Sir Stephen Tindall talks 'financial citizenship'

Wednesday, 28 November 2018

Sir Stephen Tindall explains the philosophy behind Impact Investing.

Sir Stephen Tindall wants to talk about 'financial citizenship'.

This is capitalism with a new face.

It's people investing their money for a return, but a return that's counted both in dividends for the investor, and for society.

His Tindall Foundation, set up following the sale of The Warehouse in 1994, was an expression of Tindall's own belief in financial citizenship.

* KiwiSaver, cluster bombs, mines and nukes**

The Warehouse founder, investor and philanthropist Sir Stephen Tindall.

'Once we had [listed] The Warehouse, we had all these dividends coming in.'

'I wanted to do something good with it. I didn't want to invest it in any old thing any industrialist might do.'

At the time, the Tindall Foundation was a 'lone wolf', Tindall says, but that's changed, and he believes New Zealand is on the cusp of a financial citizenship revolution.

Tindall is championing the new Financing the Future report from green growth think tank Pure Advantage, which maps how 'impact investing' could go mainstream and help tackle social and environmental problems on which governments have made little headway.

Impact investing primer

'Financial citizenship means investing in things that you believe will make a difference to the country, not just to your financial return,' says Tindall, one of the Pure Advantage trustees.

Impact investing has three elements.

First, the investment must have an intention to have a social impact.

Second, the investment must have a financial return for the investor.

Third, the social impact must be accounted for, and reported on.

This last is critical. Tindall, and the Tindall Foundation isn't in the business of accepting assurances from the founder of a social enterprise that they are doing good.

'You can't just stick a wet finger in the air,' Tindall says. 'You have got to be very robust about it now.'

Not responsible investing

The investment world is replete with jargon, and it is easy to confuse terms.

No KiwiSaver would now tolerate investments in cluster munitions.

Impact investing should not be confused with responsible investing, which has taken the world of KiwiSaver by storm.

By and large, responsible investment is about putting money into businesses that do not cause harm.

Its primary tool is avoiding investing in socially and environmentally damaging industries, or companies, such as tobacco firms, and arms makers.

That's doing good by not doing bad.

Impact is investing is doing good by trying to do good.

Everyone should know it

Tindall believes the country could be transformed, if we all threw some of our support, and money behind impact investing.

'I'd love to think there are enough people who will see the benefit of this, and get more into it,' he says.

'Since we started 22 years ago, we were almost a lone wolf in those days.'

These days, it's getting more common, with angel investors and crowd-funding giving social impact businesses a start.

'It's fantastic to see how many young companies are getting legs up with these sorts of organisations, and also with crowd funding,' Tindall says.

The returns

The return expected is a challenge. He gives the example of the Tindall Foundation's social impact investments.

'If we are getting a 3.6 per cent return on a term deposit, we would want the social impact investment to at least meet that.'

Waikato River Authority chief executive Bob Penter says the impact investment opportunity created by the organisation could lead to massive environmental gains for the Waikato and Waipā River catchment.

This is sacrificing of some, but not all, of the financial return.

This can mean taking equity-like risk, and getting a bond-like return.

How might this work for an investor?

Next year, the Waipā Agri-Impact Fund hopes to go to the market to raise money from the public to buy polluting dairy farms along the Waipā River, convert them to organic farming, slash their run-off, and deliver a double return: a cleaner river, and a financial return for investors.

The project is outlined in the Financing the Future report.

Bob Penter, chief executive of the Waikato River Authority says the fund is 'working with investment specialists to develop a 10-year hybrid debt-equity bond with attractive financial returns. We hope to have this ready for investment in the second quarter of 2019.

Sam Stubbs, founder of the Simplicity scheme.

'It will be structured to provide a guaranteed fixed interest payment every six months, alongside a share in capital gain from the eventual exit after 10 years.'

The reason for going public with the capital raising is because about $150 million is needed to buy the polluting farms.

KiwiSaver impact

One day, Tindall believes a portion of KiwiSaver capital will be invested in social impact businesses, and investments.

Tindall has been impressed with the impact of Simplicity, and its founder Sam Stubbs, which quickly moved to exclude tobacco and weapons-makers.

'If we're successful we should see some KiwiSaver funds flow into it,' Tindall says.

'With KiwiSaver those guys (the fund managers) have to get a return, there's no two ways about it.'

'[But] some of the best investments you can get have a very big impact approach.'

Government impact investing

The Government's KiwiBuild programme looks to Tindall like a giant impact investment incubator.

It could provide a scale opportunity to industrialists to re-engineer house-building and provision, through investments in house-building factories.

Tapping private equity, and innovation, has a big part to play in making New Zealand a better place, Tindall believes.

'It's more how can the private sector help with the issues government's struggle to fund through the lack of income through taxes,' he says.

Birthing the future

Middlemore Hospital, Counties Manukau Health.

He gives the example of a project begun around two decades ago in which the Tindall Foundation helped build aspiration pathways for Maori and Pasifika children into the healthcare system.

A trip to Auckland's Middlemore Hospital meant locals interacting with overseas-born healthcare workers.

The project was designed to take children through the hospital, and show them how they could join the workforce there.

The message, Tindall says, was: 'You could actually be a doctor, a nurse, a physio, if you get on this path now.'

'They're now starting to populate the hospital.'

Society would be better off, if more youngsters could avoid the dead-end life of gang membership.

'About 30 per cent of midwives in the Counties Manukau DHB are now Māori.'

It's a social investment of getting people who were not able to get jobs before because they didn't have the aspiration or desire to actually change their lives and get into work.'

The financial return would not be for an investor, but could be for a government.

'If you had said to the Government, you want to increase the number of Māori and Pasifika into hospitals. What would you pay us to achieve that for you, then you have got the return.'

Impact for justice

Another area the Tindall Foundation is active in is justice.

There's a future financial return for taxpayers from every youngster saved from a dead-end life of crime.

'The Government are prepared to pay for that, because they know that once a kid goes in at say 18 on some sort of charge, he's in the revolving door mechanism,' Tindall says.

'He's recruited by a gang inside the prison, etc. That's going to cost the government a million point two until that person has been through the system and comes out at 45 and decides, 'I don't want to go back in again'.'

'If you can cut it off at the pass, the government will pay you a return on that.'