At a time when responsible investing has moved into the mainstream, Mark Ingram, Chief Impact Officer at Brightlight Impact Advisory has been innovating corporate approaches to ‘doing good’ in the world. He talks with Miriam Delacy about how the landscape is evolving and the opportunities for financial planners and their clients.

Having worked across the not-for-profit and corporate sectors for well over a decade, Mark Ingram has seen an encouraging transition towards goals of purpose and profit being more aligned. Once seen as mutually exclusive, the idea of putting positive impact on society and the environment on an equal footing with growth and revenue is actually starting to add up for businesses.

This growing recognition that a successful organisation is a sustainable organisation – delivering benefits to all stakeholders – has made it possible, and perhaps essential, for an organisation like Brightlight Impact Advisory to exist. Working in partnership with institutional investors, not-for-profits and governments, they specialise in consulting and management for impact investment initiatives. Their team are on a mission to ‘change the world by creating an environment in which long-term investing, human flourishing and environmental stewardship go hand in hand.’

Joining Brightlight early in 2019, Mark brings an exceptional skillset to his strategic role within the team. Following a career in international trade where he advanced to the highest level as Melbourne Consul-General and Trade Commissioner for New Zealand, Mark took a leadership role with the Business for World Poverty Relief Alliance, a forum for Australian businesses to address global poverty and its causes. Drawing on his knowledge of international business operations, he quickly went on to set up and launch a new not-for-profit, Business for Development (B4D). Using a unique business model, B4D is the only inclusive business advisory in the world working to address extreme poverty without reliance on charitable donations.

Rethinking corporate responsibility

The B4D client list includes some of the biggest corporates in the world, such as Coca-Cola Amatil, Kelloggs and Visy Industries. With their interest in making an impact on global poverty as an intrinsic part of their operations, many of these companies were already advancing on their journey away from traditional models for businesses seeking to build a better world.

“In the past companies were acting as philanthropists outside of their core business,” says Mark. “Corporate Social Responsibility (CSR) was completely detached from other business functions. But then companies started to see the benefits in doing good for people and planet as an integrated approach to their business instead of a bolt-on function. At B4D we worked with our corporate partners on remodelling their core business activities around alignment with social and environmental outcomes.”

Mark offers the collaboration between B4D and Cotton On as an example of a company reducing the risks of unethical practices to their core business, and supporting their broader stakeholder community in the process. “In 2012 the Rana Plaza collapse led to a lot of concern around how companies had built their supply chains into countries like Bangladesh,” says Mark. “The first wave of scrutiny was around disclosure in the garment industry. Is your company buying from a factory that pays a living wage to employees?”

“Cotton On went one step further to explore where the raw materials come from. This led B4D to design a supply chain to help them connect with cotton farmers in Kenya. This initiative doubled the farmers’ income and secured a supply of market-competitive lint into the factories in Bangladesh.”

At first glance this supply chain initiative might seem to be motivated by a sense of social responsibility among business leaders wishing to support the livelihoods of cotton farmers and garment industry workers. But it was, in fact, a strategic move towards protecting the future of Cotton On as a thriving, competitive business.

“Although the Rana Plaza incident was a human disaster with an immediate negative impact on the reputation of the garment industry, it highlighted a significant ongoing risk to security of supply,” says Mark. “The shared value agreement between Cotton On and their Kenyan suppliers supported the farmers with a decent return on their crop. The value for Cotton On in return is the assurance of a 10-year supply of high quality cotton. There’s mutual benefit for both parties which makes for a strong and sustainable relationship.”

“It’s about future-proofing your business,” he adds. “If your business is designing for the social and environmental challenges you face then you’re protecting future value for shareholders and the sustainability of your core business.”

The public/private dynamic

Another major concern for companies looking to secure a future as market leaders is labour supply. In a whole range of industries and regions, access to a bigger talent pool is seen as critical to innovation and competitive advantage.  According to Mark, this makes inclusive employment another important strategic goal for the private sector.  “By hiring people with disabilities, creating pathways for youth to access employment or focussing on work opportunities for any marginalised group you’re also future-proofing your business,” says Mark. “You’re securing your talent base by drawing from a larger pool of potential employees.”

Mark also points out that an inclusive approach to employment is becoming essential for firms wishing to supply government. “There is also a growing trend for governments to have contract clauses for social procurement,” he says. “This was predominantly in Europe to start with and is now coming from the US and we’re seeing it introduced state by state here in Australia. To tender for public sector projects, a certain proportion of your supply chain must come from indigenous businesses or people with disabilities for example. This is one way that governments are looking to solve welfare, development and social outcomes. If you want to be a preferred contractor to government, you need to think about how your business model is socially inclusive.”

This is just one example that highlights the growing alignment of public and private sector interest in improving social inclusion and welfare outcomes. One of the current investment products Mark and the Brightlight Impact team are developing is a fund investing in social housing for people with disabilities here in Australia. “The government is tasked with trasitioning young cohorts of people with disabilities who aren’t currently housed in purpose-built accommodation,” says Mark. “In fact many of them are in aged care. Moving them to purpose-built accommodation with wrap around community support services leads to better futures for these young people.

“The National Disability Insurance Scheme (NDIS) provides a degree of government funding support and protection for investors coming into this housing stock. And we’re seeing a lot of  these projects now under development thanks to this hybrid funding model. Our plan is to scale this up to become a real estate impact fund that can be accessed by institutional investors, such as super funds, but will also be made available, in due course, to financial planners and their investors via the usual platforms.”

The question of risk and return

Funds like these are just one example of how impact investing products are now offering an attractive risk and return profile. “There is no doubt that impact investing has matured beyond proof of concept that you can generate impact outcomes while delivering a return to investors,” says Mark. “We’ve also dispelled the myth that you need to sacrifice returns to generate impact. One of Brighlight Impact’s institutional clients, a super fund, have consistently achieved their mandated return for impact assets, which now make up 10 per cent of their portfolio.”

Of course, clients are relying on financial planners to protect them from risks in their investment portfolios as well as generating income and returns. Given the investment conditions we’ve seen in 2020, clients might be particularly wary of the risk factors for impact investments at this time.

“Clients are likely to be asking should I be looking for a safe haven for my wealth when markets have become so volatile?” says Mark. “But our data on this reveals how impact investing can derisk a portfolio. If we take the super fund I mentioned as a point of reference, there is negligible correlation between the impact assets in their portfolio and stocks, bonds and even property. Variables that influence disability housing in Australia are quite different to those that affect listed equities in Asia, for example. These uncorrelated impact assets can be a true diversifier.”

Mark also points to the advantages of impact assets offering a fixed income return in the prevailing low interest rate environment. “Now that cash rates and bond markets are lean, an impact fund based on debt which is targeting 4 per cent is looking good as a fixed income option,” he says. “If it’s a blended finance fund, like the NDIS example, you have a government providing risk protection which makes it even more attractive.”

Ethical vs impact

As a relatively new segment of the responsible investing universe, impact investing is quite different to other ‘ethical’ approaches to investing. It’s now fairly common for many investment products to apply negative screens to eliminate assets from their portfolio that are exposed to industries known to do harm to society and the environment. These might include fossil fuels, tobacco and weapons to name a few. Impact investing, on the other hand, allows capital to be directed towards assets that are actually working to benefit society and the environment.

Mark acknowledges that, when it comes to responsible investing, it’s easy to get lost in the jargon and labels used to describe the investment world. This makes it more challenging for financial planners to gain a better understanding of just what it is their clients are investing in. “The Impact Management Project is a global effort to try and standardise the language we use to describe the impact economy,” says Mark. “They have introduced the A, B and C of impact performance and this can give financial planners and their clients a way to consider how successfully investment products meet their goals for environmental or social change.

“A is Avoid Harm and to do this involves looking at the current screens applied to investments and the underlying holdings to see if these resonate with your client. B is to Benefit Society and you can select from sustainable funds out there in the market that are positively aligned to the United Nations Sustainable Development Goals (UNSDGs) which have been widely adopted by the investing community as a set of impact goals. It’s relatively easy to educate yourself about these funds and get exposure for your clients to returns and beneficial impacts.

“C is to Contribute to Solutions and this actually involves moving capital that’s not currently allocated towards making an impact. This means stepping away from traditional capital markets and looking at unlisted investments. This kind of exposure isn’t currently available to retail investors, but it is possible for wholesale and institutional investors. So the best way for a client to access these investments, for the time being, is to choose a super fund that has a commitment to impact investments.”

Means to measure

However, Mark also acknowledges that determining whether an investment product falls into category A, B or C is just one part of the process for evaluating their impact performance. Companies and the funds that invest in them have yet to land on a consistent, universal way of measuring and reporting on impact.

“80 per cent of sustainable investors now align with the UNSDGs, up from 45 per cent in 2017,” says Mark. “These goals are emerging as the natural framework that the world’s governments and companies and data analysts find most useful. But while they provide a taxonomy for impact, they don’t tell you anything about relative performance. For example, if I look at 10 sustainability funds in the market today, ratings agencies can help me rank them by ESG and investment performance. But they can’t rank them according to their relative SDG-aligned performance, though there is good work being done in this space

“I think better data analysis to inform decisions based on impact outcomes will be the next wave of change in this space. The UN may put forward SDG indexation of outcome per million of dollars of capital deployed as a potential measure of impact. But this won’t tell us where money needs to move towards to solve problems. We also need a heat map of where capital is lacking to support the regions, sectors and marginalised populations where SDGs are not progressing.”

Access to impact opportunities

Analysis of where capital is needed most is perhaps the missing piece of the puzzle that financial planners need in order to talk with clients about impact investing in a more strategic way. Many financial planners will already be having conversations about how clients’ personal values might direct their wealth towards having a greater impact, but there may also be scope for them to consider where their money is needed most.

“Much of money invested by Australians in impact is directed to climate change goals because many people living here now see this as an important priority,” says Mark. “But if everyone is passionate about solar farms then that’s where the majority of money will go, leaving other impact goals with less private capital to support them.”

For now, financial planners are tasked with helping clients align their personal vision with other wealth management goals. So how can they do this in an integrated way? In Mark’s view it’s a case of engaging with the product offerings available and applying the same rigour to your research as you would for all other investment considerations, such as risk and performance.

“When you look at impact products for clients, don’t put aside your conventional investment due diligence and discipline,” says Mark. “As you do the research you will begin to see  a growing number of products available because there is strong demand in the market to support this growth. There are all sorts of funds accessible for retail investors and you need to interrogate these on sustainability performance as you would for recommending a property or equity investment based on investment performance.”

“My counsel would be to avoid being persuaded by the brand and ‘story’ for a product. Instead look for products that are giving a clear view of high quality data on sustainability outcomes. Ask fund managers the hard questions such as how they authenticate that a fund is reducing carbon emissions or providing social housing solutions. If enough financial planners ask those questions the market is going to have to solve for finding answers. In doing this you become a change agent, both on your own behalf and on behalf of your clients.”