Insurance | Financial Planning | Retirement | Investments | Wealth

THE IMPACT OF IMPACT INVESTING

Darryl Moodley

Head of Tailored Investments

ESG covers a wide spectrum of issues that are traditionally not part of financial analysis, yet are increasingly being recognized to have financial relevance

WHAT IS ESG?En

viro

nmen

tal •Climate change

•Carbon emissions•Environment pollution•Waste management•Energy and Resource•Efficiency•Biodiversity

Soci

al •Human rights•Labour and working conditions

•Gender empowerment and diversity

•Health and safety•Local communities•Client/customer protection•Supply chain G

over

nanc

e •Board diversity and structure

•Effective leadership•Compliance•Anti-bribery and corruption•Anti-money laundering•Data privacy

LISTED MARKETS

VS

UNLISTED MARKETS

WHAT IS IMPACT INVESTING?

“investments made into companies, organisations, vehicles, and funds with the intent to contribute to measurable positive social, economic, and environmental impact alongside financial returns.” - IFC

Intent Contribution Measurement

HOW IS ENVIRONMENTAL AND SOCIAL IMPACT DEFINED?

Source: Sustainable Development Goals, (Online). Available at: http://www.undp.org/content/undp/en/home/sustainable-development-goals.html

Source: http://medium.Com/impact-engine/the-spectrum-of-impact-investing-e34b0e4dc164

THE IMPACT INVESTING SPECTRUM

Traditional

Limited or no focus on ESG factors of underlying investments

Responsible

Focus on ESG risks ranging from wide consideration of ESG factors to negative screening of harmful products

Sustainable

Focus on ESG opportunities through investment selection, portfolio management, and shareholder advocacy

Thematic

Focus on one or a cluster of issues areas where social or environmental need creates a commercial growth opportunity for at least market returns

Impact-first

Focus on one or a cluster of issue areas where social or environment need requires some financial trade-off

Philanthropy

Focus on one or a cluster of issue areas where social or environmental need requires a 100% financial tradeoff

COMPETITIVE RETURNSESG RISK MANAGEMENT

ESG OPPORTUNITIESHIGH IMPACT SOLUTIONS

Note: ‘Other’ Includes Investments With A Global Focus Source: GIIN

GLOBAL CONTEXTGeographical allocations by AUM and % of respondents Highlights (GIIN 2018 Annual Investor Survey)

• 226 respondents – $228 billion in Impact Investments AUM

• Allocation split between EM and DM

• SSA allocation 12% – $27 billion

• Top sectors of investment:• Financial services (19%)• Energy (14%)• Microfinance (9%)• Housing (8%)

• Impact Industry is growingLHS: Percent of AUM: n = 226; total AUM = USD 228.1 billionRHS: Percent of respondents with any allocation to each geography:n = 229; respondents may allocate to multiple geographies

US & Canada

LAC

SSA

WNS Europe

EECA

South Asia

SE Asia

East Asia

MENA

Oceania

Other

Percent of AUM Percent of respondents20%

16%

12%

11%

10%

7%

6%

5%

5%

3%

5%

48%

40%

46%

31%

20%

35%

31%

16%

15%

8%

13%

Source: GIIN – Sizing The Impact Investing Market, 2018

WHO ARE THE INVESTORS?

DFIs27%

Asset managers 51%

Other2%Family offices

0.4%Foundations

2%

Permanent investment companies 0.2%

Banks / diversified financial institutions12%

Pension funds or insurance companies6%

SANLAM’S PERSPECTIVE ON IMPACT

Affordable housing

SMME Financing Job creation Healthcare

Education Sustainable agriculture

Infrastructure and

developmentRenewable

energy

CASE STUDY: RESILIENT

Fund overview

RESILIENT INVESTMENT

PhilosophyFinancing private sector with the intention of generating financial through investments that address social challenges

Fund objectivePositive risk-adjusted returns in all market conditions

Fund style Off-market credit

Inception date January 2013

Fund AUM R280 million

Domicile South Africa

Targeted return JIBAR + 3% (gross)

Fund structure En Commandite Partnership

Minimum investment R20 million

Performance Fund STEFI Excess

1 year 11.32% 7.29% 4.04%

3 year annualised return 11.58% 7.43% 4.14%

5 year annualised return 10.22% 7.03% 3.19%

Annualised return since inception 9.53% 6.65% 2.88%

Impact framework

RESILIENT INVESTMENT

Impactfocus

Sustainable development goals

What What outcomes can we expect from the investment and how important are they to the people and planet experiencing them?

Who Who experiences the effect?(Demographic, geographic and environmental data)

How much How many people are affected – and for how long?

Risk What risk factors are material and how likely is the outcome to be different from the expectation?

Portfolio Impact Themes (Excluding Cash)

Affordable middle income housing

Financial inclusion (debt consolidation)

Renewable energy

SME financing

Education

14%

12%

9%

23%

42%

Social returns

RESILIENT INVESTMENT

13

93

3274

472

64

Assisted households

Built houses

Created jobs

Supplied green energy to homes

CASE STUDY: AFFORDABLE HOUSING

Source: Sanlam Investments 2019

LOW-INCOME HOUSING MARKET

Definition

Social HousingMarket

GapMarket

AffordableHousingMarket

HouseholdMonthly Income

Max R3 500

Min R3 500Max R15 000

Min R15 000Max R25 000

Percentage of theSouth African Population

54%

23%

7%

South AfricanHousing Backlog

5.9 million

3.7 million

1 million

Statistics SA, 2017 Household Survey

Geographic Location

DEMAND DYNAMICS

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The diagram indicates that in 2017, 13.6% of SA’s population were living in informal settlements / backyards. Just to quantify this, this equates to approx. 5.4 Million households in with an estimated backlog of 178 000 units a year

0%10%20%30%40%50%60%70%80%90%

100%

WC EC NC FS KZN NW GP MP LP RSA

Other 2.0 0.3 0.4 0.4 0.2 0.0 1.5 0.4 0.0 0.8Informal 19.0 7.0 12.6 16.0 6.8 19.9 19.8 9.0 5.5 13.6Traditional 0.1 22.3 1.1 1.9 14.4 0.2 0.1 3.8 2.7 5.5Formal 78.9 70.4 86.0 81.7 78.6 79.9 78.5 86.9 91.7 80.1

Delivery of serviced sites and houses/units from the HSDG since 1994, Statistics SA, 2016 Community Survey

Government Delivery of Serviced Sites & Houses/Units

INADEQUATE SUPPLY OF HOUSING FROM GOVERNMENT

17

Declining trend of houses and serviced sites provided by government

• Since 1994 housing delivery has averaged 136 000 units peaking at around 230 000 units in 1999

• To date government has not been able to roll out the targeted rate of 300 000 housing units per annum

• Population Growth• Inadequate Funding

-

50 000

100 000

150 000

200 000

250 000

300 000

Numer of Houses and Serviced Sites Houses/Units Completed

Serviced Sites Completed

Opportunity

AFFORDABLE HOUSING

Alignment with Government’s NDP

Sanlam’s Affordable Housing Fund will be involved in the following developments:

• Brownfields developments (for sale/to let)• Metropolitan nodal developments • Conversion of offices to residential units

80:20 approach:• 80% in core developments across low income spectrum

• 20% in higher yielding opportunities

CorePortfolio

(80%)

Fund objectiveTo develop clean, safe and habitable communities for those disadvantaged by the legacy of Apartheid, while delivering commercial risk-adjusted returns to investors

Target return12-13% paNet rental yield 9-10%Capital growth 3%

Fund sizeR1BN(5 properties, 1250 units)

Inception date Q4 2019

Domicile South Africa

BespokesolutionsBespokesolutionsBespokesolutions

Retirementsolutions

Retirementsolutions

Retirementsolutions

Higher yieldingrental opportunities

Higher yieldingrental opportunities

Higher yieldingrental opportunities

StudenthousingStudenthousingStudenthousing

Specific solutionsin Africa

Specific solutionsin Africa

Specific solutionsin Africa

CASE STUDY: CLIMATE INVESTOR ONE

20

21

22

23

SOURCE: SCHRODERS GLOBAL PERSPECTIVES ON SUSTAINABLE INVESTING 2007

MILLENNIALS ARE DRIVING THE CHANGE

Compared to 5 years ago, how have your investments in sustainable / impact funds changed?

38%

27%

17%

11%

21%

29%

39%

43%

46%

Significantly increased Slightly increased No change Slightly

decreasedSignificantlydecreased

I used to invest in sustainable investments but don't anymore

I have never invested in sustainable investments and still don't

4%

1%

1%

1%

1%

1%

1%

1%

1%

8%

4%

2%

“We are once again facing one of those rare turning points in history when dangerous challenges and limitless opportunities cry out of clear, long term thinking”

– Al Gore, American politician and environmentalist

2

thank you