Impact Investing: doing well by doing good
11 May 18
11 May 18
Triple Point’s new Impact EIS product is designed to provide investors with significant capital growth by investing in fast-growing, innovative companies that have a positive impact on society and which qualify for EIS tax reliefs.
Julian Pickstone, Head of Impact Investment at Triple Point, speaks to Intelligent Partnership about how social impact and profit can work together
Triple Point recently launched its Impact EIS service, and is looking to raise £10m this year to be invested over 12 months.
The investment manager’s service invests in companies that make a significant positive contribution to one of four social themes - health, environment, children & young people and inequality - with each investor holding a portfolio of 8 to 12 companies.
Financial returns are achieved by investing in unlisted growth companies that are already generating revenue and have the potential to provide a significant capital return over a four to seven year period. Investors could also benefit from tax reliefs associated with EIS, including income tax relief of 30%, IHT relief and tax free growth.
People may view impact investing as largely altruistic. How do you communicate to investors that profits and impact are in fact positively correlated?
The positive correlation of profits and social impact is common sense. The greater the financial success of one of our selected businesses, the more positive impact it will have on society.
The companies we target are exclusively profit-maximising companies and we aim to invest in companies that offer a risk-adjusted financial return at or above the market rate of return. What makes our companies different is that they generate their profits by providing a service or product that materially benefits society. There is also strong evidence that Socially Responsible Investment (of which impact investment is a subset) provides returns at least equal to and maybe better than standard investments. A recent academic paper suggests that 90% of 2,200 peer reviewed studies show positive or neutral correlation between social and financial performance.
How challenging have you found it to find the scale up companies that provide social impact?
We have been able to tap into Triple Point’s extensive network of introducers. Before launching the service we conducted research that led us to estimate that around 40% of companies in the growth company universe have a material positive impact on society. We use our established financial and impact evaluation methods to narrow this group down to the most attractive companies.
What are the potential business advantages of a social impact business?
As already mentioned, these businesses are responding to very real market demand and are well placed to take advantage of significant sector growth into the future. The fact that their values are aligned with an ever growing number of consumers’ is an added benefit.
Consumers are increasingly making their choices on more than the price and quality of products. Criteria such as the purpose of a business, its environmental impact, ethical practices, reputation, ease of communication and opportunity to co-create all contribute to consumers’ decisions.
What industries have tended to be the focus in Impact EIS?
Nearly all the companies we look at have an element of technology, but few are solely technology focused.The areas where we are most active are in health and the environment. There are also opportunities in companies focused on children and young people, and in companies which have a significant impact on inequality through their business.
In the health sector, we are involved with a company which is looking to address the problem of type-2 diabetes in the UK. Type-2 diabetes currently costs the NHS £7bn per year, and the NHS estimate that 15 million people are on the edge of becoming type-2 diabetic. It's a large and very expensive problem.
The company helps people at risk of becoming diabetic by providing a combination of digital and human interaction.The customer is provided with with an app on their phone, a digital activity tracker and a set of digital scales allowing the company to capture customer data. A trained dietician is available to the customer throughout the six month programme and the company sets up a peer group for consumers to provide mutual support. An academic study of the effectiveness of the company’s programme concluded that the company achieved “clinically significant weight loss results in a real-world setting”.
The company is attractive from a financial perspective. It is one of only six companies to be included in an NHS programme, which is expected to be rolled out on a national basis next year. The company also provides its service directly to individual consumers, providing a second stream of revenue. Finally the company has a relationship with an international pharmaceutical company to support the company’s marketing, which may provide an exit opportunity in the longer term.
This company is a classic example of how a company’s social impact and financial profit positively correlate. The company's key social impact is to prevent as many people as possible from getting type-2 diabetes. The amount of money that the company will make is directly correlated to that social impact. The more social impact that is generated, the more profit is generated. There is no financial trade off.
Risk Warning: Your capital is at risk. There is no guarantee that target returns will be achieved and investors may get back less than they invested. Tax rules and reliefs are subject to change.