Elvira Lefting, managing director of impact asset manager Finance in Motion, explains why there is no substitute for local knowledge and technical expertise when it comes to delivering environmental and social impact at scale
Environmental Finance: Finance in Motion won this year's Environmental Finance 2020 IMPACT Awards large asset manager category. Can you introduce the firm?
Elvira Lefting: We are a global impact asset manager with over €2.3 billion of assets currently under management in seven funds, focused on environmental and sustainable economic development projects in low- and middle-income countries.
When we created the company more than 10 years ago, we identified three gaps: a finance gap for thoughtful capital that can understand and absorb risks involved in green and impactful assets; a lack of ready-made investible impact projects; and system gaps, with a lack of capacity and awareness in financial institutions, in regulation and policy and, crucially, in the corporate sector regarding how to drive green projects.
To tackle these systemic challenges and deliver impact at scale, we built investment teams on the ground who understand the local context and can originate assets that provide tangible, impactful solutions. These are backed by outstanding risk, impact, and E&S experts, just to name a few, to deliver credible, integrated services to our stakeholders.
Following that logic, the concept and design of capacity building and training projects for our partners from the financial and corporate sectors to raise standards, know-how and bankability of green projects has been key for us. This approach helped to attract sizeable first-loss, impact-driven capital and pursue a tranched approach, blending in DFI and private capital to scale and build a green asset class.
EF: The funds developed and advised by Finance in Motion focus on delivering impact for people and planet. What achievements can you point to so far in helping to address global environmental challenges?
EL: At the outset of all our funds, we define clear minimum environmental or social goals, which we track through a sophisticated reporting system. We use methodologies in line with international metrics and require independent verification. Across our funds, we contribute to 13 of the 17 Sustainable Development Goals.
In terms of specific metrics, on the social side we track, among other things, enterprises supported and jobs created or sustained. Regarding environmental impacts, our funds contribute to: 920,000 tonnes of CO2 emissions avoided annually; 1.3 million tonnes of CO2 stocks maintained in (agro-) forestry plantations; 500,000 tonnes per year of water, waste, and materials saved; and 300,000 hectares of agricultural and forest land under sustainable management.
EF: Your funds specialise in leveraging public money to mobilise private finance. How does that work?
EL: It typically starts by identifying a donor, often the EU or the German government, that wants to foster a particular outcome, say biodiversity conservation. They provide patient, long-term capital which we leverage to bring in development finance institutions as well as private capital from commercial banks, pension funds, family offices and impact investors – there is an abundance of private capital out there that is seeking impact.
We've been successful in bringing in private capital, having mobilised more than €2 billion from the private sector so far. Private investors are very important in really testing your commercial rigour.
EF: The eco.business Fund advised by Finance in Motion also won the award for private debt fund of the year. What are the fund's impact goals and how does it pursue them?
EL: Based on many years of preparation, the eco.business Fund promotes business and consumption practices that contribute to biodiversity conservation, the sustainable use of natural resources, and climate change mitigation and adaptation. It finances mitigation and adaption projects in Latin America and sub-Saharan Africa in sectors that are highly consumptive of natural resources and which are affected by climate change – agriculture, forestry, fisheries and aquaculture, and tourism. We finance such projects directly or by partnering with financial institutions.
Critical to the fund's success are the clear eligibility criteria for identifying acceptable assets. The first is that the borrower adheres to high-quality sustainability standards, or that it is pursuing one of a 'green list' of sustainable production practices we have developed. This has worked really well in terms of mainstreaming the lending through the financial institutions that we work with: If you really want to reach scale, you have to work with conduits that can reach out to a large number of clients and change patterns.
EF: How has the COVID-19 pandemic effected your investment activities, and how are you positioned for a post-COVID-19 world?
EL: Given we run public-private partnership models, and the interest of our investors in directing capital to meaningful impact, we have been able to raise significant amounts of additional donor and private capital this year. The crisis is stressing our countries, our clients, and their sub-borrowers, but the model has shown its robustness and scalability. Likewise, the integrated model we run with strong offices in 17 countries is key in dealing with abrupt changes.
Overall, this health crisis correlates to, is connected with, and exacerbates the climate and biodiversity crises we face. It sheds more light on the connections and gravity of these crises and it has actually contributed to capital raising because it makes the acuteness even more pronounced. As a result, we believe we will be able to go deeper and further into environmentally positive and biodiversity conserving assets. But these are stressful times for everybody, and we will need patient, well-informed investors, and a combination of flexible investment approaches and technical assistance to succeed. There are no easy solutions. So we will continue the hard work.