Rodney Schwartz, Founder and chief executive officer, ClearlySo
Please give us a bit of background on yourself, and how your organisation plays a leadership role in the impact investing space.
I started off my career on Wall Street in the early eighties, and worked in corporate finance for nearly two decades at the likes of Lehman Brothers and Paribas before starting my own venture capital firm focused on fintech, Catalyst Fund Management & Research.
This experience, and various other developments led, in 2008, to my founding ClearlySo, which has since become Europe’s leading impact investment bank. Like any other investment bank, we help businesses to raise capital by connecting them with institutional and high net worth individual investors, and provide the deal structuring and advisory services required to do so. Unlike every other investment bank, all our clients are organisations that have a significant environmental, social, and/or ethical impact. To date, we have worked on over 130 deals to raise more than £140 million for businesses, charities and funds, and given advice and support to thousands of other companies and charities.
In addition to this, last year, we launched an online impact assessment solution, ClearlySo ATLAS, which, for the first time, is specifically targeting PE and VC firms. It is designed to reach beyond specialist, impact-focused funds to inform an industry that has historically been sceptical of the word ‘impact’, and to highlight that considering impact alongside risk and return in investments can present new opportunities, as well as avoiding environmental and social “landmines”.
How well are companies adapting to the mainstreaming of purpose-driven finance? What ways is impact investing making headway, and where is it lagging?
We are seeing a growing demand for an impact focus more and more across the finance world – ClearlySo ATLAS, for example, was developed after several PE and VC firms approached us asking for such a product. Recent developments such as TPG’s well-publicised $2 billion RISE fund in the US, and the £50m+ first close of Manchester-based Palatine Private Equity’s impact investment fund (in interests of full disclosure, ClearlySo advises Palatine) demonstrate a big mindset shift from investors.
Nevertheless, there is still a shortage of impact investment available. Estimates vary, but globally there is around $100 – 200 billion dedicated to impact investing – the latest figures from the GIIN’s 2017 Annual Impact Investor Survey report nearly $114 billion in impact assets. Compared to the nearly $150 trillion of financial assets managed globally, this doesn’t seem like much at all. However, that $150 trillion will grow at about 5% per annum, whereas the impact investing market is growing at 40% per annum. Impact investing is on course to be the next big disruption in finance.
Millennials are building a reputation for caring about social impact more than any other generation, and in the US alone they are set to inherit $41 trillion, so they will be great drivers of impact investment in the years to come.
The Sustainable Development Goals have been a great catalyst for getting private, mainstream investors to think about impact. As the global challenges we face intensify, I believe we will see more investors and more businesses respond accordingly. Take the Paris Climate Agreement, for example – even major oil producer Exxon Mobil didn’t want Trump to pull out.
From a ClearlySo perspective, as we work with both self-defined “impact investors” and mainstream investors, we often see mismatches between the expectations of the entrepreneurs that we work with, and the type of deals that investors are used to. ClearlySo’s role is to address this mismatch between impact businesses and investors, and to realign both sides’ expectations.
What challenges do you see for the future of purpose-driven finance?
That is still a lack of infrastructure to support the various stages of impact businesses growth, however we are seeing this being addressed more and more, for example we worked with UnLtd on their accelerator programme, Big Venture Challenge, which ran 2013 – 2016 and supported over 100 ambitious entrepreneurs in scaling their impact business. In the UK, Big Society Capital have been an impressive catalyst for the impact investing sector. Other governments would do well to look at the impact investing space in the UK, and see what has made it flourish, and learn from this.
As this is a new area, there is a lack of talent and appropriate skills shortage, but with the purposeful-minded millennial generation I mentioned earlier, we are starting to see a flood of young talent. Most business schools now have an impact course that are growing in popularity – at Wharton Business School, for example, more students are enrolled in their impact investing course than the traditional investment management class. At ClearlySo, we are starting to receive more and more applications and enquiries from exceptionally talented people – and not just millennials – who have had excellent careers in management consultancy and mainstream finance and are now being drawn to the space.
Finally, I think there remains a perception that impact must always mean profit or growth is sacrificed, which isn’t true. For example, one of ClearlySo’s clients, and the first impact business I became involved with was online giving platform JustGiving. JustGiving dramatically reduces the costs of fundraising for charities, and has seen around $6 billion of funds pass through its website to charities, and at the same, its investors have seen the value increase by about 20 times. The best kind of business is where their impact and profitability are inextricably linked.
How has impact and ESG-oriented investing evolved in recent years?
ESG-oriented investing has had a reputation for limiting – screening out so called “sin” stocks such as tobacco and arms fail to create any opportunity, and creating thematic funds such as investing in renewable energy or clean water also led to problems such as a lack of diversification.
There is growing recognition that putting ESG in one bucket is not a long-term genuine approach, and fails to recognise the full breadth of considering the environmental, social and ethical impact of investments.
As I mentioned earlier, assessing impact can be more than just risk mitigation, it can also reveal opportunity – and we are starting to see that more and more in the mainstream.