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Our Approach to Impact Investing

Impact
Our Approach to Impact Investing
Our Impact

Investing with Sonen

The pressing challenges of natural resource scarcity and broad climate change – combined with global population growth, an expanding middle class, rapid urbanization and strengthening environmental and social policies – are driving a transition towards investment solutions for sustainable economic development.

Our strategies reflect the conviction that investing to generate financial returns and lasting social and environmental impact are not only compatible, but also mutually reinforcing objectives.

Custom Impact

Sonen’s multi-manager investment approach aims to achieve appropriate portfolio diversification by providing access to high-quality impact strategies. The benefits of our integrated investment and impact expertise include:

At Sonen Capital, we define Impact investing as the full range of investment opportunities which address an investor’s desire to realize financial return while achieving meaningful and measurable positive social and/or environmental impact.

Sonen’s Impact Investing Spectrum

This illustration provides some distinction among various approaches to impact investing and helps investors understand how these approaches differ in investment selection and impact creation. Generally, as investors move from left to right along this spectrum, they can expect higher degrees of impact creation.

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Sonen’s outcomes-based approach to impact investing

Sonen’s guiding principle is first defining what impact we wish to achieve – through any single investment, or through a portfolio of investments. Without defining the intended impact, or the outcomes that we seek, it is impossible to measure and report the extent of our success.

 

 

Our outcomes-based investment process is based closely on a Theory of Change or a Logic Model – a simple tool that explains how we do our work. We first define the impact we seek, or the outcomes we wish to see manifest as a result of our investments. These outcomes are often specific to investment themes, such as climate change, racial equity, or water conservation. After defining our intended outcomes, we then identify the ways in which we will measure our progress, namely through the outputs of regular business activities among the companies in which we invest. Defining such outputs helps identify suitable investments – funds or actual businesses – that can deliver those outputs through their day-to-day business activities.

 

 

As we complete the Theory of Change, we consider what kinds of inputs will be necessary to deliver these results. Inputs in this context include the types of capital we deploy: public or private equity, public or private debt, concessionary return capital (such as a program related investment) and even guarantees.

How Sonen uses a Theory of Change to inform the investment process

We employ our outcomes-based approach for our internal investment strategies, as well as on behalf of clients who are seeking specific impact results for their investments. Sonen has authored and published several examples of how our intended outcomes guide our investment process.

Sonen Impact Frameworks: Using Intended Outcomes to Guide Investment Decision-Making

Sonen has authored and published “impact frameworks” that describe our specific approach to investing across specific issue areas, or ‘impact themes,’ such as energy, water or sustainable agriculture. For each of these impact themes, Sonen employs an outcomes-based approach to identify the desired impact creation from any particular investment or portfolio of investments. Specific impact investment strategies that help manifest our intended outcomes are identified across public and private markets. Sonen has published impact frameworks on the following themes:

Modal Example

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Energy

Our Mission

Energy production is the source of 66% of global greenhouse gas (GHG) emissions.1 Reducing these emissions and meaningfully addressing climate change depends on widespread adoption, by industry and consumers, of low-carbon alternatives to fossil fuels.

The Case for Impact

  • Increased energy efficiency has now saved more energy than the output from any other single fuel source. Efficiency gains could reduce energy demand by 50% by 2035.2
  • The energy poor, or those without reliable, affordable energy, suffer from multiple social and economic disadvantages. Four million people/year die prematurely due to indoor air pollution from biomass combustion.3

Intended Impact Outcomes

  • Reduced GHG and toxic emissions.
  • Increased energy equity through expanded supply of renewable, affordable energy.

Fixed Income Investment Example

Financing centralized and distributed energy infrastructure in regions where availability varies or power sources are “dirty”.

Public Equity Investment Example

Technologies across industries that increase energy efficiency; consumer-level technology that reduces energy consumption.

Sources:
  1. Better Growth, Better Climate: The New Climate Economy Report, Energy. New Climate Economy. 2015.
  2. Nahal, Sarbjit and Beijia Ma. The Efficient Frontier – Energy Efficiency Primer. Bank of America Merrill Lynch, Thematic Investing. September 2014.
  3. “Household Air Pollution and Health.” World Health Organization. March 2014.

Water

The Water Challenge

Human water consumption has increased at twice the rate of human population over the last 100 years, and global population is expected to increase by 3 billion by 2050.1 Existing water resources are stressed, depleted or severely compromised in their ability to continue providing for humans’ and natural ecosystems’ most basic needs.

The Case for Impact

  • Utilities lose 40% of clean water due to leaks globally.2
  • Global water infrastructure requires $22T for repair and expansion by 2030.3
  • Watershed protection and ecosystem restoration costs a fraction of human-made infrastructure for water quality restoration and nutrient cycling.4

Intended Impact Outcomes

  • Increased water efficiency and re-use.
  • Improved water access and distribution.
  • Strengthen ecosystems’ natural ability to enhance land and water resources.

Fixed Income Investment Example

  • Bonds for modernizing infrastructure.
  • Bonds focusing on expanding reach of services to disadvantaged populations.
  • Supranational bonds providing resources for climate change adaptation and mitigation.

Public Equity Investment Example

  • Technology solutions designed to increase water efficiency in agriculture and industrial applications.
  • Water utilities in fast-growing urban areas globally.
  • Water infrastructure services with a focus on water efficiency and water quality.

Private Equity Investment Example

  • Sustainable agriculture and horticulture, including organic production, drip irrigation and land restoration.
  • Service providers and enterprises that are expanding access through private market mechanisms, in rural, peri-urban or urban communities globally.
  • Development of mitigation banks; water rights.

Sources:

  1. Hinrichsen, Don, and Henrylito Tacio. The Coming Freshwater Crisis is Already Here. Wilson Center. 2002.
  2. Sensus Water 20/20. Sensus. 2012.
  3. Doshi, Viren, Gary Schulman, and Daniel Gabaldon. Lights! Water! Motion! Booz Allen Hamilton. 2007.
  4. The Economic Benefits of Protecting Healthy Watersheds. United States Environmental Protection Agency. 2012. doi: EPA 841-N-12-004

Sustainable Agriculture

The Agriculture Challenge

Human water consumption has increased at twice the rate of human population over the last 100 years, and global population is expected to increase by 3 billion by 2050.1 Existing water resources are stressed, depleted or severely compromised in their ability to continue providing for humans’ and natural ecosystems’ most basic needs.

The Case for Impact

  • Excessive fertilizer application is a major source of pollution for freshwater and coastal ecosystems.2
  • Irrigation accounts for 70% of overall freshwater withdrawals and is often wasteful and inefficient.3, 4
  • 30-50% of global food supply is wasted across the supply chain.5

Sonen’s Goals for Agriculture Investing

Target key agriculture themes that improve global food security, meet global nutritional needs and improve environmental sustainability, including:

  • Improved nutrient management,
  • Reduced water use intensity, and
  • Reduced food waste.

Fixed Income Investment Example

Financing for organic or sustainably-oriented food production; and preservation of the use of agricultural land.

Public Equity Investment Example

Technologies for precision agriculture and increased water-efficiency.

Private Equity Investment Example

Infrastructure for efficient production, storage and distribution of food resources; preservation of use of agricultural land.

Sources:

  1. Hinrichsen, Don, and Henrylito Tacio. The Coming Freshwater Crisis is Already Here. Wilson Center. 2002.
  2. Sensus Water 20/20. Sensus. 2012.
  3. Doshi, Viren, Gary Schulman, and Daniel Gabaldon. Lights! Water! Motion! Booz Allen Hamilton. 2007.
  4. The Economic Benefits of Protecting Healthy Watersheds. United States Environmental Protection Agency. 2012. doi: EPA 841-N-12-004

Green Real Estate

Real Estate Challenge

Globally, the built environment emits 33% of all GHGs, and accounts for 40% of all energy use.1 Worldwide, more than 330 million urban households live in substandard housing or are financially stretched by housing costs.2

The Case for Impact

Real Estate investing can simultaneously address both social and environmental challenges. The built environment has the most potential for delivering significant and cost-effective GHG emissions reductions.1 Environmentally minded construction can help mitigate climate change and increase social equity through providing affordable, accessible housing to the world’s growing low- and middle-income populations.

Intended Impact Outcomes

  • Enhance the built environment’s sustainability performance, specifically GHG emissions, materials use and waste.
  • Increase social equity and accessibility in the built environment.

Fixed Income Investment Example

Bonds for energy efficiency retrofits.

Public Equity Investment Example

Technologies or innovations that reduce demand for raw materials and energy consumption within buildings.

Private Equity Investment Example

Sustainably-built workforce housing in global geographies where demand greatly exceeds supply.

Sources:

  1. Buildings and Climate Change. United Nations Environment Programme. Sustainable Buildings and Climate Initiative. 2009.
  2. Woetzel, Jonathan, Ram Sangeeth, Jan Mischke, Nicklas Garemo, and Shirish Sankhe. A Blueprint for Addressing the Global Affordable Housing Challenge. McKinsey Global Institute. McKinsey & Company. 2014.

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