Investing for Impact: Where to Start
Words by Daniel Simons
What was once the domain of elite fund managers and ‘sophisticated investors’ is now in the hands of every human on the planet.
In our last article, Investing for Impact: Urgent and Inevitable we looked at how the existential threats facing our civilization are catalysing a radical transformation in the global economy, the vital role investing for impact can play in shaping the transition, and the immense opportunities available if you want to use your capital to build a better world.
With super funds, impact funds, ethical stocks and ETFs, apps for small investments and microfinancing, equity crowdfunding and even cryptocurrencies, there has never been more options for people who want to invest with purpose and reap the double dividend of profits and positive impacts.
Some argue that impact investment only technically occurs when the impact is accurately measured, others argue that true impact investing only occurs when your investment makes the difference between impact occurring or not – for example investing in a startup that may not have otherwise been funded is impact investing, but investing in a public company where your meagre investment has a minimal impact is not. In ‘pure’ impact investing, the investor intends to create impact with their investment, their investment contributes to their articulated impact and it is measured with some quantifiable metric. Here we’ll take a look more broadly at the buffet available to anyone who wants to invest for impact.
Switch Your Super
Our superannuation is supposed to prepare us for our future, so it would be nice if the way we invested could help ensure there will be a future worth being prepared for. With over 3.5 trillion superannuation assets under management in Australia, there’s an enormous potential for change. Recent research conducted by Future Super suggests that switching to an ethical super is one of the most impactful things an individual can do, and it often dwarfs any impact we can have from changing our personal consumer behaviours.
In Australia, a range of ethical super options have risen up over the years such as Future Super, which focuses on fossil fuel free investments, Verve Super, an ethical super fund for women by women and Australian Ethical Super. Many of the larger super funds are also moving to incorporate ESG into their decision making and offering more impactful options for investment.
The Responsible Investment Association of Australia and Market Forces analyse a huge range of funds on a variety of different metrics, so they’re good places to get educated.
If set-and-forget super impact is not appealing, self-managed super funds (SMSF) are another way to gain more control over potential impact.
Image courtesy of Sentient.
Invest in Ethical Stocks, Funds or ETFs
Ethical Shares
One of the easiest ways to invest is to buy stocks or shares in a publicly listed company. You can buy and sell these on the stock exchange at any time. Ethical stocks could be related to a range of industries from renewable energy to medical research. Some examples include Tesla, Carnegie Clean Energy or Canadian Solar. If you’re interested in renewable energy, the Deloit Cleantech Index lists almost 100 organisations. Another way to use your investments to create change is via shareholder activism.
Funds
An Impact Fund involves pooling together money from different investors into a fund that is managed by a professional investment manager. These funds often have a particular focus like green real estate or renewable infrastructure. Some examples of Impact Funds in Australia include Impact Investment Group’s offerings which focus primarily on green property or large-scale solar projects, Sentient’s Forever Fund which focuses on carbon drawdown and biodiversity, Australian Unity’s disability housing fund and Social Ventures Australia's Diversified Impact Fund, which provides finance to organisations creating meaningful social outcomes.
ETFs
An ETF, or Electronically Traded Fund, is similar to an Impact Fund, but these can be traded on the stock market in a similar way to how you would buy and sell an individual stock. An Australian example is BetaShare’s Australian Sustainability Leaders ETF which requires no minimum investment and has the apt ticker of ‘FAIR’.
The team from Giant Leap – Australia’s first 100% impact fund.
Angel Investing and Venture Capital
Angel Investing
Angel investors give wings to startups. They usually invest in businesses when they are in ‘seed’ or ‘pre-seed’ stages - where the business is still learning to crawl and would be considered a ‘very high risk’ investment. There has been a recent push from governments around the world to nurture and support local angel networks. You don’t have to invest in individual companies. You can also participate in focused syndicates. For example, Aussie Angels hosts impact syndicates like SDGx and Tech for Climate.
Venture Capital
While angel investors invest their own money, venture capitalists (VCs) invest other people’s cash. They usually invest in startups or businesses that have more of a proven track record and are ready to scale. VCs place a lot of high-risk bets, hoping that one of them will pay off and make up for all of the other failures. A great example of an impact VC fund is Australia’s Giant Leap. It was Australia’s first 100% impact fund. Giant Leap focuses on sustainable living, health and well-being and empowering people via education, diversity and inclusion. They’ve invested in an inspiring range of do-good businesses including Glam Corner, Sendle and Who Gives a Crap. All of their impacts are mapped and reported against the SDGs. Another great example is LeapFrog. They invest in financial services and healthcare companies in Asia and Africa. They have invested over 1 billion dollars since 2007 averaging a over 25 percent return.
With Angel and VC funding in Australia, you often have to be a ‘sophisticated investor’ which means net assets of 2.5 million or an annual income of over $250k.
Invest With Apps and Innovations
If you’re not ‘sophisticated’ enough for VC funds or angelic investing, there are some exciting innovations that are making impact investing easier than ever. From personal finance apps, to novel fintech innovations, the barrier to entry has never been lower.
In Australia, the recently launched Bloom Impact Investing App allows people to become impact investors at the click of a button and for as little as $500. Bloom is focused on investments that address the climate crisis. They use Monash University’s ClimateWorks framework and Paul Hawken’s Project Drawdown as a way to build a climate tech folio for maximum impact.
Another great example is the U.K’s Clim8invest, which helps people use their individual savings accounts to help fight climate change. Their community is already over 50,000 strong.
Become a Lender With Microfinance
A lower risk, and lower-return, way to create change that can still give you the feels, is through microfinancing. Pioneered by Mohammad Unis, who later won the Nobel Peace Prize for this innovation, microfinancing involves providing small loans to individuals or small businesses who would otherwise lack access to funding through conventional banking or related services.
It might sound small, but microfinancing is having a huge impact across the globe. Grameen Bank, which was founded by Mohammad Unis, has issued over 6 billion dollars to over 7 million borrowers.
Graeme Bank, Kiva.org and Australia's Lend For Good are all great places to learn more about microfinancing.
Equity Crowdfunding
For those adventurers looking for high-risk, high-reward investments that support pioneering changemakers and system disruptors, equity investing is the place to be.
The first Equity Crowdfunding platform was launched in Australia in 2007. Recently the sector has bloomed into a thriving force for innovation and change. Equity crowdfunding allows a large number of investors to make small investments into startups and non-listed companies. There are a growing range of platforms in Australia including Equitise, Enable, Pledgeme and Venturecrowd. One of the most successful equity crowdfunding platforms is Birchal, which has helped companies raise over 100 million dollars since it launched in 2018. The company also raised 3 million dollars for itself in just one hour and three minutes to help pioneer a new platform for micro investors to trade their shares. On Birchal you can invest in impact projects like Good Empire, which aims to use viral videos and gamification to inspire 100 million people to create impact aligned with the SDGs, or Red Grid which is ‘building the internet of energy’.
One of the recent darlings of equity crowdfunding was Zero-Co, a circular economy company with a mission to reduce plastic waste by providing refill deliveries and ending single-use plastics. They raised $5 million in six hours.
More than just a business making money and positive impact, Zero-Co is on a mission to revolutionise an entire industry, provide proof-of-concept and accelerate the growth of the circular economy globally.
While Birchal is a platform open to all types of equity investment, other platforms are more specifically focused on impact-oriented projects, e.g. Raaise, Raise Green, Germany's GreenRocket and Climate-KICs BetterVest.
By supporting projects that might otherwise not find support, equity crowdfunding platforms can supercharge innovation - but they are also riskier and less liquid than other types of investments.
"Switching to an ethical super is one of the most impactful things an individual can do, and it often dwarfs any impact we can have from changing our personal consumer behaviours."
"Blockchain technologies are set to play a massive role in increasing trust, transparency, accountability and accessibility across a range of industries and they’re a great new tool for global fundraising."
Crypto and Blockchain
Bitcoin might have come under fire for its energy-intensive mining practices but the multi-trillion-dollar blockchain asset class is set to play a significant role in shaping our future. With the upcoming upgrade to the Ethereum network and the rise of other energy-lite chains, the potential for impact is enormous. Blockchain technologies are set to play a massive role in increasing trust, transparency, accountability and accessibility across a range of industries and they’re a great new tool for global fundraising.
So what does impact with this arcane magical internet money look like?
It might look like Power Ledger, a blockchain-enabled peer-to-peer energy platform that lets people trade electricity with each other. It could look like Vechain, a company that helps to increase transparency of supply chains and validate sustainability claims, or Regen Network, which aims to facilitate ecological restoration and carbon trading. It might look like Australian-founded GiveTree, an auction site for NFT’s that donates its fees to charity, or Transhuman Coin which raises funds for health and longevity research. It might even look like Deepak Chopra’s crowdfunding platform EarthFund. It is still early days and highly speculative, but billions of dollars are flowing into the ecosystem and the potential is tantalising.
Another interesting innovation to be born out of the blockchain era is the DAO, or Distributed Autonomous Organisation. A DAO is a member-owned community that is structured around smart contracts and computer code where the investors into the DAO are the collective decision makers. DAOs can work like global funds, concentrating large amounts of capital and investing in game-changing technologies.
Some attempts to create impact through DAO’s include KlimaDAO, which aims to fight climate change with a digital currency backed by carbon assets, Human DAO which loans out digital play-to-earn gaming assets with the goal of providing wages and meals for families and FutrDAO, and Australia-founded DAO that invests in web3 projects that have the potential for radical, global influence.
The impact investment landscape is flourishing and will need to grow exponentially to meet our demand for rapid and radical change. With the opportunity to empower pioneering changemakers, or support system-disrupting technologies, married with the possibility to maximise purpose and profit without compromise, it’s an exciting time for anyone wanting to use their money to move the world.