CEO Philipp Mueller, told finews.com how recent greenwashing scandals are giving his business a boost and why financial institutions are searching for more purpose and impact.
«Business is going purpose,» to put it in Patagonia founder Yvon Chouinard’s words, who this month donated his company and all its future profits to fight climate change.
For investment company BlueOrchard, «purpose» has been at the center of its business for twenty years, around which It has built a global network to implement its impact investment strategy.
Not just the search for purpose, but paradoxically, negative press aimed at financial companies accused of overstating their financial products' adherence to environmental social governance (ESG) standards, are also pushing the strategy into the limelight.
«Do No Harm»
«These cases have been healthy for the industry, making people more conscious about these topics,» BlueOrchard CEO Philipp Mueller (pictured below), said.
With «purpose» and finance becoming increasingly interlinked as a growing number of investors want to create a real benefit for society and the environment besides generating a return from their investments, there is also some confusion about which investment approaches are truly sustainable.
While investors can choose to include or exclude companies from their portfolios that reach or fail to reach a certain ESG score, impact investing is a strategy that sets out to generate financial gain as well as positive social and/or environmental change.
One clear differentiator is that impact investors follow the imperative «do no harm» meaning that they steer clear of investing in anything to the detriment of humans or the planet. Oil and gas companies, regardless of their commitments to the energy transition, would not feature in an impact investor’s portfolio for example, whereas such companies often count as ESG compliant.
Collaboration Partners
Driving the demand to create a more positive impact is a shifting investor base of more women and a younger sensibilized generation, all keen to invest in projects addressing poverty alleviation, climate change, or education funds for children in poorer countries.
At the same time that impact investing became mainstream BlueOrchard saw itself entering into longer-term asset classes, such as private equity, debt, and infrastructure markets, which meant that it needed to «maintain a certain scale and scalability,» Mueller said.
This development led to the decision to team up with heavy-weight asset manager Schroders in 2019 in a partnership, which «allows BlueOrchard to access Schroders international network and benefit from its knowledge without giving up its DNA,» he added.
Collaboration is something that the investment company is well accustomed to from when it first started looking for partners to work with over 20 years ago, as «having local experts is key to investing in growth markets,» Mueller said.
Asset Classes
So far, over $9.8 billion has been deployed with the BlueOrchard network to fund projects across more than 105 countries, while also providing over 255 million people access to financial services.
There are projects in seven offices across four continents with regional partners, who are as diverse as the asset classes it invests in, «depending on the asset class, you reach people in different ways,» he added.
Before collaboration can take place, BlueOrchard analyzes how these institutions are governed, to whom they belong, and how they are structured. Mueller will ask «what does the portfolio look like and who is the end beneficiary base?»
After a partnership has been forged, BlueOrchard stays on board and - in the case of microfinance projects for example- continues to monitor how loans are explained to borrowers.
On the bond side, many of the institutions the company has been working together with for 15 to 20 years are now issuing bonds themselves on debt markets. BlueOrchard has an impact team that screens the bond universe separately for investments.
Blended finance
One example of how BlueOrchard is increasing access to financial products is its climate insurance programs. Working together with the country’s biggest insurers and with the German development finance institution KFW, BlueOrchard can offer affordable climate insurance in Ghana and Cambodia by taking out the cost of underwriting.
Investing in projects alongside governmental organizations offers an attractive risk-return profile for private investors as national and multilateral development institutions cover up to 20 or 25 percent of capital crowded in by the private sector.
«Usually people won’t set as a first priority to invest in an insurance product in an emerging growth market, but they would if they knew that 10 percent of their portfolio is protected by first loss mechanisms provided for example by development finance institutions,» Mueller said.
Exit in Mind
The infrastructure projects that BlueOrchard typically finances are too large to be financed locally but too small to be financed by large global infrastructure players or development finance institutions. «We're not going to finance the next port, but we might finance telecom towers in the Philippines for example,» he said.
Within private equity or infrastructure projects «everything is about sourcing,» he said while highlighting that: «you need to think about the investment with the exit in mind because the investments should generate returns and impact,» Mueller said.
Another huge advantage is that «there is also a once-in-a-generation opportunity to build out the infrastructure that's needed in these markets in a completely green way from day one,» he said.
Awareness and Responsibility
A big driver for this growing awareness has been the internet and various social media channels which have made public what is going on in different parts of the world to a broader audience.
«Impact investing experienced a leap with the increasing use of data technology and interconnectivity,» Mueller said.
Moreover, «with transparency and knowhow comes greater responsibility,» he added, which is why so many investors are taking the issue seriously.
Anti-Woke
European Investors, who have an understanding of the science behind climate change, are unlikely to be influenced by the polarized discussions about climate issues currently taking place in the US, Mueller said.
The backlash against the sustainability movement, as illustrated by US company Strive Asset Management’s latest ETF, which has purposely set itself a non-ESG mandate, could prompt more to enter impact investments.
«It is a shame that people are using this as a politicum, but it doesn’t change the fact that we need to take action against climate change» Mueller added.
