Recently, I had the pleasure of meeting Noel Kullavanijaya and Brooke Randall from Equilibrium Capital Group (ECG).  During their visit to the MaRS Discovery District, Noel and Brooke participated in a breakfast with emerging leaders in the finance and social enterprise sector.  The event was co-sponsored by Young Social Entrepreneurs of Canada (YSEC), Toronto for Acumen, SocialFinance.ca and Social Innovation Generation.

ECG presented their business model on how sustainable investing can reach scale with positive social and environmental impact. For ECG, sustainable investing means long-term values that resides in what is important to people – better places to live, and healthier communities. The organization uses financial instruments that release the profits from the values of doing it right. Because “doing it right” drives “doing it profitably.”

Long-term investment is a requirement for sustainable investing.  Consider this reality: 4 billion more people in our generation are driving a car and eating chicken than previously.  This expanding middle class in developing nations has huge implications on sustainable energy sources and a shift in the supply/demand relationship.  To meet these changing demands, a sustainable, innovative and long-term investment strategy needs to take shape.

During their visit, Noel and Brooke illustrated the upcoming trends in impact investing. Here are some examples of scalable investments that make a long-term difference to communities and provide financial structures and products that are attractive to a broad stream of investors. 

Real Estate: With rising operating expenses, there is higher value in energy efficiencies, and opportunities to provide “better” places to live and work.  ECG invested in a green building with renewable energy technology and was able to meet a high demand at premium prices. Quantitative data is now available that informs investment decisions to drive demand for these kinds of residential and commercial buildings. In fact, NOT building sustainably may expose a firm to greater risk than otherwise.

This reminded me of Toronto's own example. Consider the Toronto Atmospheric Fund (TAF) that prototypes new ways to finance innovations that reduce carbon, such as their partnership with Tridel to develop the Green Condo Loan program to support energy-saving high-rise construction, saving condo owners an average of $500,000 per building. TAF’s investments in new technologies are testing prototypes and then refining them to reduce risk for wider adoption in the traditional markets that can take these innovations to scale.  Watch the “Meet the Investors” video with TAF and GEMCO to get a quick picture of their model. 

Another example outlined by ECG is water infrastructure. Rising commodity prices means there is value in developing new ways to use grey and black water.  This is the energy upside.  US federal government rates the cost to upgrade water infrastructure to be $4B in the next five years.  We know that rate payers are paying more for water and governments do not have the ability to meet the infrastructure needs.  The opportunity is for those in the capital markets to build products and services that can meet the financial investments for new water technologies that will build sustainable and more affordable grey water systems.  There is significant value in waste and grey water, from bio-gas through to decreasing energy use.  Take a look at the ECG report on Water & Wastewater:Profiting from the Nest Big Wave for a deeper look at the issues and opportunities.

Land use: Mixed land use includes conservation, sustainable real-estate, agriculture, and renewable energy opportunities.  Historically, land has been used on a single-purpose basis, such as agriculture or residential use, only.   Today, land is becoming “mixed use” with a layered revenue opportunity; examples include renewable energy, agriculture and timber, water, sustainable real-estate development, conservations and enviro-services.  This trend allows for resilient multiple revenue sources and long-term appreciation.

The above examples are the hidden alpha in sustainability investment trends.

Noel described the vision of ECG to see impact investing embedded into the core of investor activity.  This is smart investing that generates long term sustainable results and means doing the right thing for communities, employees and the environment. For this vision to be realized, impact investing needs to provide investors with common and accredited language for:

• Risk management
• Returns measurements
• Impact performance  with benchmarks (GIIN, GIIRS, UNPRI)
• Governance (B-Corporations)
• Government and policies that remove barriers to investment

The fundamentals are sustainability, as applied to impact (communities and environment), to the business of investing (managers, business model), to invested assets (long-term, stable).

Equilibrium Capital aims to inspire and attract the talents of experts who can bring the vision to life, breaking down silos, and serving the common vision.  They ended their presentation by stating that “we will not be limited by our own limitations; we will collaborate. We call this “convene to build.” This vision has inspired our social finance team here at MaRS by presenting a compelling case for how impact investing can be used at scale and where opportunity exists.

Photo credit: Equilibrium Capital, edited.

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