IWD 23: the link between risk, return & impact

There is a correlation between risk, return and impact on financial markets, according to Impact Investment Exchange’s (IIX) Durreen Shahnaz – and issuance like December’s ‘orange bond’ can make money while supporting the right causes.

Speaking with ANZ MD, Institutional Australia & PNG, Tammy Medard on podcast ahead of International Women’s Day (IWD) in March, Shahnaz said the success of the five Women’s Livelihood Bonds – of which the ‘orange’ bond is the latest – showed potential rewards are there for investors willing to step into the space.

“There is a correlation with risk, return and impact,” she said. “Meaning your risk actually goes down if you can show deeper impact in the community, with the women [and] with the climate.

“And the fact that you'll get your return, if the three are correlated.”

The ‘orange bond’ is a four-year, $US50 million issue of sustainable debt structured under the Orange Bond Principles, aimed at supporting almost 300,000 women across Asia and Africa move to “more sustainable, climate-resistant livelihoods”.

You can listen to the second part of the conversation on podcast below. You can find part one here.

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Open

A key goal of the orange bond was to be completely transparent, Shahnaz said, offering investors confidence their funds would be used appropriately – and in line with the stated principles.

IIX wanted “absolutely 100 per cent transparency,” she said. In some cases, this was a challenge.

“The reality is there they are constituencies out there where, for them, it's a little scary, the transparency, right?” she said.

But IIX was adamant toward “the whole notion of data and transparency” - and “really showing the correlation between that and the risk of the investment,” Shahnaz said.

For Shahnaz, giving the global South a voice – and its women “a seat at the table” – was another key goal of the orange bond. “I say that with a lot of pride,” she said.

Much of the impact investment activity has thus far been from the global north, Shahnaz said.

“And even when there have been conversations about women or gender-lens investing, it is all basically women sitting in London or New York,” she said. “And very few women of colour.”

The orange bond helps to rectify that, she said.

The brunt

Medard said the COVID-19 era had helped people around world better understand “how interconnected we are”.

It also helped highlight “the communities that have, and the communities that have not”, she said.

“Women probably [suffered] a bit more than men during COVID,” she said. “Whether it's because of the type of work they typically do, that demands they work harder and more hours than ever before… but also then having the caring responsibilities for their own children.

“They really bore the brunt of COVID.”

For businesses, a key lesson of that period was the importance of choices and the impact those choices have on the people and environment around us.

“When we walk into a shop, we have choices [around] how sustainable our habits are, the things that we buy, the things that we consume,” she said.

“That has really started to drive change in how big corporates are thinking about their own supply chains, or thinking about the impact that they're having in the community.”

That’s affecting corporate thinking about “how they also invest and give back,” Medard said. “That is a huge change.”

That’s particularly clear in the way many superannuation funds are selecting where to invest, she said. For banks, that’s a sign they need to listen up.

“We need to be able to create the financial markets to support this,” Medard said.

“It's really important to see evolving regulation and evolving transparency, and the coalition of the willing to be transparent and making sure that we have the right reporting tools.”

Programs like the WLB series are critical for driving that change, she said.

“I think that's what I like so much about the orange bond initiative,” Medard said. “It's driving that and saying, ‘here's what we stand for: join us if you're ready for it, or go somewhere else if you're not’.”

Leaning in

This year’s IWD theme is ‘embracing equity’. For Medard, the orange bond is a key step toward the kind of equity we need to see more of.

“[The theme is] saying, ‘let's not just sit back and perhaps think it inside our head, but actually lean in and do something to drive that equity in our society’,” she said.

That’s what’s needed to get to where we need to be, Medard said

“I think what the five bonds have done is exactly that,” she said. “I'm really encouraged about how far we've come, this partnership between ANZ and IIX. And I think there's so much more to go.”

That new kind of thinking is what will drive the future of impact investing, according to Shahnaz.

“Maybe if you're more inclusive [in your investment], then guess what? It actually helps reduce the risk, if you're actually helping a community,” she said. “Maybe the community will make sure the organisation actually thrives.”

“For us as a group in financial markets, we need to start thinking a little differently, and sharing that with investors.”

Listen to the podcast above to find out more.