Winner of the IMPACT Private debt provider and asset manager (small) awards, investment firm SAIL Ventures is focused on transforming emerging market commodity supply chains. Chief investment officer Johnny Brom and Head of Impact and ESG Michael Schlup explain
Environmental Finance: What is SAIL Ventures' investment philosophy?
Johnny Brom: SAIL is a catalytic investment firm investing in real assets to generate measurable sustainable returns. Our aim is to build a robust investment firm that extracts value from opportunities where environmental, social and economic factors enhance each other. Land use is a great place to start, because too often the economics takes precedence over environmental and social factors.
Michael Schlup: There's a lot of impact investing into greenfield innovation projects, which is obviously very important, but we see a huge opportunity investing in the transformation that needs to happen in existing sectors, supply chains and operations to shift to more economic, social and environmentally impactful businesses. Our philosophy is providing long-term transition capital.
EF: Your investments focus on financing sustainable commodity production. What is the financing gap you are seeking to fill?
JB: Because we tend to finance existing businesses, they can usually access finance. However, when our clients are looking to innovate within a sector, then there is not a lot of capital willing to underwrite that. Typically, the timelines for such a shift are long, and the outcome uncertain and unproven. We're making a market within a market, by being willing to support companies with this shift. For that, you need to be patient and willing to match your cash flows with the underlying transformation project.
MS: For example, we've recently done a transaction in Brazil where the client is fully integrating crops with livestock, ensuring the recuperation of pasture, conserving forests and reducing absolute emissions. We are helping them scale this up across their entire farm, which is tens of thousands of hectares. Typically, we're the only lender prepared to finance for the time period – sometimes even out to 15 years – and for the type of innovation needed. But the objective is to demonstrate to commercial capital how such investments can work, i.e. how you manage the risks and steer the impact while making a return.
It's vital, to reach scale, that we are able to crowd-in private finance at scale. Whatever we finance needs to make commercial sense so that more traditional financing can replicate this over time – there is simply not enough blended capital to achieve transformation at scale without it.
JB: To that point, we've recently completed a deal with a palm oil company, and we're now discussing with them ideas to scale up, spring-boarding off our financing and all the due diligence we did in order to raise institutional capital.
EF: Your flagship &Green fund blends private capital with development finance. How is risk and return shared?
JB: We've attracted funding from both public and private sources, but all our investors are strategic and long-term focused. Critically, they only want to do something that can actually attract private sector investment at scale. A nice portfolio of assets is not their end-goal. Market transformation is. We're building that market space, and seeing what works.
MS: &Green is about providing blueprints for institutional investors who can come in and scale these ideas up. The transactions we have done recently are testimony to the fact that it's possible to find companies and structure deals that underpin this objective.
EF: What do you consider to be the relationship between environmental and social impact and financial return?
MS: We have built our team around the integration of risk management, impact and economics. We are a team of specialists within our respective fields, but we insist on working fully integrated. We do not like silos within the team.
JB: Both environmental and social aspects can have a really big impact on climate outcomes and project risk. For example, social inclusion can be the most critical piece in terms of ensuring forest conservation but also returns, by creating stability and consequently the ability to operate.
EF: What impact has the Covid pandemic had on SAIL Ventures' deal pipeline?
JB: We were fortunate in that we completed due diligence on two landmark transactions just before the lockdowns and have been able to close them since. We have investment directors in the regions we invest, South-East Asia and Latin America, which makes it easier for us to stay engaged with our clients.
We also benefit from having long-term capital to deploy, and a clear thematic and regional focus. We remain a lender in a market where a lot of capital is drying up – that gives us the opportunity to find good deals, even if the total universe of opportunities might have shrunk. Covid will slow things down, especially in the second half of 2020 and into 2021, but we think we'll end up with a stronger portfolio in the long-run.
For more information, see: www.sailventures.com