Impact Investing Network showcases New Ground Capital and Impact Enterprise Fund.
Overview of Showcases and Purpose
Every couple of months IIN plans to tap into the minds of impact investing managers pioneering the impact investing space in New Zealand to share key insights with the IIN community. The purpose is to showcase how funds are strategically thinking about impact investing and demonstrate unique techniques and thought processes to demonstrate impact, meet financial returns, and foster a credible investing practice.
This month we were fortunate to have the opportunity to interview Peter Watson, CFO of New Ground Capital (NGC).
Background on New Ground Capital and (NGC) and Impact Enterprise Fund (IEF)
New Ground are impact activators breaking new ground with investment initiatives that deliver measurable societal and environmental outcomes alongside uncompromised financial returns. In 2017 we co-founded New Zealand’s first domestically-focused impact investing fund alongside Ākina Foundation and Impact Ventures - the Impact Enterprise Fund.
The Impact Enterprise Fund invested in 10 exciting NZ impact enterprises and successfully demonstrated that quality impact investment opportunities exist in New Zealand. And now New Ground is founding a larger second fund to scale the impact outcomes, with ongoing involvement from the Ākina Foundation and Impact Ventures.
Grounded Packaging was one of the Funds first and became its largest investment. Their journey is something we are proud to have been a part of, and one which we feel provides an excellent case study for those looking to understand more about impact investing.
Impact Investment is positive impact and financial returns
Investing to deliver measurable positive societal and environmental outcomes alongside financial returns. It's a pretty simple idea with a lot of nuance. Fundamentally, we seek to invest in enterprises with embedded impact models, meaning that the impact model is incorporated into the enterprise in such a way that it would be difficult/impossible to operate without delivering the impact outcomes. Therefore generally by simply growing top line growth/the enterprise, the impact grows. With impact embedded in core products we ensure there are no trade offs.
We find our portfolio companies in a number of ways, including through sector assessments. Early on we identified sustainable packaging as a high impact & growth sector that we wanted to be investing in, so we undertook a market search where we looked at a number of leading companies, before proceeding to invest into Grounded Packaging. IEF led Grounded’s first equity raise and followed on in its two subsequent raises.
Concept of intentionality and impact measurement
Many global funds promoting themselves as being active in the impact space are really just ESG and often that is a stretch. These funds ultimately rely on investors not really popping the bonnet and looking at the nature of the underlying investment portfolio.
For instance, would you consider a KiwiSaver “impact fund” to be a genuine impact investor if its top five investments in order of size were:
Microsoft
Danaher Corp
Alphabet (Google)
United Health Group
Taiwan Semiconductor
Unfortunately this type of scenario does very little for those genuine about impact investing, and may lead towards another “greenwashing” saga. KiwiSavers managers have a constant stream of inflows and therefore this will most likely hurt smaller more genuine organisations looking to raise capital.
We can and must do better. Investors must insist at least in part on funding genuine impact organisations from day one, let's direct capital towards those doing good not being less bad.
Forget the purist view temporarily though and think generally about the biggest global opportunities over the next 30 years. Are many of them impactful? Green energy (hydrogen & solar), education, better buildings, better health care?
There are a lot of real world problems and opportunities out there. Packaging is one that has come to the forefront recently and is more complicated than it seems initially, just watch this. In part the idea behind this wee video is what made Grounded such an attractive opportunity. They were not focused on creating a new form of plastic or specific product but on connecting businesses to the best product available for their particular real world problem.
To date the financial returns from the IEF’s investment in Grounded are well in excess of the IEF’s 15% IRR hurdle and Grounded have also substituted sustainable packaging for over 23.9m single use plastic items!
We measure both the number of single use plastic items replaced along with the number of customers transitioning to Grounded. This is also important as its a measure of the growth in impact of Grounded as a business on the wider packaging ecosystem.
Grounded also offers their customers an amazing level of insight into the impact of their packaging choices. See their impact calculator.
Grounded Point of View
IEF has been very supportive of the vision and wider purpose of Grounded. From the outset they have understood the scope of the problem we're trying to address and our approach to the market. We have also found them to be really valuable and engaged partners as our capital strategy and planning has evolved over time.
Overall we have found that impact investors tend to 'get it' much faster. Our experience with more traditional investors is that they can fail to see the pace at which the world is changing and the size of the opportunities that are developing off the back of that. As such there can be a greater educational bridge to cross to generate interest, although that is starting to shift.
Conclusion
IIN would like to thank Peter Watson, NGC, IEF, and the Grounded team for their time in being IIN's first showcase. Their respective expertise, insights, and experience in the impact investing community is invaluable.
IIN and the rest of the market watches closely as NGC and associated parties gear up to start the New Ground Impact Enterprise Fund. If you are curious to learn more about IEF and the companies that are part of their portfolio please consider attending the event below!
Lastly, if you are a fund manager looking to demonstrate the impact your investments have and want to be part of IIN's showcases please reach out to IIN Manager, Tan Huynh (tan@impactinvestingnetwork.nz).
Impact Enterprise Fund's Impact Investing in Action Showcase - 9th August 2022
At this event you will see what can be achieved by backing ground-breaking enterprises delivering real world outcomes with measurable impact and uncompromised financial gains.
With 10 of the country’s most exciting impact enterprises in IEF portfolio, IEF wants to bring impact investing to life by putting them on display and giving you the opportunity to interact with the founders, teams and products. You will be able to take a spin in a ZeroJet, see how Tether’s technology assesses the venue’s building performance, understand the nuts and bolts of Cropsy’s AI-powered computer vision product, and more.
This event will be held at Hyundai Marine Sports Centre, register for this event here.