By Sundip Patel, co-founder and chief executive officer, AVANA Companies
The past few years have seen institutional investors increasingly aware of the benefits – both to their finances and to their reputations — of putting more of their money into projects that meet environmental, social and governance (ESG) goals. Indeed, their large size affords institutions the resources, knowledge and skill sets needed to accurately assess the risk and returns of potential investments in projects ranging from solar energy to biogas production to job creation.
ESG investing has a way to go, though, in making such investment opportunities available to retail investors who care about supporting these same goals and building their own wealth. Making these opportunities more inclusive means that we in the financial sector must work harder to diversify the mix of investors in our projects.
Inclusive investing is personal for me. I was raised in Africa and as a young man emigrated to the United States, where I found a world of opportunities that have allowed me to spend more than 30 years in commercial banking. Inclusive investing matters to society, too, because everyone deserves the opportunity to participate in maximizing the investment earnings on their capital. Beyond that, inclusive investing is the right thing to do. There is no reason why institutional investors cannot share some of the massive amounts of money they make with retail investors. Both parties can win when retail investors have access to projects whose goals they care about.
Extending investment opportunities to retail investors
I co-founded AVANA Companies in 2002, with offices in the Middle East and in the United States, and we are dedicated to stimulating local economies and contributing to clean energy development globally. We want to see institutional investors make a portion of their ESG investments available to retail investors who normally wouldn’t have access to these investments, much less have the resources to adequately assess them.
Consider the growing influence of women in the gulf such as Saudi Arabia where opportunities for women and women in business positions are growing. As a father, my motivation behind creating these opportunities, was teaching my daughter how to invest. With education and accessibility to investments, women and other under-represented investors can become co-investors in companies with ESG goals.
AVANA’s ESG lending side includes AVANA Capital and the LendThrive platform, which have professional credit analysts to evaluate the risk of every loan and which fully fund loans to small businesses that create jobs and contribute to clean energy progress. The company’s ESG investment side includes the EqualSeat™ platform, developed to democratize returns for retail investors from AVANA’s loans to these businesses by co-investing with institutional investors .
When it launches later this year, EqualSeat will take projects that institutional investors have vetted and invested in, put portions of those projects on the platform, and allow retail investors to choose which deals they want to invest in and how much they will invest. EqualSeat™ will provide these individual investors access to institutional-quality commercial debt investments, with low minimum investments, and an opportunity for dependable monthly cash flow.
Fintech’s role in democratizing ESG investing
Fintech platforms such as EqualSeat act as online marketplaces to connect financial institutions and investors with small businesses that need capital, they are an excellent way to make ESG investing more inclusive. The mobile platforms are well-suited to reaching retail investors, whether in the United States or abroad, and making it easy for them to participate in the professionally analyzed deals. With these platforms, retail investors will have a seat at the table; they will have a voice in the company’s environmental, social or governance goals; and they will know they are doing good with their money.
For the above mentioned EqualSeat™ platform , the institutional investors will give up 30% of a loan to retail investors as an opportunity to allow them to co-invest with them for a brief 90 day period. Institutional investors and whatever liquidity they get as a result of allowing co-investments from retail investors gets re-invested back into other loans. The investment risk and exposure is limited for the retail investors as they did not put up the initial funds. There is also no obligation for them to take on the entire 30% allocation. They have a choice to take on as much or as little. My mission from day one was to make sure we democratize the investments and provide socially responsible investments which are central tenets of ESG.
The sun is shining on renewable energy projects
Renewable energy is a key focus for AVANA, with our AVANA Capital group financing construction, equipment, and development of clean energy projects and its ability to provide employment in factories and on job sites. Examples of recent funding include:
- An $8.4 million loan to SolRiver to buy land and build a solar farm that is providing electricity to Portland (Ore.) General Electric Co. The project generates 198 million kilowatts per hour of power and has eliminated the burning of 146 million pounds of coal.
- A $39 million loan to Generate Capital to finance energy-efficient equipment, including lighting and heating, ventilation, and air conditioning, for a large school district in Hillsborough, Fla.
- A $22 million construction loan to Carbon Cycle Energy to convert a waste disposal system at a pig farm and pork producing plant in Warsaw, N.C., to a renewable natural gas (biogas) facility. The project will improve air quality around the plant, produce hundreds of new jobs, and reduce methane emissions equivalent to 680 million tons of coal.
Most recently, AVANA is providing more than $50 million in loans to G&S Solar, which is developing more than 50 rooftop community solar projects in New York City. G&S Solar will lease rooftops from commercial building owners and install solar panels that will help building owners and residents save on their utility bills. The solar installations also will create jobs and contribute to New York’s clean energy goals.
Niche industries unite communities and institutional investors under ESG
AVANA also focuses its ESG investments on hospitality and commercial real estate, two areas we chose because they meet the needs and wants of creating employment in tertiary communities and of institutional investors. The hospitality industry provides significant numbers of jobs and increases tourism in a community, while commercial real estate allows small business owners to own their own buildings, grow their businesses and enter new markets.
As consumers and investors become more aware of the ESG goals of the companies with which they do business, measuring the impact of ESG investments beyond the financial side is important. A renewable-energy investment can be measured by the number of jobs created, the amount of energy created, and the number of homes powered by renewables. Governance can be measured by the diversity of genders and ethnicities in a company. Like many other firms, we are working on how to audit the impact our investments make on ESG goals across a broad spectrum of criteria.
Looking to the future
Inclusive investing will not be achieved overnight. Even if institutional investors make a 1 percent adjustment in opening their portfolios to co-invest with retail investors, they will be doing that much more than they did a year before. Over the next 10 years, we believe that more corporations will be driven to become more conscious of ESG investing and it will become part of the investment world’s DNA. Sharing gains with customers is how socially responsible investing can work.
About AVANA Companies
With $1.1 billion in assets under management, AVANA Companies is dedicated to stimulating local economies and contributing to clean energy development. AVANA is headquartered in Glendale, Ariz., USA, Pune, India and in Manama, Bahrain, and serves small business owners and institutional and UHNW investors across the United States and globally.