What are the real rewards of investing in sustainable companies?

With its Sustainable Impact Fund, ABN AMRO is putting its money where its mouth is. The bank is investing a total of EUR 500 million of its own equity in the fund. “For growing companies with a proven track record when it comes to making a positive climate impact,” says Eric Buckens, Investment Director of the ABN AMRO Sustainable Impact Fund. “We help these companies take the next step.”

Turning a profit and making an impact

The Sustainable Impact Fund invests in companies based in Northwest Europe looking to generate a profit and make a positive, scalable impact. That includes young scaleups, as well as companies that are further along in their development. The main focus is on climate, which is why the fund looks closely at businesses that are helping to pick up the pace in the energy transition. One example is the Dutch company OG Clean Fuels (OG), which supplies clean fuels like biofuel and green hydrogen to the transport sector. Another is Eternal Sun Spire, which produces simulators to help the solar panel sector optimise panel yield. But it’s about more, too, given the strong correlation between climate change and the threat to our natural habitat and social conditions. In a different sector, the fund is investing in the Danish sustainable fashion brand Colorful Standard, whose aim is to make the clothing chain more sustainable by offering an alternative to the highly-polluting fashion industry. Smart fabric cutting methods used in the production of its collections result in far less waste, only natural dyes are used and the lasting quality of its products is intended to reduce consumption.

Impact report

The bank invests between EUR 5 million and EUR 30 million in these companies to help them grow and make a greater impact. The fund aims to be transparent about this impact, as shown by its recently published impact report, The true value of impact investing, which charts the impact made by the fund’s 14 portfolio companies over the course of a year. That impact involves everything from minimising carbon emissions and air and water pollution to conserving resources, reducing waste and promoting sustainable use of farmland. The report also focuses on social issues like fairer pay and improving employment prospects. Eric cites Wakuli and Lendahand as examples: “Wakuli is a coffee trader that helps improve the incomes of coffee farmers by paying them a fair price for their product. Lendahand is a crowdfunding platform for Europeans looking to support local businesses in developing countries, thereby creating jobs and prosperity. Many of these businesses focus on local, off-grid energy solutions.”

Impact in euros

Obviously, the fund isn’t the only impact investor to assess and report on its impact. But Eric says it is one of just a few that now measures impact in terms of actual value created and how that translates into euros: “We look at both positive and negative impact – the ‘real’ costs, so to speak. For instance, minimising carbon emissions with an electric car is one thing. But you also have to take into account the harmful effects of the lithium batteries that power them.”

To quantify the impact achieved, the fund uses the internationally recognised Impact-Weighted Accounts Framework (IWAF) developed by the Impact Institute in collaboration with Harvard Business School and an international partnership of banks, including ABN AMRO, which has used the framework to measure its own impact for a number of years. Eric says, “Now we’re applying the IWAF to the companies we invest in. And since our assessments are in real euros, our ability to compare companies will continue to improve as the quality of the data improves. It will also enable us to calculate other things like financial costs and revenues.”

Direct and indirect impact

The portfolio achieved an impact return of 39 per cent on invested capital in 2022. In other words, every euro invested created 39 cents in impact. If the fund had been fully invested, some EUR 200 million in a single year would have gone towards reducing climate risks, restoring biodiversity, improving access to healthcare and education, and combating child labour. “Don’t forget that these are only the impacts directly attributable to the relevant companies’ products and services (and, in turn, to the fund). The total positive impact generated by these companies is actually much higher,” Eric points out. “In addition to their own direct impact, many impact companies also have an indirect impact on their overall value chain, including their suppliers and the production of raw materials. And even on consumers, other buyers and the entire ecosystem around them. We’re not yet able to measure these companies’ total impact in the report, but it’s a start.”

An instrument of change

It’s clear that impact assessment is becoming an instrument of change, Eric concludes: “These companies will now have additional information at their disposal to focus on the climate and social costs of their products, in addition to traditional financial costs. As a result, they can determine the ‘true price’ of these products while curbing social costs, just as they’re used to doing with financial costs. That insight will also enable them to make further improvements to their production processes and identify where and how to wield greater influence in their value chain and in the system as a whole.” Indeed, more and more companies have already taken this step – like Colorful Standard, which has decided against having its goods manufactured in the Far East and set up its own production facility in Portugal. Not only does this eliminate untold kilometres in transport, but it also reduces the risk of child labour. Another example is Fairphone, which aims to transform the mobile phone industry. Fairphone has launched such initiatives as the international Fair Cobalt Alliance to work with others to tackle pollution and human rights abuses associated with the use of materials such as cobalt in manufacturing conventional smartphones. Members of the alliance now include such companies as Tesla – a real testament to how a relatively small player like Fairphone is already making a far-reaching impact.

Selling companies

As is the case with more traditional investment funds, the companies will eventually be sold. “The aim is to generate a healthy return, both financially and in terms of impact,” says Eric, “and we believe that assessing impact properly has a direct impact on real value.” Selling an investment also makes room for new investments by the fund. The proceeds, including any profits, can then be used to invest in another company committed to taking the transition to sustainability one step further.