Below trend growth to continue
Inspired to make a difference in these tough times? Impact investing may be the perfect vehicle.
As Australians reflect on the devastation caused by recent bushfires and how they can effect change, for high net worth individuals impact investing is one option that can deliver results where they’re needed most, explains NAB Private’s Acting Head of Global Investment Desk Gavan Lynn.
A few weeks before Christmas, as Australia’s bush fire catastrophe dominated the news, NAB Private hosted a panel discussion for family offices. The topic was impact investing and how it could help the country’s wealthiest families make a difference to the world around them as well as to their future finances.
It’s a subject that’s attracting growing interest among high net worth individuals (HNWIs) and with good reason.
Increasingly, wealthy individuals are keen to target their capital at projects that make a positive contribution to society and the environment – even more so in the face of this summer’s unprecedented fires. Impact investing can do just that – but, unlike philanthropy, it also aims to generate a future financial return, to be recouped by the investor, or ploughed back into other worthwhile projects or entities.
It’s hardly surprising that Australia’s HNWIs have been reconsidering the fundamental purpose of capital, even before our current crisis. As a nation, we may have experienced 28 consecutive years of economic growth, but we’ve also dropped from fourth to 16th on the Social Progress Index and rank 38th on the Sustainable Development Goals Index – attracting one of our worst scores in climate action.
At NAB, we’ve found the shift is being driven, first and foremost, by family offices’ youngest members. The next generation is keen to understand exactly where its money is going and what impact it’s having. Our observations are supported by a 2017 Deloitte survey, which found that 86 per cent of millennials report an interest in sustainable investment.
The global impact investing market has surged in recent years, pushing through the US$500 billion mark in 2019. Australia’s market, meanwhile, grew fourfold in just three years with estimates suggesting a $32 billion market by 2022.
Despite this, impact investing remains a little-known concept, particularly in Australia. NAB is determined to change that; we want to help people understand the benefits and opportunities impact investing offers, as well as bring together both sides of the equation – the social and environmental organisations in need of funding and the potential investors.
It’s partly about awareness, partly about education, and partly about creating the opportunities in the first place. Whether it’s plastics in the ocean, renewable energy, homelessness, there’s always a worthwhile cause out there. It’s simply a matter of finding investors to help support them while also ensuring people are teamed up with a business, social enterprise or managed impact investment fund that meets their family’s objectives.
NAB has been a pioneer in impact investing in Australia. Recently ranked first among Australian companies in the Global 100 Most Sustainable Companies Index, the bank has gone out of its way to create investment opportunities in areas that benefit society and/or the environment.
In 2014, NAB achieved a world first by successfully launching a green bond into the domestic market. The $300 million deal financed various renewable energy assets and was very popular among wholesale investors. Since then, NAB has done some 30 more similar transactions.
Typically, these bonds are low return and attract superannuation funds for the most part. In fact, they can be quite difficult to access as they open and close very quickly. There is still room for HNWIs however, as they typically qualify as a wholesale investor and can gain access via the NAB Access Bond Service with an investment of $50,000.
It’s the similar story with social benefit bonds (SBBs). NAB has also been active here, partnering with social purpose organisation Life Without Barriers and the Queensland Government to launch the #YouthChoices bond, which aims to help young people at risk of being placed on remand.
The $8.2 million SBB funded the establishment of Queensland’s first Multi-Systemic Therapy program, which is delivered by Life Without Barriers. The deal was structured so that the achievement of agreed program outcomes triggered performance returns to investors, paying a minimum coupon of 3 per cent p.a. and a maximum of 12 per cent p.a. over its 6.75-year life.
The provision of affordable housing represents another investment opportunity. NAB committed $2 billion to support property organisations looking to home financially disadvantaged individuals.
Again, government played its part here by servicing part of the loans that NAB provided. However, with NAB Corporate Finance being the Australian market leader in originating Sustainable Finance opportunities, there will always be an opportunity for HNWIs and families to participate in either equity, mezzanine or debt instruments, and support enterprises that are making a difference.
Admittedly, many are already using their capital indirectly to help create positive social and environmental outcomes while also enjoying a financial return. What is missing though, is a true sense of impactful purpose from the start – to intentionally seek out investment opportunities that help make a difference.
It’s here that NAB Private can help. Its underlying aim is to understand people’s needs, whether personal or financial, and connect them with teams across the NAB Group, such as JBWere and NAB’s Global Investment Desk, who’ll set them on the right path to meet their objectives. As far as impact investing is concerned, it’s a matter of uncovering an individual’s passions and helping them identify the causes that are right for them. Once that’s understood, we work out how we can help them invest into a relevant business or social enterprise.
That takes vision and commitment. But the stakes are higher than ever, and it’s important we’re aware of what we can do to help make investments that future-proof our society and environment for generations to come.
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