Invest for impact: how to leave this world better than we found it

Many of us have been taught the principle to leave something in better shape than we initially find it – though it’s not always clear on how exactly to accomplish that, particularly with our investing.

‘Impact investing’ – in assets that aim to leave the world in better shape and affect it positively – is capturing our imagination here in Aotearoa.

A recent study from Mindful Money saw people’s willingness to invest in a KiwiSaver fund that sticks to companies creating benefits for society jump from 69% to 80%. As long as the investment returns are similar to other schemes or industry benchmarks, 67% were willing to invest in funds that create benefits, but even 13% said they would do so if there was a less of a return for them.

“A recent study from Mindful Money saw people’s willingness to invest in a KiwiSaver fund that sticks to companies creating benefits for society jump from 69% to 80%.”

When people invest in ethical investments, they become more motivated to increase their investing. Many (57%, up 4% from last year) say they would save and invest more money if they were making a positive impact. This is important, as it can be challenging for people to contribute in these times. Turns out we are more willing when it makes a difference to our society and environment.

The trouble is, there aren’t yet many opportunities for retail investors to invest for impact here in Aotearoa. In KiwiSaver, we can already filter out nasty stuff we hope to avoid by choosing certain funds, or invest in line with environmental, societal and governance criteria in mind (ESG). But there is hardly any impact investing in KiwiSaver, and all the assets to invest in seem overseas (like green bonds).

Bill Murphy, who heads Purpose Capital, is at the coalface of impact investing. He tells me about mussel farming out on the ocean near Ōpōtiki, solar ‘agri-voltaic’ panels, homes for tamariki and alternative refrigerants used on dairy farms, all of which have benefited from money from Purpose Capital’s $22 million first fund.

“If you took just a kilo of refrigerant, it produces the same global warming as 3,500 kilos of CO2,” Murphy explains. “They are big, big baddies in terms of climate emissions.”

To make an impact, he’s found a company to invest in which has developed cooling systems for dairy farms that use less-harmful refrigerants, much lower volumes, with greater assurances that they’re not leaking into the atmosphere. It’s an opportunity for a new long-term model. “That’s what rings our bell,” he says.

And the financials? The refrigerant company will lease units to farmers, avoiding significant outlays for them. Purpose Capital’s first fund aims for a 6% net rate of return, but has been tracking even higher due to it holding more equities than bonds than anticipated. (Turns out you can grow money and do some good at the same time.)

Investing ethically is a personal thing; it depends on what you value. If your fund manager mentions sustainable or ethical investing, you want to make sure that their ‘ethical’ matches yours.

What do people care about most when they’re aiming to make a positive impact? Again according to Mindful Money, here are their top five: healthcare (76%), healthy rivers and oceans (76%), sustainable water management (74%), renewable energy (74%) and biodiversity (74%). And people’s interest investing in these areas has continued to rise.

Could impact investing work in KiwiSaver? “Absolutely,” Murphy says. “To provide clients a diversified portfolio and meet their need to make a difference, KiwiSaver funds should include funds like Purpose Capital. Investing directly into growth or private equity stage companies and projects is riskier than investing in the sharemarket.”

“Investing ethically is a personal thing; it depends on what you value. If your fund manager mentions sustainable or ethical investing, you want to make sure that their ‘ethical’ matches yours. ”

That said, if that risk were spread across millions of investors, it can work. “A tiny slice is still worth doing. Over time, we’ll grow that and make more opportunities available to Kiwi investors.

“A KiwiSaver fund absolutely has a fiduciary responsibility to maximise return for people’s retirement, but I would argue that they also have the fiduciary responsibility to make sure that retirement is in a world worth living in,” he says.

“Wouldn’t it be great for providers to be able to say someday, ‘Your money has just gone into employing 170 people in Ōpōtiki.’ That’s gold.”

Another route could be for an investing platform to offer an impact fund or ETF for us to invest in, again with the goal that it would make up a small portion of our overall holdings. Though small money from individuals, collectively those funds would make meaningful change on the ground.

How might the future look? Murphy would like impact investing to be an everyday thing. “I’d like to see the term ‘impact’ disappear, where everything we do in investment is not just about the financial return — it’s also about what we can return to society and the environment.”

“Someday my granddaughter, she might look at me and say, ‘I can’t believe that your generation used to work and invest only for the financial return. That’s crazy!’”

Murphy evidently has found a purpose for capital, and his own personally along the way. “It’s not enough, given the climate crisis, but it’s hugely rewarding,” he adds.

But we are still some way from joining efforts such as his through our KiwiSaver funds. Check with your provider to find out what their ethical stance is.