Impact Architects is an impact investment facilitator working across Australia and New Zealand. They bring the social purpose sector and the investment community together by designing, structuring and facilitating impact investment deals that drive mission aligned positive impact for people and planet. RIAA spoke with co-founders Clive Pedley and Iyanthi Wijayanayake.
- The role of the impact investment facilitator is a critical one in the creation and uptake of impact investment opportunities, yet the important contribution isn’t always recognised. Can you talk us through the unique role you play and the benefits a facilitator brings to an impact investment?
For impact investment to be at scale, there is a real need for the investment sector to work with partners that they haven’t historically worked with. The social purpose sector has traditionally financed social and environmental outcomes through government funding and philanthropy but is often fiscally constrained when it comes to delivering impact at scale. While well suited to delivering greater impact collectively, the challenge is that these two groups haven’t often worked together before. This is where we come in. Our role is to bring these two parties together and find ways to unlock capital to achieve a variety of societal goals, impact at scale that benefits people and planet and also to provide investors with a financial return.
- Impact Architects has emerged out of your sister business, Giving Architects, which focuses on helping not for profits attract new sources of philanthropic funding. Tell us about your journey with philanthropy and social finance, and why you’ve established Impact Architects.
Giving Architects has over 30 years of combined experience in working with the social purpose sector, primarily in the role of raising hundreds of millions of dollars in donations and grants for transformational projects and programs in Australia and New Zealand. Having had a long history of working with the social purpose sector, we understand the needs, nuances, and unique characteristics of this sector. This strong foundation has shaped our thinking and commitment to provide solutions that complement philanthropy and enable the social purpose sector to achieve impact at scale.
This experience led us to recently launch Impact Architects in Australia and New Zealand. Impact Architects is a dedicated facilitator of impact investment with a difference. We take an investor-centric approach where the investor works in partnership with social purpose organisations to achieve win-win outcomes. Our specialty is in designing, structuring and facilitating innovative impact investment projects that are available to a range of impact investors. We understand the opportunities social purpose organisations can provide for impact investment and are able to match these with the blended return aspirations of impact investors.
Having a good understanding of the complexities of the social purpose sector as well as appreciating the regulatory and legislative requirements of the finance sector helps us to facilitate good quality impact investment deals with a suitable risk and blended return profile. By having the ability to bring both parties together for significant projects, we can ensure that positive measured and managed impact is at the forefront of the impact investment, alongside the financial return.
- Much of Impact Architects’ work revolves around working with not for profit organisations to identify ways of attracting private capital, in order to deliver greater impact. What advice do you give to not for profits struggling to see how impact investing can benefit them?
We have long held the view that since the Global Financial Crisis, traditional philanthropy, although critical and irreplaceable, has become increasingly constrained. A recent annual report from ACNC highlighted that in Australia there has been a $1.3 billion decline in annual donations and bequests to charities during 2016 and 2017. Although similar statistics are not yet available in New Zealand, the trends are historically similar in both countries. While philanthropy has declined, private and managed wealth with a strong social conscience is increasing. We can see a growing percentage of private equity wants to contribute to social, environmental, cultural, and economic impact. The finance sector has never been more ready than now to consider partnering with the social purpose sector. This is a great opportunity for the social purpose sector.
We have all seen the rise of the conscious consumer. Now we are seeing the rise of the conscious investor. They will increasingly influence how private wealth is invested. There is a real need to develop investable products with the appropriate levels of risk and return alongside intentional and demonstrable impact. It is the responsibility of the social purpose sector to work hard in identifying, developing and presenting these opportunities to the investment community.
The social purpose sector in New Zealand and in Australia is significant and is the backbone of our society. It requires substantial resources every year to deliver important social and environmental outcomes that are essential for our communities to thrive. The sector is largely reliant on three forms of income: government funding, philanthropy and trading revenue. Collectively these core revenue streams are not keeping pace with our communities increasing needs or aspirations. There is a significant opportunity to invest private capital in projects and opportunities that will provide the financial resources needed to meet some of the greatest unmet needs in our communities and deliver positive impact at scale.
- Intentionality and measurement are key tenets of impact investing, with additionality being desirable, but not always featuring. To what degree do you consider additionality (and to what level do you look at the ‘investor/investment impact’ vs the investee’s own contribution to solving a social/environmental problem)?
At Impact Architects, we are of the view that the hallmarks of impact investment are the intentionality of the investor and investee, the ability to provide a blended financial and impact return and for the impact investment to provide additionality. When we think about additionality, we consider two aspects – that the impact could not have been achieved without the intentional impact investment, or that the impact investment is able to bring forward a project which will result in the impact being delivered significantly sooner than would have occurred otherwise.
In our view, additionality addresses the ability for impact investment to intervene and bring about much better outcomes and positive impact for people and planet than would have been achieved otherwise. We see impact investment as a true partnership between the investor and investee. The commitment from both ends is critical.
- What impact investing transaction are you particularly proud of and what learnings did you take out of it?
One of the projects we are most proud of is structuring an impact investment for the development of a community-based Renal Dialysis Unit in Auckland. This was essentially a social infrastructure project. This project had all the hallmarks of a good impact investment. The project was delivered by using an innovative model involving the Auckland District Health Board (ADHB), Tamaki Regeneration Company (TRC) and the Kidney Society. It addressed a long-standing problem that they had been struggling to address for 10 years. This debt-based investment involved a combination of impact first investors and an institutional investor who was a finance first investor. All investors were committed to achieving the well-defined and intended impact.
The significant impact from this project is of real value to local community involved. The investment enabled the delivery of improved outcomes for renal patients (30% of central Auckland patients live in this community) through the provision of a community-based dialysis facility. It also ensured health promotion for the wider community who are particularly vulnerable as well as societal and economic impact as patients are better able to work and support families because of the flexibility that this facility provides. In addition, an MOU is in place for the ADHB and TRC to work together to provide opportunities for recruitment to the health sector from this community. Tamaki is a predominantly Maori and Pacific community and they are underrepresented in the health service. This project will enable people from this community to be trained and recruited to the health service. It was a great project with many dimensions to the significant social impact that will result. It also provided a 5% return to investors.
- Impact investing market development is influenced by many factors from government enabling to availability of appropriate investment opportunities to liquidity of investments. What do you see as the greatest barriers and emerging opportunities either in Australia and/or New Zealand?
Our considered view is that while there is huge potential for impact investment in Australia and New Zealand, there is still a lot of work to be done to grow the market to its full potential. The interest in impact investment has grown significantly over the last three years. However, it is still a very small part of the Responsible Investment portfolio. There needs to be a greater commitment from the investment community to invest in the impact end of the RI spectrum, while the social purpose sector also needs to step up to deliver investable products and projects that address deal flow issues.
Government on both sides of the Tasman have a greater role to play. We believe that government should participate as a significant investor and in doing so should actively de-risk private investment. That said, there is much that can still be achieved while waiting for the government to do more.
The major opportunity is to find ways for institutional investors to participate in impact investing. A clearer understanding of the amount of impact investment that is available, on what terms, and the best way to partner with that capital would help the social purpose sector to better understand the opportunity. They can then invest in developing deals that can meet those requirements.
Education for the social purpose sector on how the investment world operates, understanding the opportunity to work with the investment community to deliver impact and building trust between these two groups is also key to growing the market. The investment community needs to better understand the opportunities the social purpose sector provides for impact investment and learn how to work with the sector. RIAA is doing some great work in this space including providing research and data to back the impact investment conversation.
One of the risks that we all need to avoid is ‘impact washing’. It will only damage the market if we allow weak or feeble impact measurement and management to exist. A commitment to measure, manage and report on impact at an appropriate level must be a pre-requisite for any impact investment.
In New Zealand we are seeing an exciting in the development of a new Social Exchange. MyCap is scheduled to go live in November 2019. It appears that this will bring much-needed liquidity to the market and open up a number of opportunities to grow impact investment. MyCap will open up interesting opportunities and potentially encourage participation of retail investors in impact investing.