Financing the Future

Financing the Future is a dynamic content project about impact investment. The format combines a briefing on impact investment in Aotearoa, NZ, video interviews with thought leaders, investment case studies, and provocations from experts working in the areas that offer immediate opportunities.

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Foreword by Sir Ronald Cohen

In today’s polarized world, of growing inequality and devastation of the planet, we are in need of a paradigm shift. We need to bring impact to the center of our consciousness and shift investment and business decision-making from considerations of “risk and return” to “risk, return, and impact.” In this way, we can channel capital flows to harness the power and innovation of the private sector, complementing and amplifying the efforts of government to tackle successfully the enormous social and environmental challenges we face.

This represents a revolution within capitalism. Whether as consumers, employees, contributors to pension funds, entrepreneurs, business and government leaders, or leaders of social organizations, we each have a role to play in advancing the Impact Revolution.

Impact Investment, characterized by the intention to deliver both financial returns and measurable social and environmental impact, offers a very powerful way of improving the world. Financing for the Future signals important directions for its development in New Zealand, a country which has the capacity to play an important and innovative role in impact investment.

The GSG looks forward to supporting New Zealand’s recently established National Advisory Board (NAB) in building the ecosystem necessary for impact investment to thrive in the country, including policy-making, impact capital wholesalers, and Social Impact Bonds.

As you read this excellent report, may I encourage you to consider the role you can play in the Impact Revolution?

Ronald Cohen

Executive Summary

A project by Pure Advantage, promoted in association with the Impact Investing National Advisory Board Aotearoa New Zealand (IINABANZ), and the Responsible Investment Association of Australasia (RIAA).

The purpose of this project

This project seeks to deepen discussion on impact investment in Aotearoa New Zealand, and stimulate actions that will deliver immediate value while laying the foundations for a sustainable future.

The challenge of our time

This is a unique moment in history – a time of unparalleled opportunity, connectivity, disruption, and change. While the prospects of humankind, by many measures have never been better, we also face persistent and growing challenges, that are combining to create unprecedented levels of risk in our social, economic, environmental, and political systems.

Helen Clark, in her former role at the UNDP, captured the pivotal nature of our time succinctly: “Ours is the last generation which can head off the worst effects of climate change and the first generation with the wealth and knowledge to eradicate poverty. For this, fearless leadership from us all is needed.”

If we seek a hopeful and desirable future, the challenge of our time is set – sustain the miraculous gains of the modern global economy, while ameliorating the risks and inequalities that have grown with it.

Sophisticated finance for complicated times

Finance has always been the fuel of development, and it will need to be at the heart of the strategies and solutions we deploy to navigate the 21st century. However, given the complexity and interdependence of our world today, the paradigm for investment needs to evolve with the times and move beyond the principle of ‘do no harm’.

We need to rethink the purpose of capital, become more sophisticated in accounting for externalities, and shift investment decision-making from considerations of “risk and return” to “risk, return, and impact.”

To maximise our potential for prosperity and well-being, finance needs to become the fuel for sustainable development. It needs to reflect the interests of society as a whole, and unlock human ingenuity on the common challenges we face. This, in essence, represents the intention and practice of ‘Impact Investment’ – a growing global movement, and the most convincing financing strategy we have to realise a stable and desirable future.

What is ‘Impact Investment’?

Impact investment is built on three core principles: the intention to create a positive social or environmental impact, the expectation of a financial return, and measurement of the impact that is achieved. Impact investments can be made through every asset class, type of organisation, and sector to deliver different combinations of positive social and environmental change.

Impact investing can be understood to be on a spectrum with ‘Environmental Social Governance’ (ESG) and responsible investing. However, where ESG investing represents the intent to avoid risk, impact investing actively seeks to resource solutions and measure the results.

In 2018, the global market size of impact investment was estimated to be around US$228bn. In Aotearoa New Zealand, the market was estimated to be NZ$100m but due to a lack of aggregated market data, this figure doesn’t reflect the true extent of activity.

Impact investment is driving the creation of new markets, increased participation in investment activity (both supply and demand sides), and the blending of different types of finance to create new investment products.

Why now?

The establishment of global frameworks such as the SDGs and the Paris Agreement on Climate Change are driving demand for new finance to tackle the enormous social and environmental challenges we face.

The business sector in Aotearoa New Zealand is aligning with impact through the rise of social enterprise, the growth of tribal economies, and the increasingly progressive outlook of corporates and mainstream business – not least because evidence is indicating that responsible business behaviour results in better performance.

We are also seeing public sector reform, particularly in the area of service commissioning, driving new demand for impact investment, and citizen sentiment requiring institutional investors to consider non-financial returns in their decision-making.

Developing impact investing in Aotearoa New Zealand

There have been a number of significant developments in Aotearoa New Zealand in the last year that will feed into the growth of a domestic impact investment market. These include the establishment of new funds, policy initiatives, institutional strategies, and growing consumer awareness.

However, many of these developments are disconnected from each other and may create duplication / confusion if not collected and coordinated. In addition, while demand for impact investment is growing, it is often cut off from the supply of capital, with much more remaining latent due to constraints relating to resources, culture, and capability.

Given the early stage of impact investment in Aotearoa New Zealand, we believe there should be a dual approach to its growth – focussing on both specific market opportunities and also the development of a whole sector strategy.

In terms of specific market opportunities, we have focussed on areas where commercial opportunities combine with pressing need, potential for scale, and policy priorities. In the report, we explore four such areas through insights from field-based experts and case studies:

  • Social and affordable housing
  • Forestry and sustainable land use
  • Social procurement
  • The circular economy

For a longer-term approach, we believe the most effective way to grow a functioning and productive impact investment market in Aotearoa New Zealand is through a systematic and coherent strategy. This strategy should consider all components of the market ecosystem, and develop them concurrently. In the report we recommend that the following factors are considered:

  • Development of a policy agenda to align capital with priorities
  • Anchoring the supply of capital through the establishment of a wholesale fund and encouraging all institutional investors to allocate a percentage of their portfolios to impact
  • Unlocking consumer demand and activating financial citizenship
  • Proactively growing the pipeline of investment opportunities
  • Building an evidence and knowledge base
  • Supporting upskilling and professional development
  • Setting strong and clear principles of practice

A critical part of growing the market will be having an independent organising body that can bring all stakeholders into play, and recommend / determine investments into market infrastructure without being conflicted or politicised. We believe the best vehicle for this role is the newly established Impact Investing National Advisory Board Aotearoa New Zealand (IINABANZ), which is also the country’s formal representative on the Global Steering Group on Impact Investment.

Our choice – a call for action

As it grows, the impact investment market in Aotearoa New Zealand offers an opportunity to combine the values of our unique cultural identity with the interests of business innovation, community well-being, and policy priorities.

However, good outcomes will not happen by themselves, and we should be prepared to invest in the design and development of new market infrastructure that will foster the impact and the world that we want to see.

Change is challenging but it’s also inevitable. We need to decide whether we will proactively adapt to the world around us, or be reactive to the inevitable corrections that will come.

The choice offered by the potential of impact investing represents a choice to further evolve our economy – from the individual to interdependence, from extraction to regeneration, from exploitation to empowerment, from division to inclusion, from the immediate to the intergenerational.

Through our savings, vote, voice, and practices – it’s a choice that everyone one of us can make.

Sections

Section 1: Introduction

Mānuka Hēnare, Rob Morrison, Bill Ginn and Rangimarie Hunia explain the potential for impact investment and how it can reshape how we think about finance.

Read Section

Section 2: What is Impact Investment?

Sir Stephen Tindall, Dr. Alison Taylor, David Woods, Debbie Birch and others define impact investing. Learn more in a BIG READ as Alex Hannant gives context to impact investment, what the current state of play is in Aotearoa NZ, and why we should look to grow our market now.

Read Section

Section 3: Market Opportunities

Cerasela Stancu, Bill Ginn, Rangimarie Hunia, Rob Morrison and others highlight investment opportunities. Explore four key areas of opportunity for impact investment – social and affordable housing, forestry and land use, social procurement and the circular economy. READ provocations from experts working in these areas as well as business case studies.

Read Section

Section 4: What’s holding us back?

Ruby Watson, Paul Gilberd, Julia Jackson, David Woods and others describe what barriers exist to unlocking the potential of impact investment in Aotearoa New Zealand. READ more to find out how we move from giving a hand out to giving a hand up.

Read Section

Section 5: The Way Ahead

Dr. Jamie Newth, David Woods, Dr. Alison Taylor, Rob Morrison and others call for what is needed to develop our impact investing market. READ our recommendations for investing in the design and development of new infrastructure to grow our impact investment market

Read Section

We would like to thank everyone who helped make this project a reality.

Pure Advantage

presents

Financing the Future

Promotion in association with the Impact Investing National Advisory Board Aotearoa New Zealand (IINABANZ) and the Responsible Investment Association of Australasia (RIAA).

Author

Alex Hannant

Contributors

Dr. Sean Barnes, Debbie Birch, Rachel Brown, Bernadette Casey, Dominic Foote, Paul T. Gilberd, Bill Ginn, Dr. David Hall, Mānuka Hēnare, Rangimarie Hunia, Julia Jackson, Jade Kake, Phillip Mills, Rob Morrison, Dr. Jamie Newth, Nicola Patrick, Bob Penter, Tania Pouwhaare, Michelle Sharp, Ian Short, Cerasela Stancu, Dr. Alison Taylor, Sir Stephen Tindall, Ruby Watson, Aaron Drew, Brianne West, David Woods.

Peer Review

Raewyn Jones, John McLeod, Simon O’Connor, David Woods

Copy Editor

Jody Connor

Special thanks

Sir Stephen Tindall and The Tindall Foundation, Rob Morrison, Phillip Mills, Dr. Nigel Bradly, John McCarthy

Filmmakers

Producer Simon Millar

Director/Camera/Editor Joe Rixon

Sound Mix Graham Wallace

Interviews by Geoff Simmons

Photography

Liam Philp

Design

Mantis Digital

Publicity

Wright Communications, Catherine Bright

Pure Advantage

Trustees; Katherine Corich, Sir Mark Solomon, Sir Stephen Tindall, Phillip Mills, Rob Morrison, Geoff Ross. Simon Millar (Executive Director), Celina Garcia (Strategy & Research) Ursula Griffen (Social Media)

About the author

Pure Advantage
Pure Advantage

Pure Advantage functions as both a generator and communicator of knowledge, undertaking and supporting a variety of green growth-focused research activities and outputs. Through this work, we seek to disseminate cutting-edge theory and practice that will transform how New Zealanders understand and manage the relationship between the environment and the economy.

We advocate for economic models that generate both profitability and positive social and environmental outcomes. In promoting these models we seek to uphold the ethical imperatives of impact investment while also dispelling any lingering misconceptions around wealth creation and environmental protection being contradictory goals.

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