Catch up with Kate Temby
This month we ask an investment professional who holds a number of executive and non-executive directorship roles to explain how impact and sustainable investment considerations might shape the property investment landscape.
Kate Temby is Non-Executive Director of ASX-listed Netwealth, Partner at Affirmative Investment Management and a Member of the Investment Committee of Conscious Investment Management.
She previously had a long career and held senior roles with Goldman Sachs, and recently took up pilates as part of her commitment to fitness.
Why is impact investing so important to you?
I’ve been in finance 30 years and have spent the past five years looking at how to solve the climate and social crises through finance and investment. I enjoy being able to focus my energy on contributing in a way that makes a real difference.
From my perspective, capital is needed for every sector to transition for all of us to make an impact on climate change and social challenges. In the past five years, we’ve seen this starting to affect the property sector.
You’ve been in the sustainable and impact investing space longer than most. How long has it been and what trends are you seeing emerge?
ESG investing (environmental, social, governance) isn’t a new concept but over the past five years, we’ve seen it evolve into a wider sustainable and impact investing mindset to help solve societal issues and climate challenges. It has moved beyond philanthropic and ethical investors into the mainstream.
We’ve seen opportunities to deliver outcomes which encompass ESG and impact become far more compelling, both in terms of the problems that we need to solve, and the return profile so that investors can pursue impact investing in the mainstream.
What industries do investors who are drawn to impact and sustainable investing typically look for and target?
Sustainable investing will continue to soar. It is about more than ‘let’s not do bad’. Nowadays, sustainable investing is about a company permanently moving away from supporting harmful sectors such as fossil fuels or gambling and stepping more into behaviours integrated with ESG and outcomes that are consistent with its values and purpose. These values need to resonate with its people, customers and stakeholders. This touches every sector.
When you think about sectors transforming, I see it as being like a flywheel, where your objective is in the middle. You need every piece pushing into the middle to build the momentum, which means you need regulation, corporate behaviours, product and service offerings and the customers moving in the same direction. Once you get all those things moving including the supply chain, you’ll see positive change.
This is a complex topic for the property sector because you have existing properties in place with legacy materials and energy efficiency which need to be retrofitted, along with challenges as to how the industry will transform its approach to new builds.
How do you define impact or ethical investing principles as they might relate to the property industry?
I tend to move away from the term ‘ethical’ as this was historically anchored in exclusions. ‘Sustainable’ investing that integrates ESG with an impact is the way forward.
For the property sector, the first layer for sustainability is the construction stage – across both the workforce, such as workplace safety issues, the materials used and the energy efficiency of the property.
The second layer looks at the purpose of that property. The goal is to have a building that has a positive impact to help solve challenges in society, such as social disability housing.
Your professional background is wider than property as an investment class, however you see impact opportunities in the property space as well – where do you see them?
There is a breadth of impact investing opportunity across the property sector, both domestically and globally. Given buildings are responsible for around 25% of emissions globally and in Australia, there is a huge opportunity to have a significant impact on both emissions reduction along with providing financial returns.
For example, at Affirmative Investment Management we invest in listed green bonds which finance green buildings both in new builds and retrofitting. Whereas at Conscious Investment Management we focus mainly on domestic property opportunities where our impact has largely been delivered through property finance for the purpose of social and social disability housing.
What are some examples of impact investments that harness residential or commercial property?
At Conscious Investment Management we have recently signed an investment in a joint program with Homes Victoria and a housing association, HousingFirst to invest $150m to acquire 307 new social and affordable housing dwellings which will reach around 500 people. Historically, despite strong demand, private sector investment into social housing has been challenging because rents are capped at below market based on tenants’ income. This model involves a unique structure, pioneering a new model of financing social housing with private capital.
Just as there has been a wave of capital searching for assets in certain sub-sectors of the Australian property market, it seems there’s a “wave” of impact investors heading our way. Is this a fad in your opinion or is it here to stay?
There has been strong growth (albeit off a low base) of impact investing in the property sector. This has been critical and has delivered some tangible solutions both for the climate and society. But as I said buildings are responsible for over 25% of energy emissions both globally and in Australia so we need to find more efficient ways of building, heating and cooling properties. This is not a fad; this is about a more efficient way of doing business. So, today’s challenge is the journey to net zero. While ‘net zero’ is becoming part of our daily vernacular, there’s a lot more work to do that extends to how to execute your net zero plan, what investment is needed to make the transition and how to measure and report your outcomes. In the coming years financing this transition will be seen as mainstream financing.
This megatrend of net zero looks here to stay – how has this impacted your role over the last few years?
There are expectations at every level – across government, private sector and every industry to set net zero targets. This impacts every organisation I am involved with from publicly listed companies and investment committees to asset managers. The flow-on impact for service providers is also interesting. For example, superannuation funds are setting out their net zero targets which flow on to their underlying managers’ net zero targets across every asset class. Similarly, companies who tenant buildings are asking building managers for their net zero plan and emissions data so they can fulfil their corporate sustainability objectives and reporting. The flow on impact is powerful.
So, all stakeholders are now thinking about emissions and net zero plans. From a governance perspective, there will be increasing focus not only on the plan but how it is executed authentically against science-based targets and measurable outcomes. Transparency is key.
As impact managers, we are coming into our own as the investment opportunities are deepening and we have expertise to deliver financial returns along with environmental and social impact. At Affirmative we are fortunate to have a “verification” track record which allows us to continue to develop in an authentic way. The evolution is here to stay.
Where has the majority of capital inflow come from, and what are they looking for in return?
Capital is flowing from all types of investors, including institutional investors (superannuation and public funds), high net worth, individuals and family offices. Some are new to impact investing while others, such as religious organisations, have been investing ethically for more than 30 years.
This is a global trend. The need to finance the transition is the way forward and is an expectation from all, not just the millennials. It’s across the whole age spectrum, and it’s coming from around the world and flowing into the Australian market.
Are we at the point where property developers, owners and managers that cannot demonstrate genuine ESG credentials spanning sustainability and social issues, will become ‘uninvestable’?
Not yet. That is a few years away, but we are heading there!
What do you like to do outside of work?
I like to keep fit. I recently took up pilates and I’m focused on my long-term fitness. I enjoy running and practicing mindfulness as it centres me in a noisy world. Downtime and fun with my family and friends is also important to me.
I am passionate about seeing young people thrive. I enjoy helping people find their place in the world of work. The work world is a complicated place, and I like working with people to develop future leaders and connecting them so they can thrive.
I’m also involved in The People Spot, which is a coaching app that delivers just-in-time coaching to help others at work.