You can now buy a bond in the UK that will reward you for prisoners who don’t re-offend. It’s called the Peterborough social impact or prison bond. Ted Franks, partner and fund manager of UK-based sustainability focused investor WHEB, says that’s just one example of the widening and deepening world of impact investment.
There’s nothing wrong with passion and a demonstration that the business of ethical and sustainable investment is your life’s work, Ted Franks, partner and fund manager of UK-based sustainability focused investor WHEB, says.
Franks was in Sydney last week to promote his company’s partnership with Australia’s $3 billion fund manager Pengana Capital Group to manage their Hunter Hall Global Deep Green Trust, now Pengana WHEB Sustainable Impact Fund.
During a phone conversation grabbed between a tough meetings schedule, Franks was upbeat about the prospects for his market sector and the word “evangelising” on his company’s “life work” slipped easily off the tongue. He was very pleased, he said, to see so many other people evangelising in the same way.
Things were looking up.
For the past three years WHEB has been growing at 60 per cent a year in funds under management, he says.
“It’s going really well, with lots of new products introduced as well.”
This growth is in large part because of Millennials who seem to be firing up so much of the sustainability agenda.
“Impact investment has resonance for Millennials; how their money is invested is part of their identity,” Franks says.
This cohort also has access to tools that can help with real-time information on the impact their money is making through new apps that blend technological and financial firepower.
WHEB, for instance, has a calculator that can tell its investors how much carbon their money has saved, how much water is recycled and so on.
“It’s fantastic,” Franks says, and adds that this is an example of where technology can create profound impact.
But what’s interesting is the growing range of products and more discernment that goes with this.
For instance, there is direct philanthropic investment with social and human outcomes; there is technological impact, such as producing wind turbines or clean water; and there is ESG investment, with screens that don’t look so much at what a company produces but how it produces it.
So we take it to its extreme: what about a company that produces Agent Orange, but does it using sustainable principles of operation?
Franks puts it this way: “With ESG it doesn’t matter what you do but you try to do it in a nice way. That’s what we think.”
It’s possible to get too diluted in terms of outcomes, he says, but on the other hand, it’s important not to discourage such companies, “as long as they’re not making petrol or bombs”.
There are nine themes in the WHEB universe of investment. Among them five environmental themes – cleaner energy, environmental services, resource efficiency, sustainable transport and water management; and four social themes – education, health, safety and wellbeing.
Measurement is important and that includes trying to measure social themes. How to do that though?
According to Franks a calculator will tell you emissions that have been avoided, clean water provided, tonnes of waste recycled and so on, but the new metrics now evolving are working out the benefits of social themes.
This can be as simple as lives saved through certain therapies or medical technologies.
This works by measuring and quantifying what the alternatives typically achieve. For instance particular radio therapy equipment might offer treatment that is so much better and more efficient and accurate than an alternative.
Another metric that works for WHEB is more affordable healthcare.
It’s not typically the way sustainability is seen, but lives saved and healthier people will probably meet the criteria for many investors keen for beneficial impact from their money.
“It’s always about pushing the envelope out.”
The world is obsessed with data and measurement, and there are growing ways to do this, Franks says.
For some people it’s become supremely important, but you don’t need it for everything.
“You can achieve a lot with qualitative analysis,” he says.
“You don’t need to always boil it down to a number.”
We note the world has largely stopped trying to put a price on clean air and water or a healthy planet, or equity. Some leaders in sustainability have started to say some things are good to do simply because they are the right thing to do.
On the other hand, he says, “we’re getting vey good at manipulating data and it’s exciting to see the impact industry people having a crack at that”.
But while this is all good for newbies in the green/impact investment space there is always a danger of rogue operators that will take advantage of good intentions.
Franks has some warnings. There are the usual standards that need to be applied for an ethical advisor or investment fund but on top of that he advises investors to do their own research especially into exactly what is being provided.
If the impact investment looks like a sideline business for a fund manager that has no track record in the field and is clearly riding the wave of interest, then stay away.
Look at who is managing the fund and whether they can say, “This is my life and what I am committed to.”
It’s also important to watch out for additionality.
We need to make sure money isn’t going into investments that would be made regardless.