A recent webinar on the ‘Circular Economy’ revealed 30% of extracted resources are wasted along the production line
Debt is still the preferred instrument for infrastructure projects, though banks especially in Holland which lead the impact investing field, are increasingly going to capital markets with special purpose instruments such as green bonds; and incentive-linked loans targeting KPIs like lowering emissions and waste resources.
Christine Shim, Palladium Group, director of Inclusive Growth Project Facility, talked about their actions promoting impact investment in less developed countries. She broke down the management structure of this Harvard Business School led development incubator, which involves a seed funder that can be a bank or venture capital firm, a lending syndicate or in some cases is partly government funded.
The Project Facility then acts as an incubator, identifying linked industries and projects, providing market development, seed capital and technical assistance; innovation and new products and services that open access to new markets.
There are five key factors which are considered to catalyse impact investment, and Shim cites the Kaplan Norton Strategy Management system as a guiding tenet. First, drawing on developments across multiple industries e.g. in an ongoing scheme Palladium cites to rehabilitate unused mines to use existing transport infrastructure and transition them to waste disposal facilities, drawing on carbon sequestration, recycling sorting, landfill and solar power.
Second, incorporating development objectives into the business model so they are financially incentivised, as in a recent project in Brazil to prevent deforestation, where logging and ranching interests must be suitably incentivised to meet government commitments to the UN Development Goals.
Third, stimulating market demand as well as ensuring an effective and efficient supply chain, for synchronicity; fourth, aligning private and public sector goals creating dialogue so all interests are served; fifth, efficiency and scale, providing access to foreign and domestic capital for profitable expansion.
Ivo Leiten, Senior Portfolio Manager in the NN IP Sustainable & Impact Investing Team, is experienced in selecting stocks and in proxy governance decisions for companies in this space. NN Investment Partners’ impact division was launched in 2016 and is now one of the most established equity impact managers, with 1 billion in AUM.
In the Climate and Environment division, our focus today, the key categories are water management, food sufficiency, energy transition, and the circular economy. Leiten is keen to stress that not all business sectors are profitable but some sectors stand out e.g. environmental engineering and consulting. Making production lines more efficient has a clear financial motivator, and companies such as Phillips which refurbishes MRI Scan machines and sells them secondhand at a discount feature highly in their portfolio.
Another heavy hitter is Adevinta, a venture capital firm which takes an operating stake in online marketplace start-ups where people can buy and sell secondhand goods. And in agriculture, Bakkefort which invests in renewable protein solutions, specifically addressing waste in the fishing industry by re-using it as farm feed.