A report to provide guidelines for investors on the principles of impact investing in the Aotearoa NZ context. A collaboration between the Impact Investing Network, Toitū Tahua: Centre for Sustainable Finance and PwC.
‘We are living in very challenging times and now more than ever it’s important for the financial sector to embrace impact investing and help catalyse the transition to a truly sustainable Aotearoa.’
New guidelines will help counter skepticism in a small but growing area of investing called ‘impact investing’. The guidelines are also expected to help mainstream funds meet rising expectations for investments to have positive effects on communities, climate and the environment.
‘Guidelines and Principles for Impact Investment in Aotearoa New Zealand’ has been developed by Toitū Tahua: Centre for Sustainable Finance, PwC and Impact Investing Network (IIN).
The voluntary guidance is the first industry-led definition of impact investing in this country. It gives a working definition of impact investing as “investments made with the intention to generate positive, measurable social, cultural, or environmental impact alongside a financial return”, and outlines eight guiding principles.
The definition largely follows the accepted international one, developed by the Global Impact Investing Network, adding ‘cultural’ to recognise the relationship with mana whenua and Te Tiriti o Waitangi.
“The goal of the Centre and the IIN is to shift more capital away from investment that has negative impacts, and toward investment that has positive ones. This guidance is a resource for investors who are looking to authentically shift in this direction,” said David Woods, a board member of both the Centre and IIN, and deputy chair of New Zealand Green Investment Finance, the Government-funded green finance bank.
“Globally impact investing is a niche but important part of the sustainable finance market. It’s where ideas and techniques around developing, structuring and measuring projects that have social and environmental objectives, get developed. These then get picked up by mainstream investors for wider application.
“A clear definition and common principles also helps regulators, investors and consumers to differentiate between impact and other forms of investing,” Woods said.
Impact investing differs from ESG (Environment, Social and Governance) and other forms of responsible investing by putting positive environmental, social and/or cultural ‘returns’ on a par with, rather than second to, financial returns. The requirement for a financial return, or at least to make one’s money back, distinguishes impact investing from philanthropy or grant-making.
Andrew Jamieson, Strategy and ESG Partner at PwC, said, “These guidelines are offered as a starting point; they’re a conversation-opener, not the final word. This is a complex, fast-evolving and increasingly relevant area. Measurability – one of the principles – is an example of where current practice is often limited by a lack of metrics. However, a lot of effort globally is going into developing more sensitive and robust ways of measuring social and environmental impacts.”
Katie Beith, IIN Board member and Head of ESG at Forsyth Barr, said, “There’s a need to protect the impact investing industry so that it doesn’t come under the same criticisms that ESG investing is currently facing".
“The guidelines will help safeguard against ‘impact-washing’ by bringing greater rigour and clarity to those features that differentiate impact investing from other investing approaches. This is crucial, as these are the features that can prove an investment is driving real social or environmental change.”
Those features include intentionality (investing with the intention to deliver impact), measurability, additionality (‘additional’ impact that wouldn’t have occurred without the investment), which are each covered by principles in the guidelines.
In Aotearoa New Zealand, the impact investment market grew from $3b to $8b, from 2020 to 2021. Impact investment accounted for $8b of the total $179b responsible market, which in turn accounted for almost half (49%) of the overall market (Responsible Investment Benchmark Report Aotearoa NZ 2022).
However, the industry is growing and mainstream players are starting to get involved.
Katie Beith: “Supply of investible impact deals remains an issue. These guidelines will help the whole ecosystem evolve.”
Bay of Plenty community trust BayTrust allocates up to 10% of its $250 million endowed investment base in impact investing. Its impact investments are targeted towards improving housing conditions for those living in inadequate housing; generating opportunities for meaningful, sustainable jobs; and addressing environmental or climate change issues.
BayTrust Chief Executive Alastair Rhodes also chairs IIN. He said, “It’s taken us 10 years to get to a 10% impact allocation, which we see enhancing our ability to accelerate bold and meaningful change for our community. I believe these guidelines will help other trusts get to this point much quicker, and help catalyse the transition to a truly sustainable Aotearoa.”
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