Report calls for institutional investors to help solve social and environmental issues

Multi media report Financing the Future cited the potential of impact investment to improve environmental and social conditions while generating a return for investors. Photo / 123RF

A new report is calling for New Zealand institutional investors to allocate around 10 per cent of their portfolios to socially and environmentally postive "impact" investments.

Financing the Future, a multi-media report released by green growth promotion group Pure Advantage, cited the huge potential of impact investment to improve environmental and social conditions while generating a return for investors.

Simon Millar, executive director of Pure Advantage, said impact investing was possibly the most viable financing strategy for creating a desirable future.

"To resolve societal and environmental challenges such as affordable housing, biodiversity loss and climate change, we have three basic options: raise taxes, raise national debt or facilitate more private and community sector investment into social and environmental issues," Millar said.

"Impact investing represents a growing global movement, and, perhaps, the most viable financing strategy for creating a desirable future."

The report focuses on four areas of potential impact investing in New Zealand:

• Forestry - Forest and land-based assets that can be used to off-set carbon emissions and align to New Zealand's SDG and Paris agreement goals.

• Housing - Allowing progressive housing ownership models through access to long term low interest capital.

• Circular Economy – There is potential for up to $8.8 billion worth of additional GDP in Auckland by 2030 if the city established a circular economy.

• Social Procurement - buying power to deliver social, cultural and environmental value, above and beyond the value of the goods or services being procured.

Author of the report's core narrative Alex Hannant said New Zealand is primed for impact investing given the increasing public and commercial interest in making a positive difference through our business strategies and consumer choices.

"Right now, our impact investment market is ad-hoc and underperforming," Hannant said.

"But with a strategic approach to growth, we can build a capital market that aligns the goals of economic success with well-being and sustainability, rather than seeing them as trade-offs."

David Woods, independent deputy chair of the Impact Investing Network, an organisation also helping to promote the report, said New Zealand has many small deals being done at community trust level, but very few at the large-scale end.

"We want to shift the paradigm when it comes to solving social problems, from philanthropy to institutional thinking," Woods said.

"Globally, it is becoming accepted that a 10 per cent or smaller investment of a large portfolio in impact products over a long period of time is optimal for financial, social and environmental returns."

New Zealand was recently accepted to the Global Steering Group for Impact Investment, allowing the country access to international deal flow and global ideas, plus the ability to push kiwi initiatives.

"We have some big issues in New Zealand plus some really unique attributes that make investing here attractive," Woods said.

"As an example, cleaning up the Waikato River is estimated at $2.5b, and the Avon will be a couple of hundred million."

Woods pointed to iwi investors as giving New Zealand a point of difference.

"Iwi groups give us a unique proposition in terms of the maturities that we can fund," he said. "For example, we could consider a 100-year bond maturity because the iwi groups would have that long-term view."

In 2018, the market size of impact investment in New Zealand was estimated to be $100 million, while globally it is estimated to be around US$228b ($333b).

Those wanting to learn more and read the full report can do so here.