In the wake of the coronavirus pandemic the impact investment sector has proven its resiliency in a downturn, consequently, the urge to ‘build back better’ has accelerated the adoption of ‘impact’ being a key factor in the calculus of investment success.
As Danny Almagor discussed in a previous article, a paradigm shift swept the world in 2020. People are no longer content trudging to an office, with a capitalist system that exploits the environment, and which ignores social inequality.
Sentient Impact Group was born from this discontent, and to follow on from the discussion with Danny, OnImpact had a conversation with the leaders of the management team about the firm’s impact philosophy, and how the business is progressing.
Oliver Yates is CEO of the new entity, he was the inaugural CEO of the Clean Energy Finance Corporation (CEFC), and prior to that he spent 20 years at Macquarie Bank.
While Andrew Thorburn has taken the role of Executive Chair, he was previously CEO of National Australia Bank, and before that CEO of Bank NZ. He’s also Chair of Catalyst Education, as well as an advisor with BCG.
Most impact practitioners have a story about their journey to impact. For Andrew Thorburn it began with a trip to the SOCAP conference in San Francisco, with Danny and IIG, in 2019. He’d recently stood down from NAB, and the trip showed him the global reach and progress of the world of impact finance. In early 2020 he joined the board of For Purpose Impact Partners, and then earlier this year he re-engaged with Danny Almagor and since then he’s had a strong influence on the evolution of the Sentient concept.
“It’s been a real privilege to work with Danny, and Berry, as they explored where they wanted to take IIG. It had a 10 year track record, and of course they had some COVID impacts, but first I helped them think about the destination, and so far I think, we’ve landed that. But then, it was looking at the next phase, and so we decided to take some of those assets, broaden it, and I think, importantly, for us to meet the demand from investors and meet the supply of opportunities. Essentially, we need to go faster, to use capital much bigger, much more quickly.” Andrew says.
“So over time, we’ll be broadening this using the high-net-worth base that IIG brings, but broadening into family offices and other institutional investors, and hence Oliver’s hiring, because he’ll bring that connection and I think capability to structure the deals we need.”
From being CEO of NAB Andrew will move from operations, to being Chair of the board, albeit an executive Chair.
“Being a CEO is a great job, but you know, it’s 24/7, and of course it comes with this little conveyor belt of problems that comes along and stops in front of your desk. I’ve had a lot of that for a long period of time. So I’m enjoying it stopping in front of Oliver’s desk for now.” Andrew says.
Raising Funds, and Building a Business
Sentient will sit alongside the Impact Investment Group (IIG), which was founded by Danny Alamgor and Berry Liberman. IIG will retain the real estate funds of the business, while Sentient will have a broad remit to expand the impact investment footprint of the firm, with the benefit of taking on two solar funds, and the WA Impact Fund.
The firm has a growing staff, and as Oliver Yates explained, they’re in the midst of a modest capital raise to generate working capital, seeking $15 to $20 million.
“The priority is finishing the initial capital raise and having discussions with those key strategic shareholders that are coming on board with the organisation.”
Oliver also clarified the impact themes that will be at the heart of their operations.
“So we have the business strategy pretty much clear now, in terms of what we’re going to be focusing on, which are really, to reduce emissions, to invest in projects that protect or enhance biodiversity, that includes regenerative agriculture, and then, to look for projects that expand and support people’s quality of life.” Oliver says.
“So, for us, it’s really just the beginning, the beginning of what we know, people really want and what is urgently required at this time.”
The team is growing, and Andrew Thorburn added that building it out further is a key priority.
“You know, whilst we’ve got a good team now, we need to build it out with a few other key roles. And now we’re confident with that working capital phase almost complete, we’re on the front foot, we’re looking for two or three key senior roles to complete the financial compliance and governance pieces.” Andrew says.
“It’s a dynamic, fast growing team, and business. We bring over quite a few assets and IP from IIG, but in essence, it’s also a new business. It’s exciting to see the deals out there, and that people are keen to join. And I think next year is going to be a really big year for us, and for the sector.”
Growing the Scale of Impact Investing
A key project that Sentient will be taking on is the WA Impact Fund. This is a mandate that IIG won in 2019 for WA Super. Since then, WA Super has been taken over by Aware Super, which means Sentient will also be taking on a relationship with Aware, one of Australia’s largest super funds.
Finding a pathway to bring Australia’s huge pool superannuation capital towards impact investing has long been debated. There are challenges of scale, deal-flow and of compliance. But with this ready-made partnership, Sentient is well positioned to align a key long-term investor with the promise of positive impact and decent returns.
The process of scale isn’t easy, and it’s vital to first understand the needs of big institutional investors, rather than making assumptions. Progress has been made, but there’s still a long way to go.
“When I was at the CEFC people often said ‘well eventually it’ll become mainstream, and everyone will be investing in green’, that’s true, so you keep moving, but that was more than 10 years ago now.” Oliver explains.
“I think these conversations are very live, and I have a much stronger view now, that all of the pension funds are clearly seeing their responsibility. You see it from the way they’ve signed up to international groups and pledges, around acting on climate change and emissions, that they are now heavily engaged in the space. But, we need to drive the concept of investment being more than just a financial return, and, on a global scale. And unfortunately we’re a long way from doing that.”
Investors of all stripes clearly understand the necessity of sustainability and taking financial reporting beyond the status quo of just risk and return, but that doesn’t mean impact investing will see mainstream adoption. It will take a deeper appreciation for the place business and investing has in our society, and how governments and policy makers treat financial markets.
“You’re currently seeing it in the government, for example, they’re scoring pension funds based upon their financial return, which is a digit return, it doesn’t take into consideration externalities. While I’m comfortable that they are considering externalities, if they’re going to be scored based upon a pure digit, it actually creates somewhat of a conflict for the super funds.” Oliver says.
“And what we need to do is just to make people understand that having both the return, and the positive impact is absolutely a necessity for those who are very long term investors, like a pension fund.”
And of course there’s also the perennial issue of deal-flow. Big investors explain they’d love to be able to align their values with their investments, but that there simply aren’t enough deals of sufficient scale to satisfy their needs. For the Sentient team, this is a challenge, and an opportunity.
“I don’t think to this point, these institutions have had viable large-scale, institutional-grade impact funds to invest in, at least not domestically. And so with people like Oliver and I, and our team coming on, I think we’re going to present that to them.” Andrew says.