Business partnerships built on ethics, shared motivations and the greater good are taking off. To explain the finer points, we spoke to the Chairman of EQ Capital Partners, Barry Palte.
Cultivating networks based on shared values, synergistic ethics and shared motivation is crucial to networking at a higher level. Ethics should align in networking and partnership outcomes. Where once the predominant motivator for investment was the financial return, a significant shift in investor and corporate mindsets has highlighted the critical importance of social impact outcomes and full alignment between partners.
Many leading corporations have been developing strategies which have a common value system at their core. They have increasingly been acknowledging how opportunities exist for increased competitiveness and profit, by helping solve social problems.
There are greater forces at work in the world which have made a substantial impact right across the financial sector stark examples of this include the Australian bushfires and now the global COVID pandemic.
One key trend is the burgeoning approach to finance of ‘impact investment’, a fast-rising trend that has ignited excitement among investors, policymakers, and entrepreneurs alike. An important element of building a more inclusive economic system, impact investment seeks to serve society better while tackling ongoing economic, social and ecological issues.
The mission of impact investors is to build better, more sustainable outcomes by investing in businesses and projects with potentially large social benefits. Examples include better health, ecological and social inclusion outcomes. Those socially beneficial goods and services—such as renewable energy, vaccines, cancer therapeutics, collision avoidance technology and innovative agriculture—are, after all, the “purpose” of businesses. Impact investors also understand that profit is a condition—and a result of—achieving a purpose. Understanding this is critical to impact investors’ ability to leverage their scarce capital against investors driven by financial return.
The term’s origins date back to 2000, when Baruch Lev of the NYU Stern School of Business, collated his thinking about intangible assets, which furthered thinking about the non-financial effects of corporate production. As a result of this, in 2007, the term ‘impact investing’ emerged.
Two key aspects are held to define impact investing: its intended social impact and the way its impact will be measured.
Another key aspect of impact investing is the concept of “additionality”. Impact investing should improve a social or environmental outcome more than what would have otherwise occurred – a concept known as “additionality”, where investors with scarce capital are encouraged to concentrate their investments where it will make a difference.
Making a successful impact investment
According to the World Economic Forum, the four qualities common to successful impact investing fund managers are effective partnerships with the public sector, the use of catalytic capital, multilingual, or ‘cross-sector’ leadership, and integrating financial and social objectives on an equal footing.
One ongoing success story in Australian impact investing is Barry Palte. Chairman of private investment group EQ Capital Partners, Barry is an investment expert with a primary focus on sustainable investment and achieving positive social outcomes.
Barry’s passion for impact investing is reflected in his focus on investing in, and working with, disruptive technology companies and projects which have a major impact on the health of people, and of the planet. He has cultivated his circle of influence through nurtured relationships that have evolved into highly successful and enduring commercial partnerships.
These partnerships are based on a strong sense of shared values.
We asked him what he looks for when it comes to ‘impact investing’ decisions. Barry’s response was that he has six criteria that a potential investor needs to encompass.
“The thing I look for is explicit positive social impact,” he said, “(plus) a passionate and aligned team, an organisation which is based on ethics, trust and shared values, its ability to manage risk, and if it is ultimately globally scalable.”
Palte is a veteran in the financial sector, with professional experience dating back to the 80s. In that time, he’s seen a number of trends come and go, and many market cycles.
His many investment experiences around the world have reconfirmed the criticality of a strong sense of purpose to shape investment decision making.
“I have a strong sense of purpose,” he said. “A lot of my decisions are based on how it would reflect on me, my legacy once I’m gone.”
A key component of his investment decisions, according to Barry is, “What positive social good would my family, friends and partners reflect on at my funeral?”
An R-o-I that’s more than financial
Investments, by their very nature, are made with the goal of there being a strong financial return. But how much of a financial return on an impact investment should someone expect, or hope for? We asked what the benefit was of impact investing, and if it was broader than just simple, financial ones.
“Sustainable investment returns come from delivering tangible benefits to people and the planet,” Barry said. He noted how the need for such investments is huge and growing, and as a result, high financial returns are very achievable, “… but not at the cost of people and the planet.”
“The two are not mutually exclusive,” he said. “In fact, they are very complementary.
“It is increasingly becoming the case that ‘positive social impact’ is a prerequisite to generating sustainable investment returns. We map our returns both financially and explicitly mapped to the achievement of sustainable development goals.”
When building financial partnerships, a likeminded approach to ethical investments is of paramount importance to him.
“This is another non-negotiable starting point. Ethics, shared values and trust go hand-in-hand and create true alignment.”
Winning on all fronts
It was reported recently in The Guardian that some if not many ethical investment funds are outperforming traditional funds. There is strong emerging evidence for ethically minded investors like Palte and EQ Capital Partners that in a very competitive investment marketplace, social benefit and financial windfall rank as a ‘win-win’.
“Ethics, shared values and full alignment are in my view a basic and non-negotiable starting point. Then the social impact benefits get layered on top and are key drivers of investment returns,” he says.
The competitive nature of financial markets and business generally means that there are overriding factors when investment decisions are being made
“It is very important to understand competition,” Barry says, “particularly from large incumbents, who can either support or block new initiatives, as well as other innovators.”
The knowledge that positive social impact can be combined with exceptional investment returns is Palte’s primary motivator. He also hopes that his actions will stand as being positive influences on his network, colleagues and professional peers. Palte’s work is done in part to positively influence his peers, and done in the hope that the example he is setting will inspire others in a similar position to do the same.
“In a global environment dealing with bush fires, with climate change, and now a global virus pandemic, coupled with ongoing global political tensions, people of goodwill and ‘light’ have an obligation to build a common understanding and deliver concrete outcomes,” he says.
“We are in a dangerous time in history, and the world desperately needs inspiration, passion and solutions.”