Impact Leaders #3: Rodney Schwartz, CEO ClearlySo

Rodney Schwartz is a leader in impact investing and the founder & CEO of ClearlySo, Europe’s leading impact investment bank. He founded the company 10 years ago, the same week in which one of his former employers – Lehman Brothers – collapsed, and it has now helped over 100 companies obtain access to more than £200m in funding.

In this episode, he shares his wisdom and experience of decades as an investment banker and pioneer in impact investing. He also highlights some of the challenges that we are still facing to really push the agenda and access to capital, as financial institutions have been more of an obstacle in how capital moves from people with money to people who need money to generate impact.

What is impact investing?

Rodney considers that alongside risk and return, impact is the third dimension to investing. There are many more variables to consider when taking into account impact, which makes this a lot more complex. Soon there will be no difference and impact investing will be just investing, because everyone will be applying the main principle and dimension.

Asked why impact investing is gaining traction Rodney explains among various points that, as a generation, millennials are having an influence and they will only invest and do business in a way that creates positive impact and helps society.

How has impact investment evolved in the past 10 years?

Rodney believes that the pace of impact investing is accelerating. At ClearlySo, it took them 8 years to raise the first £100m for the impact driven clients, and in the past 2 years, they have raised the next £100m, taking just a quarter of the time it took when they first started.

The difference has mainly been driven by the arrival of the institutional investors. In the first years of the company, funds were mainly from angel investors or high-net-worth individuals. During the last couple of years, the business is attracting the most forward-looking institutional investors. Last year alone, £8m was from high net worth individuals of a total of £65m raised, the rest was all from institutional investors.

Back in 2008, impact investing amongst institutional investors was mainly limited to charities and relatively small impact funds. Today impact investors are starting to attract mainstream private banks including Partners Group and Lombard Odier in Switzerland and Axa Investment Managers in France. In the UK apart from Palatine private equity, there is a fairly limited activity with Barclays making slow progress and amongst the British insurers, Prudential is doing some work via M&G.

Rodney thinks that large banks are still more of an obstacle to impact investing. His view is that they are not giving their biggest customers access to impact investments even though they will likely have the appetite for it.

There are enough impact-driven companies, what is lacking is funding

Rodney comments that they have a healthy deal flow having met over 1,400 companies in the past year. In his view, the UK startups enjoy good tax incentives and there is a vibrant startup ecosystem support from accelerators and incubators. He shared that the corporation tax system needs to dramatically change, a proposal he calls this “fiscal tilting”. The tax system needs to tax polluters and organisations that have a negative impact, and money should be given to the people who are creating positive impact. When companies do not behave properly and cause harm to society, they should be taxed and this will be a popular move with the people.

Rates of return are as attractive as other investments

Average rates of return are comparable to other investments and risk associated with impact investment are often less too. Within their portfolio, they have seen companies such as Bulb Energy and IESO which have delivered a stupendous return to investors. It is also still too early to say that return from impact investment is greater than non-impact investment. Rodney said that it might be that if there is a clear evidence of such high returns and no cost to impact, the tax system will have transitioned to a situation where good companies receive tax credits and bad companies have penalties.

Impact Leaders: braveness, ignorance and action.

As an impact leader, Rodney shared that being brave, perhaps a bit ignorant and just taking action were keys to how he got to where he is today. Rodney also mentions the importance of surrounding yourself with the right people who trust you.

Future of impact investing

Rodney on the future of impact investing says, “I do expect that in 10 years, from an impact perspective the world will look very different. I think that it will be very very ubiquitous. I don’t think this will be a narrow interesting quaint niche. I think that in 10 years time any large financial institution in Europe even the British will have an impact investment offering. I think many large investors will have an important impact components to their portfolios and will be measuring their impact of their other portfolios because I think this 3 dimensional way of looking at investing will become the way we work in the years to come … in the same way that when I was in business school centuries ago, we started to think of the world in a 2 dimensional perspective … and given how badly my generation screwed up the planet, there is going to be a lot of work around improving it in the over next 10 to 20 years.”

Conclusion

Rodney closes this podcast interview saying, “How you behave with money is one of the easiest, best and most effective ways to make a positive difference.” Highlights in this episode:

  • Impact is the third dimension to investing
  • The accelerating growth of impact investing
  • How ClearlySo became the leading European Impact Investment Bank
  • The challenge of creating impact
  • Returns from impact investing
  • The players that are active in impact investing
  • How large banks are slowing down impact investing
  • How can people get involved with ClearlySo
  • Drivers of growth in impact investing
  • Changing the tax system to support impact
  • Leaders’ tips on hiring, bundling teams and working with investors
  • The future of impact investment

Useful Links:

ClearlySo blog https://www.clearlyso.com/category/blog/

Partners Group https://www.partnersgroup.com/en/

Axa Investment Managers https://www.axa-im.com/en/

Lombard Odier https://www.lombardodier.com/home.html

Bulb Energy  https://bulb.co.uk/

IESO  https://www.iesohealth.com/

Weeding tech  https://www.weedingtech.com/

Third space learning  https://thirdspacelearning.com/

Chapters:

[00:40] Intro

[01:50] What is impact investment?

[04:00] What variables do you look at when looking at impact?

[05:30] Why impact investing is attracting so much money?

[08:40] Growth of impact investing will be from institutional investors.

[10:00] ClearlySo’s investor base – continental investors more than British investors

[11:00] Financial institutions are obstacles to impact investing.

[14:30] ClearlySo deal flow

[16:00] Bulb Energy – energy sector desperately needs change

[17:45] The UK has developed an amazing startup incubation ecosystem

[18:45] There are many impact entrepreneurs especially millennials

[20:20] Chamath Palihapitiya on inflated growth

[25:00] Faster growth and VC models are good for impact

[28:00] These are no just startups

[30:00] There is more than enough money out there

[37:00] What can investors do?

[40:00] Fiscal titling – taxing polluters and giving credit to impact

[43:40] What returns can impact investors expect?

[45:50] There is strong evidence that there is no additional cost to impact

[48:00] Being humble

[49:00] Taken us 10 years to get to a point where it is sustainable

[52:00] Growing and hiring people to ClearlySo

[55:00] Advice to the younger Rodney

[57:00] How can people help ClearlySo? Where ClearlySo will be in the next 5 years?

[1:00:00] Not being a fortress-like other investment banks

[1:04:40] Impact investment will be ubiquitous in 10 years

Impact Leaders is produced and published by Woon Tan of Podcast Publishing (See: http://podcastpublishing.help/)

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