Daniel Werth, Managing Director at HAMBURG TEAM Investment Management in conversation with Susanne Bregy, new Managing Director of the Bundesinitiative Impact Investing e.V.
Daniel: Dear Susanne, after many years in the traditional international finance industry, you took over responsibility as Managing Director of the German Federal Initiative for Impact Investing at the beginning of this year. However, your conviction to concentrate on impact investment activities arose earlier. What made you do it?
Susanne: Thank you for the question… because I always believe that the motivations for focusing on impact investing are always relevant! They were indeed subjective and objective reasons. I worked for aggressive private equity and hedge funds for many years, and unfortunately, I sometimes worked with people who probably had different basic moral views. Too often I was in situations where testosterone prevailed, and by that, I mean greed, profit maximisation, and lots of big egos.
Objectively, the global financial crisis of 2007 gave me a lot to think about. The upheavals back then were devastating. Everyone remembers where they were when the news of Lehman Brothers' insolvency broke. To name just one effect, due to the financial crisis, the GDP of developed countries shrank in 2009 for the first time since the Second World War.
And those were the months in which I began to think differently. How can I bring responsibility and capital together? How can I specifically pursue the positive power inherent in investments?
When I heard the term "impact investing" for the first time in 2011, I knew that this was the answer to my questions. My gut feeling back then was huge! And I never want to go back to the "old" world!
"Objectively, the global financial crisis of 2007 gave me a lot to think about." (Susanne Bregy)
As a non-profit organisation, the Bundesinitiative Impact Investing e.V. (BIII) pursues the vision of regenerative investing and economic activity that respects both ecological limits and social standards. It sees impact investing as a key instrument for achieving this and promotes the significant reallocation and mobilisation of capital towards impact investing. HAMBURG TEAM has been an active member since 2023. More information here https://bundesinitiative-impact-investing.org
Daniel: What goals have you set for your new job?
Susanne: My main goal for my work at the Federal Initiative for Impact Investing is to bring the topic much more into the mainstream. We need to mobilise significantly more private capital to solve the pressing problems. In addition, every investment should be considered in terms of risk, return and impact criteria - there are no neutral investments! However, the state should also use its options, e.g. regulatory, bureaucratic or tax-related, to help support investments with a positive impact. And the transformation of the real economy also plays a key role for me. Industry must also become green. This also includes the property sector.
Impact investing is an investment approach that aims to achieve a measurable environmental and/or social impact in addition to a financial return. While traditional ESG strategies generally seek to avoid negative impacts, impact investments specifically look for ways to solve fundamental problems with commercial and profitable business models. These strategies can go hand in hand with forgoing returns (impact first), but can also achieve market returns (finance first).
Daniel: The subprime crisis and the Lehman Brothers insolvency, which was its high point, occurred in the early phase of my career in the property industry. I remember that this shaped my understanding of the risk/return ratio in the sense that it is essential for every strategy to know and be able to assess the risks associated with the return target. In my opinion, other markets are often somewhat ahead of us in this respect.
Susanne: As impact investing primarily takes place in the private markets - private equity, venture capital, private debt, real assets - we are ahead of the Anglo-Saxons in particular, as these asset classes are much more present there as investment strategies. Here in Germany, I often didn't get any further because there was a lack of access to this asset class - not an interest in impact investing per se. Holland was a pioneer for a long time, especially on the green investment side - and the USA still is when it comes to venture capital. Could Paypal, Uber & Co. have become big (and financed) in Germany? I doubt it. The willingness to take risks - and to lose money - is unfortunately much lower in Germany.
Daniel: One risk with regard to "ESG" investments and impact investments is certainly that these buzzwords are often quickly used as sales arguments and then unfortunately often turn out to be fraudulent labelling. BaFin has also already labeled greenwashing as a major risk for necessary transformation strategies. How can investors' concerns about greenwashing be allayed?
Susanne: Do your homework! At the end of the day, every investor should take a close look at where the investment is going. This applies to the financial side - but also to the impact side. Just because it says "impact" on the label doesn't mean it has "impact" in it.
Daniel: In addition to this need to carefully examine an investment strategy, what do you think are the other key drivers for impact investing in Germany, and what role do regulatory requirements and the establishment of standards for measuring impact play in further professionalising the process?
Susanne: On the subject of impact measurement (IMM - Impact Measurement and Management): When I focussed on impact investing in 2011, almost nobody was talking about IMM. It was clear that impact would also be planned and recorded - but we were still far too young as an ecosystem to think about topics such as standardisation. Today, we are at a completely different point. We have to get IMM right globally! Which investor and which fund wants to deal with countless specifications? An enormous amount has happened here in recent years; we are on the right track.
And the regulatory framework - Sustainable Finance Disclosure Regulation (SFDR), taxonomy, Corporate Sustainability Reporting Directive (CSRD) - is very valuable per se, especially as the dual materiality is required - and this is what ultimately matters ("real world impact"). However, it is also understandable that there is simply too much regulation at the moment, which is scaring off many participants. That's why I'm calling on politicians: the idea is great, the implementation... hm. Please do better!
Daniel: Impact costs a lot of money. My thesis is that a real transformation will not be possible without increased mobilisation of institutional capital. Institutional capital is for-profit capital that requires competitive returns. I regularly encounter the perception that positive impact always goes hand in hand with sacrificing returns.
Susanne: Global social and green impact has to mobilise a lot of money, including private money - but impact investing does not cost a return. That's how it has to be if we want to become mainstream! And we have to, because the financing gap for the SDGs (Sustainable Development Goals) alone is estimated at USD 4.2 trillion per year.
And impact investing makes money! There are certainly strategies where a loss of return must be accepted, but there are significantly more strategies where this is not the case. Around 70% of impact investors worldwide are not willing to sacrifice returns, but still want to have a high impact.
The reasoning behind this is simple: some problems can be (better) solved commercially and impact investing strategies can be derived from this. Where this is not the case, philanthropic money must go.
„In my opinion, the transformative potential in the property sector is not being utilised nearly enough." (Daniel Werth)
Daniel: We have numerous impact fields of action in the property industry. These include, in particular, the creation of housing that is conducive to the social fabric, the realisation of demand-oriented usage and infrastructure concepts (e.g. educational and care facilities, medical facilities, but also playgrounds, etc.), and the energy transformation, especially of existing buildings.
In my opinion, the transformative potential in the property sector is not being utilised nearly enough. I would rate the overall socio-ecological impact as negative.
Susanne: The property industry has a huge amount of leverage! The transformation will not be successful without the property industry! Whether it's sustainable and recycled building materials (I'm a big fan of Cradle to Cradle), the use of property in the green and social, affordable sector, or CO2 storage in timber construction - the topics are incredibly diverse! And nothing works without property!
Daniel: In the current market environment characterised by geopolitical tensions and macroeconomic uncertainties, do you see more of a breeding ground due to increasing awareness or a braking effect for impact investing?
Susanne: My glass is half full! Even if fear-driven capital markets are never good for "our" investments, I think that the geopolitical environment - perhaps even the Covid pandemic - is making people think and that one or two thoughts are also going in the direction of sustainable investing.
Daniel: Thank you very much for the interview, we are very much looking forward to continuing our joint commitment!
