In the face of urgent social, economic and environmental challenges, investors are harnessing the power of capital for good. Investec's Stephen Koseff talks to Aunnie Patton Power, one of the pioneers of impact investing in South Africa.
A “reformed M&A investment banker,” Patton Power has worked with start-ups, intermediaries, funds, family offices, foundations, corporates and governments across four continents. Her work has been published by the Oxford University Press, the Stanford Social Innovation Review (SSIR) and the World Economic Forum.
The founder of Intelligent Impact, an advisory firm for social impact initiatives, she holds senior positions at of Oxford University’s Saïd Business School, the University of Cape Town's Graduate School of Business and the Marshall Institute at the London School of Economics.
On being a “reformed investment banker”
“I absolutely loved the work. But like a good millennial, I felt uncomfortable with the deals that I was doing… the sectors I was working in, were for-profit, education and health care, in the States, and to be honest, felt quite ashamed of the work that I did… And so I asked myself a question, which was: if I’m really good at what I do, is there a way for me to use these skills, and actually make the world a better place?” – Patton Power
On maximising profits
“When I was at business school, the core purpose of the firm was to maximise profits. What I think we’ve subsequently learned, in today’s age, it’s not about maximising profits, it’s about delivering an acceptable return to your shareholders, but also making sure that all your other stakeholders benefit from your activity” – Koseff
On what impact investing is
“Impact investing is about making investments into organisations, that have a positive social environmental impact, and potentially, financial return. 84% of impact investors, surveyed by the Global Impact Investment Network, look for what they deem to be market rate, or close to market rate returns.” – Patton Power
On why impact investing is not an asset class
“Impact investing is a strategy - it’s not an asset class in itself, which is a misconception - it’s crossed every asset class, it’s across every sector, it’s a way of looking at investing, and saying, how do we optimise around multiple things... So is it wealth just for individuals? Is it wealth for communities that we’re investing into?” – Patton Power
On why every investment is not impact investing
“Every investment has impact - positive, negative, social, environmental. The difference with impact investing is that you start out with an intent to create impact, and then you measure the data around whether or not you’re achieving that goal.” – Patton Power
"84% of impact investors, surveyed by the Global Impact Investment Network, look for what they deem to be market rate, or close to market rate returns."
On finding customers that are under-served
“Often impact investing is about finding people that are currently not being served by the market, that can be poor, that can be women, that can be sexual orientation, that can be geography... If you go in, trying to create them as loyal customers, and build value for them, as opposed to trying to extract rent, then you’re building businesses that are going to be profitable in the long term.” – Patton Power
On the different ways you can employ impact investing
“There are a bunch of different ways in which you can look at how you’re creating impact, as an impact investor; one is your major enterprise impact, so what’s the actual impact of the organisations you’re investing in? Another is your actual investment impact, so how are you investing? You can choose to be more flexible and patient; you can sit subordinated; you can look at deals that other people wouldn’t necessarily look at; you can offer guarantees based off of your balance sheet. These are all ways in which you can have investment impact” – Patton Power
On how financial markets price risk
“In 2018, 87% of the S&P 500 was intangible assets. We price what we can’t see, all the time. So this idea of impact, being unmeasurable, and not being able to invest in things that we don’t see, we actually do that all the time, and we’re, a lot of times, making up numbers” – Patton Power
On what’s not impact investing
“Now mines are not impact investment... you also have to look at the nett impact of the investments you’re having. So just because you’re creating a hundred jobs, but you’re potentially polluting a waterway, and having felt negative health impacts, doesn’t necessarily make it an impact investment” – Patton Power
On Standard Bank and the first climate risk-related resolution
“Standard Bank faced a resolution from its shareholders, they have to do two things, one, to report on their standards and their policies around carbon; and then the other, to do full ESG reporting to be able to actually look at the carbon costs of the investing it’s doing. The first one passed, 55% of the vote; the second one got 38% of the vote; that means, next time, it will likely pass. That was the first shot across the bow, from a set of activist investors for South African financial institutions; so it’s coming.” – Patton Power
On impact investing in the AI space
“From an impact investing perspective, automation can bring down the cost of consumer goods, so that the poor are able to access them. You can’t, at the same time, displace jobs. There are impact investors whose strategy is only to invest in workforce-enhancing technologies. I think we’re going to have to go more radical than that, I think we are going to have to think about, what does society look like, post work; because we are getting to the stage where there are going to be millions of people that do not have, what we consider, traditional jobs” – Patton Power
On the gap technology is creating between rich and poor
“The leap we’re making, from the linearity of where we are with AI, to where we’re going with quantum computing, is staggering. Essentially, quantum computing has the ability to analyse all scenarios at the same time. And so suddenly, this gap in places that have access to technology, and those that don’t, becomes huge” – Patton Power
On incentivising companies to invest sustainably
“We have trillions of dollars in the world, that creates motivations, for individuals, for companies, for governments, and so aligning those motivations, to be able to understand, and try and optimise for social and environmental impact, means that we are going to have to make choices, that are not necessarily trade-offs, but we are going to have to think about, how do we incentivise companies to actually behave in a sustainable manner?” – Patton Power
On growing a mindset of sustainability
“What does it mean to have sustainable growth? It means to invest in sustainable companies, that are operating sustainable practices, that take into account, shareholders and stakeholders; and that, in the long term, should be a good pay-off, over the long term” – Patton Power