Artesian Alternative Investments has published its inaugural Impact Report. The report looks across the firm’s two core asset-classes: fixed-income and venture capital (VC). And of course these are two areas that are well suited to an impact approach, so it’s welcome to see the firm apply a sustainable investment lens across the organisation, and deliver a number of high-impact strategies.
“I would say that Artesian has always had impact and ESG, at its core. We may not have called it that in the early days. But that’s been a very natural progression into our products and into our brand story. So I would say the journey started with us just trying to do things that had positive externalities, and had positive impacts, for the world. And that naturally translated into what we’ve become today, which is an impact investment fund.” Explains Vicky Lay, partner and Head of Impact at Artesian.
Impact Results
The 2020/21 impact report identifies three key themes: Creating a sustainable future, Advancing Gender equity, and Active engagement.
In terms of fixed income, in 2020, the firm’s investment in green, social and sustainable bonds increased 231%. And they’ve reported that 3,730 TCO2E of metric tonnes of carbon was abated by their green & sustainable fixed income investments
In terms of impact startups, the firm saw an investment increase of 91%. And for both their bond funds and their VC activity, they mapped the impact of the businesses against the UN SDG’s.
Affordable and Clean Energy (SDG 7) ranked as a high priority outcome across both fields.
New product offerings in 2020 helped drive this progress. The ‘Green & Sustainable Bond Fund’ was launched in Q3, open to both wholesale and retail investors. And in May, they launched a partnership with the United Nations Capital Development Fund (UNCDF), which saw them develop the Women’s Economic Empowerment Bond Fund. It’s a corporate debt fund that identifies companies that are ‘best-in-class’ in terms of progressive gender policies and governance. Plus, one-third of the management fee is donated to support other gender-equity projects.
ESG progress in VC
The concept of impact investing was pioneered in private equity investing, but that doesn’t mean the tech-heavy VC space has naturally adopted the models. While public equity markets have taken the mantle, and pushed forward with a risk-based approach of outcomes in the real economy, VC is working to catch-up.
“Although venture capital is considered among the highest risk forms of investment, the industry does not yet have a widely accepted, systematic approach to ESG or societal risk management embedded in the investment process.” The impact report explains.
The firm makes clear their making efforts to lead the field forward; they’re now signatories to PRI, and they have leveraged their depth of experience in the public fixed income markets to define ESG metrics, engagement protocols and impact goals.
“When I think about the role of an investor for an early stage company, it goes back to governance and what governance means at the incubation or earliest stages of a startup. There’s actually a fair bit of hand holding, especially if you’re the first money in. And as the company grows and scales, and you continue to provide that funding, you actually influence how that capital is deployed, what is prioritised within the business. Both in the founders mindset, but also in the budget.” Vicky explains. “And hopefully, by doing so you’re providing the seed for our foundation, with ESG and impact at its core. So that when that company does scale, and hopefully becomes that public company one day, the roots have been laid by the work that you’ve done as an investor.”
The report offers distinct assessments of its impact performance between fixed-income and VC, and in the process it offers an insight into the nature of these asset classes, and the potential for investors to have a positive influence in that space.
Vicky has unique insights to offer here, she was a startup founder herself before shifting to the other side of the table as an investor. She knows the heavy burden on the shoulders of entrepreneurs, and she has a clear view of the differing approaches that must be taken when discussing impact issues with credit issuers, as opposed to startup entrepreneurs.
“It’s much easier to have the conversation with an issuer who is engaged and who has a clear, monetary motivation to speak with you. For a founder on the other hand, you’ve got to understand these companies, they’re so embryonic, that some of them may not even have governance structures in place. The conversation is quite one on one, it’s talking about their board and decision making designs. They’re setting up HR systems from scratch, and thinking about supply chains. Sometimes they haven’t even heard of particular policies.” Vicky says.
Super Funds doing Impact
VC investing requires a very specific set of skills to make it work, and that’s why the services of firm’s like Artesian are so highly valued. With experience and a strong track record, Artesian are able to attract institutional investors to their strategies. This strong heritage was made clear in 2016 when the federal government’s Clean Energy Finance Corporation (CEFC) signed-on as a cornerstone investor in the firm’s Clean Energy Seed Fund. The $10 million investment was soon joined by allocations from super funds such as Australian Ethical, Host Plus and Future Super. Since then, the fund’s maintained its allocations to some of Australia’s most promising climate-tech startups.
“The areas that we look at include things like agriculture, energy generation and storage, infrastructure and property, transport and waste. As of 31st December last year, we’d made about 43 investments in Australian startups developing software hardware, as well as business models that are applicable to the clean energy market in the Australian market.” Vicky says.
The mission of the Clean Energy Seed Fund is pretty clear, it’s right there in the name, but the power of this kind of early-stage support shouldn’t be under-estimated. It’s funding entrepreneurs who are at the leading edge of a fast-moving and highly competitive space. It’s true, we can’t rely solely on technological innovation to solve the climate crisis, but funding this space sews the ‘seeds’ for the next generation of business leaders in Australia, who are defining a radical new framework of technological possibility.
But Vicki said it best.
“The vision that we’re looking to invest towards is trying to close that multi-trillion dollar climate infrastructure gap, which is growing every year, unfortunately. And what we really need to do is invest into solutions that can try to tackle this problem at scale. It’s one of the biggest crises and one of the biggest risk categories for us as a species for our planet. And so artesian has always thought about how do we bend our barbell business to try to come up with some kind of impact solution. And for us, the premise behind The Clean Energy Seed Fund was the tip of the iceberg for us, we wanted to move capital at scale.”
The full audio of the conversation, between Vicky Lay and John Treadgold, can be found on the Good Future Podcast.