The Power of Social Impact Investing

Save the world … and earn a competitive return.  Learn the power of social impact investing.

By Elisa Birnbaum

What do animal manure, food waste and your portfolio have in common? How about a unique investment opportunity in a growing field of interest?

The Toronto Zoo is an unlikely place to invest your hard-earned cash but in the coming months that’s exactly what the founders of ZooShare are hoping you’ll do. The non-profit renewable energy co-operative is developing a 500-kilowatt bio-gas plant on the zoo grounds, one capable of turning its annual manure output – along with local grocery store food waste – into electricity, heat and fertilizer. With a completion date at the end of 2014, the project is expected to produce enough bio-gas to generate electricity for 250 homes and remove the equivalent of 2,100 cars from the road in terms of emissions annually.

It’s not hard to see why the projects, instruments – and players – are on the rise. Take the pressing problems we’re facing on local and international levels – from poverty to environmental to economic challenges. Add the ever-decreasing number of resources government has to tackle them with. Insert a growing number of entrepreneurs building business models to meet those challenges who need financial support. Finally, mix it all together with a new mindset about what that support entails and voila: social impact investors.

“Our traditional approach to money is you give out of your left pocket and invest out of right, and the two pockets have different purposes,” explains Adam Spence. “But you can actually invest and provide someone with a home, help fight climate change and support fairly traded goods that pay good wages,” adds the expert, who is currently working to establish SVX, a local impact investing platform connecting impact ventures, funds, investors and service providers. An initiative of the MaRS Centre for Impact Investing, in collaboration with TMX Group, SVX is expected to be operational in a few months.

It’s just a matter of making a paradigm shift, says Nandy Heule, director of investor relations at Oikocredit Canada Central, one of the Canadian arms of one of the world’s largest sources of private funding to the microfinance sector, providing credit and equity to trade co-operatives, fair trade organizations and small to medium enterprises in developing countries. “People generally see themselves as either donors or investors, but it’s not either-or; you can make money and do good,” she says, adding her organization has been at it for over 30 years, but many people only recently started to wrap their minds around the concept.

Some of those folks attendedToronto’s first Impact Investment Fair that Heule co-hosted (and I moderated) at the end of May in Toronto. The fact that the event garnered a sizable audience is sign of the times, perhaps, and one reflective of society’s evolving social consciousness, where organic and fair trade products are multi-billion dollar businesses, and shoddy business practices in Bangladesh elicit an outcry unparalleled.

“We care about purchasing decisions and, likewise, we start caring about how we invest,” says Gerhard Pries, managing partner at Sarona Asset Management Inc, an investment management firm investing in private equity in frontier and emerging markets. Nicole Bradbury, vice-president at Vancouver-based Renewal2 Investment, a fund investing social venture capital in early growth stage companies in North America, says they were able to raise $35 million between late 2008 and early 2010 despite the challenging market environment. “It’s a real testament to the fact that people are looking for investment products that speak to their values.”

There’s a momentum  here, to be sure, that many expect will grow even stronger. “We hope that one day all investors will realize that all investing is impact investing and, by that I mean, that all capital invested has a non-financial impact on the world,” says Andrew Heintzman, president and CEO of Investeco – branded as Canada’s first environmental investment company (tagline: Building Companies That Matter), currently managing more than $41 million for more than 100 Canadian investors.

People like Daniel Bida, ZooShare’s executive director. He was as a financial analyst in the energy industry when a growing passion for the environment inspired him to leave Bay Street for bio-gas development. Having already raised $460,000 from early-stage investors, ZooShare still has a way to go before reaching its total cost of $5.4 million. But as they close in on receiving a 20-year contract from Ontario Power Authority to buy the electricity produced and a 10-year contract with a 10-year renewal option with a large grocery retailer, it looks good. Bida hopes all capital raised will come from community bonds. “We want to drive home our community message,” Bida explains, “that this project is 100 per cent owned and financed by Ontarians.”

And despite the long-standing perception that social investing means sacrificing returns, Bida and others argue it need not be the case. “There are plenty of investments out there where you’ll get market returns or above,” says Assaf Weisz co-founder and partner of the newly launched Purpose Capital, an impact investment and advisory firm with the mission of bridging the divide between “businesses that matter to the world and investors seeking exceptional financial and social returns.” Obviously, if you choose an area that has solid and predictable returns, you’re in better luck. But, says Weisz, you can get the best of both worlds. “There are some products that happen to be excellent options compared to anything on market – period.”

Sarona Asset Management, for example, targets top quartile returns for investors. “We proactively seek out companies that build up communities and promote even stronger social benefits,” Pries explains. “But we don’t go around saying we’re giving away the money. We’re a hardcore investor looking for just as strong returns from those companies as we would if we weren’t concerned about social.” In fact, the companies he invests in tend to outperform the competition, explaining that treating employees well (with initiatives like profit-sharing) can go a long way toward profitability.

Those are the type of results investors want – even from those working on a smaller grassroots scale. “Once they connect the dots, they see the benefits,” offers Bida. “The next question becomes: ‘So how can I buy bonds?’ ”

 

INVESTMENTS YOU CAN FEEL GOOD ABOUT

Oikocredit

Goal

To provide financial services to disadvantaged people.

Capital Raised

La Siembra Co-operative

Goal

Works with 23 producer co-ops and supports close to 40,000 family farmers in 11 countries.

Capital Raised

More than $1 million in Preference A shares. Also launched a three-year term loan this year, with a minimum investment of $25,000.

Annual Rate of Returns

Dividends ranged from gratitude and product to five per cent over the past 11 years. The three-year term loan has an annualized return of seven per cent, with principal and interest paid at the end of term.

Of Note

Shares are sold to “friends, families or supporters” of La Siembra.

SolarShare

Investeco

Goal

Invests in companies and sectors that help provide solutions to ecological problems that the world faces today.

Capital Raised

Over $50 million.

Annual Rate of Returns