The importance of public markets for impact investing

Transcript

Heath: When you talked about sustainable development goals, I couldn't help but think about the conversations that we've had, Hari, with regards to achieving those and the importance of both public and private market capital going towards delivering on these SDGs. Can you talk about that public-private debate, and how important the public capital is going to be to achieving it?

Hari: I think it's absolutely critical, Heath, when we think about the role that public equity capital needs to play in delivering on the 17 sustainable development goals. So the UN estimates nearly a 5 trillion US dollar funding gap to actually achieve those goals. And my view is you can't necessarily get there just through philanthropy and private markets. And so the involvement of the large listed equity sector is absolutely critical. But there's a few sort of qualifications there. So when we think about how we actually get there, it's one thing to just passively provide that capital. It's another thing to use our capital to make a difference towards delivering those sustainable development goals. And what do I mean by that? The first thing is active engagement. So as an impact investment manager, so I'm focused on finding stocks that deliver positive environmental and social impact alongside a financial return.

And in all the cases, in my view, the positive impact thesis is what drives really exciting alpha potential in those stocks as well. But it doesn't stop there. So once we want to make an investment, we think really hard about our additionality. So it is about how can we improve the impact delivered through our involvement. And so engagement with C-suite executives, boards of directors, operational management, absolutely critical. We're blessed that we have 1.3 trillion US dollars, nearly 2 trillion Aussie dollars of assets under management. So that gives us that seat at the table.

And then when you think about public versus private, a few other considerations think about as an advisor or as an end client, the ability to actually achieve impact through a listed liquid alternative compared to an illiquid  alternative, I think has some risk implications in terms of portfolio construction. And then the other thing that I'd say as well is it's really possible if we were to engage with a company and drive impact, it's really possible to achieve impact at a very large scale very quickly.

So to give you an example, one of our portfolio holdings, Linde, which is in the industrial gases space, they mitigate 88 million metric tons of CO2 equivalent every year for their customers*. But we're able to get a seat at the table with their board, with their C-suite to talk about how they can be even more ambitious in mitigating more and more CO2, or mitigating their  own carbon footprint. All issues which, if fulfilled, satisfied, and if we're successful, can achieve that impact at a massive multiplier effect compared to illiquid privates.