysts and advisers for investors that lack the internal resources to assess which impact products match their aims, and which are legit.
At the start of this year I spoke to Aii managing director Kylie Charlton, about the leading managers in Australia, and what it takes to build a 100% impact portfolio.
Social impact is hard, and while we’ve written about MANY incredible organisations, exploring financial models to deliver for their stakeholders, it was White Box Enterprises that really stood out for me in the past few years.
Led by Luke Terry, White Box was behind bringing the Social Enterprise World Forum to Brisbane, and the organisations used the global attention to announce a pioneering Payments By Outcomes (PBO) trial. Since then they’ve announced a new $5 million loan for jobs-focussed social enterprise, and they continue to push the boundaries of what a dedicated team of change-makers can accomplish.
And of course Red Hat Impact and LendForGood continue their mission of bringing impact investment opportunities to us everyday investors, while also innovating models for directing capital to those that might otherwise fall between the gaps.
Climate-Tech, Carbon Credits and Crowd-Funding
Climate-tech is the over-achieving older-sibling of the impact family, that has grown up and moved out of home. Climate-tech companies have impact at their core, but they’re also at the vanguard of what has been widely described as the ‘century’s greatest investment opportunity’.
In a market downturn, climate-tech funding rounds keep hitting records. Climate change is only getting worse, and markets are finally coming to realize that technology will (partly) save us.
Natural Carbon showed us how carbon markets can be done ethically, while also engaging with traditional owners.
And Zero Co silenced the doubters with a blockbuster crowd-equity-funding campaign that broke records, and showed the commercial viability for innovative circular economy business models.
The Future Is Now
I’ve left the best till last, and that’s the impact profiles. This unassuming little section of the newsletter always sat in last place, but it turned out to be one of the most popular.
There’s something about the personal touch, about real human stories, and about understanding the personality behind the cold formality of investment products.
Simply asking a person’s ‘first job’ offered a profound insight into their background and their sense of humour. Before we then delved into their unique philosophy around the concept of ‘impact’.
And the final question was always the same, ‘where do you see impact investing in five years time?’ and it’s noteworthy that there was one response that was by far the most common.
My guests would say some version of:
‘I hope that in five years we don’t talk about impact investing as a discrete approach, that instead, impact is part of all investments’.
Well ladies and gentleman, that’s the future I’m aiming for too.
We all know the challenge of measuring one’s impact, and so far I’ve not found an IRIS metric that assesses the impact of publishing a weekly newsletter, but I do hope this article’s optimistic vision of the future will stand as my impact report, and that I’ve contributed to the growth of this space in a material way.
With love, thank you