The impact investment community has a unique mantle of responsibility that is one part of a symbiotic relationship with the responsibility of consumers. As consumers, it is beholden unto us to purchase products that reflect our values, in turn affecting where investors look to spend their investment dollars.
We sat down with Katherine St. Onge, Director, Syndications and Institutional Partnerships, at Calvert Impact Capital, and discussed what new issue areas are attracting impact investors – and why.
Christopher P. Skroupa: What new issue areas are attractive to the impact investing community and attracting new sources of capital?
Katherine St. Onge: In recent years we’ve seen this awakening of consumer power – the ability to express personal values through the cars we drive, food we eat, clothing we wear, etc. Driving electric cars or wearing garments made with sustainable materials fabricated by workers who earn a living wage is an opportunity to improve the communities we live in, to create a better quality of life for ourselves and future generations. People are also realizing that their investment dollars have the ability to improve the world while earning a financial return. The continuous, year after year growth of the impact investing space is quite energizing.
Calvert Impact Capital is one of the oldest impact investing firms in the country. We believe that investing can make the world more equitable and sustainable. We lend to financially strong organizations and funds that produce social and environmental impact but struggle to access capital to grow their work. At Calvert Impact Capital, our loan portfolio has increased 10-20 percent each year, for the past few years. A few issue areas that are driving – and have driven – the growth are environmental sustainability, renewable energy and gender equity.
According to US SIF’s 2016 report, “US Sustainable, Responsible and Impact Investing Trends,” $7.79 trillion in assets under management were invested with consideration of environmental factors. “Climate change criteria shape the investment of $1.42 trillion in assets under management, a more than fivefold increase since 2014.” We are seeing a growth in the breadth of investable environmental initiatives. Just last year we invested in a:
- Fund that lends, through local financial institutions, to businesses using environmentally sustainable practices in the agriculture, forestry, fishing and tourism sectors in Latin America;
- Facility that funded an anaerobic biodigester in Arizona that aims to reduce the emission of polluting methane gas, provide sustainable fertilizer and create quality green jobs; and
- A company focused on increasing accessibility to solar energy for the lower income homeowner in several regions in the U.S.
We are also committed to promoting gender equity through our investments. Research shows that women are better stewards of capital – investing 90 percent of their income back into their families and communities – which translates into greater access to nutritious foods, education, healthcare and increased economic activity. Most recently, we’ve focused on the development and distribution of clean energy technologies in off-grid communities in the developing world. Through increased access to products like clean cookstoves and solar lanterns, women and families benefit from reduced indoor air pollution, avoid dangerous trips to collect firewood and have more time to spend on their education.
Skroupa: Why are these issue areas attractive?
St. Onge: As an impact investment firm, we are interested in creating a robust, risk-mitigated and diversified portfolio. Investments focused on clean energy and environmental sustainability increase our exposure to new markets, innovations and investment products. For example, we made a loan to an organization that develops, supports and finances vital efforts to offset carbon dioxide emissions. This investment also increases our exposure to new market opportunities in carbon offset credit and the organizations and communities that are steering this work.
We’ve also invested in the nation’s first environmental impact bond, a type of pay-for-success transaction focused on financing green infrastructure in Washington, D.C. to improve water quality in the District. More than a dozen other cities have now taken interest in issuing their own environmental impact bonds, which would have the potential to usher in millions in private capital for public environmental projects.
Gender is not a sector or an asset class. It is a critical lens through which investors identify opportunity and assess risk. For all our investments we ask questions about gender equity because they are critical to understanding a business’ strategy and potential for success. For example, in the off-grid energy sector, companies that consider gender are more likely to understand their customer base and the true market potential for their product.
Skroupa: Do these issue areas seem like they’ll be around for more than five years?
St. Onge: Inequality, environmental degradation and climate change are only continuing to worsen; as investors, we have a prime opportunity to take action to create an inclusive, productive society, as well as address the underlying causes of climate change and preserve the resources we have left. The United Nations announced the Sustainable Development Goals (SDGs) to direct investment and development work to the world’s most pressing issues and most scalable, impactful solutions. The goals ultimately aim to “end poverty, protect the planet and ensure prosperity for all” within the next 15 years. While the SDGs provide a roadmap for allocating investments, these are entrenched social and environmental issues that will take years to solve.
For example, gender equality will not be achieved only by investing in the means to empower women and girls. Deeply rooted discrimination and cultural norms need to be adjusted for women to achieve their full potential. Social stability and economic prosperity depend on including all productive members of society and benefiting from that inclusion and the resulting diversity.
Given the increasing number of natural disasters caused by climate change and the market volatility we’ve seen recently, we believe that investing in community development and strengthening economic systems is a smart bet that will result in social, environmental and financial returns in the long run.
Skroupa: What are the indicators for continued investor interest in these issue areas?
St. Onge: Recent natural disasters – such as the hurricanes in Puerto Rico and Houston, and the wildfires in California – continue to make us increasingly aware of climate change and its impacts. Islands of plastic floating in the ocean and waterways contaminated from industrial runoff make it hard to ignore the impact our way of life has on our planet, and ultimately our health and quality of life.
The recent rollback of environmental regulations and the U.S.’s withdrawal from the Paris Climate Agreement have empowered individuals and corporations to take on the responsibility of mitigating the effects and addressing the causes of climate change.
The investor community is increasingly interested in investing in women and girls. Not only does investing in women translate to economic growth, as I stated earlier, but as women hold more wealth they demand investment products that align with their interests. I recently read in an article that, “According to the Boston Consulting Group, between 2010 and 2015 private wealth held by women grew from $34 trillion – $51 trillion. By 2020 they are expected to hold $72 trillion, 32 percent of the total. And most of the private wealth that changes hands in the coming decades is likely to go to women.”
Our latest investor survey shows interest in investing in climate change solutions as well as gender equity. For example, the top 3 most important issues to our investors were identified as: environmental sustainability; renewable energy; and sustainable agriculture – and more than 20 percent of respondents identified gender equity as an important issue area for investment.
For respondents who identified as women, gender equity is the second most important issue after environmental sustainability. More than 40 percent of millennial women respondents identified gender equity as one of the most important issues to invest in, and almost 30 percent of millennial respondents overall also identified gender equity as a top issue.
Katherine St. Onge will be speaking on a panel entitled Investment in Affordable Housing: Impact Against the Wealth Gap at the Impact Investing conference in Washington D.C. on May 3.
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