Last year was a period of reflecting, recommitting and re-envisioning for the McConnell investment team, together with its partners and many members of the sector. Our full annual impact report will be published in the fall of 2023 with a revised format, including an overview of our new impact targets and management approach that we will use to measure our progress as we implement our 100% impact investing commitment. As in past years, we will continue to be transparent about what is and is not working from an impact and financial performance standpoint. We also aim to encourage other institutional investors looking to grow their impact portfolios. In the meantime, here is an update on our portfolio activities in 2022.
The uncertainty and volatility of the past year — from the continued scrutiny of Environmental, Social and Governance (ESG) investing, to economic turmoil, rising inflation and interest rates, and an accompanying cost of living crisis — have reinforced that investors have a responsibility to unlock the necessary capital that is needed to generate solutions to society’s most urgent social and environmental challenges.
As the recent Intergovernmental Panel on Climate Change report makes clear, there is no time to waste: an urgent, cross-sector, and globally coordinated response is required to combat the climate crisis and avoid catastrophic environmental and social consequences down the road. This is not news, but what 2022 continued to make clear is the solution depends on capital owners and allocators doing their part.
Promisingly, there continues to be increasing momentum and a growing evidence base within the institutional investor community and capital markets that it is possible to aim for both financial return and positive, measurable social and environmental impact. There is also increasing momentum among the investor community who believe it is our collective responsibility to support investments that create positive change.
We made two new impact investments in 2022: a $4M investment into Raven’s Impact Venture Fund II and a $15M investment in AlphaFixe’s Green Bond Fund. This brought our impact portfolio to $132.8M, representing 20% of our endowment as of December 2022. Both investments were into existing fund managers in our portfolio who are scaling their strategies and continuing to demonstrate robust impact management approaches.
As part of our impact investing thesis to help build the Canadian impact investing ecosystem, we are excited by the opportunities the Canadian market presents to invest in innovative, impactful strategies that align with McConnell’s focus areas and wider mission.
Above all, what continued to inspire our team in 2022 is the impact stories we heard from our partners:
- Windmill Microlending Community Bond
Windmill Microlending empowers new Canadians to achieve career success. In 2021-2022, Windmill worked with over 3,000 newcomer clients across Canada and issued over $12 million in loans to support clients with their accreditation, education, and professional development. With the help of their loans, Windmill’s clients saw an average 3.6X increase to their income once their loans were repaid, alongside a drop in unemployment from 42% to 8%. In the coming years, they hope to scale their support to individuals and communities across the county.
- AlphaFixe Capital
AlphaFixe Capital’s Green Bond Fund and its financed projects contribute directly to a low carbon economy. The Green Bond Fund finances projects in renewable energy (39.6%), public transportation (32%) and green buildings (18.8%), which all contribute to mitigating climate-related risks and make Canadian cities safer and more sustainable. As of December 31, 2022, the fund was delivering potentially avoided emissions of 173 tons of CO2 equivalent per million dollars invested.
Our focus in 2022 was on crafting a new investment strategy. The process entailed reflecting on McConnell’s impact investment journey to date and contemplating what our future role should be. In December, McConnell’s Board approved a strategy that commits to building a 100% impact investment portfolio over the next 5 years.
Our investment strategy process brought together internal and external stakeholders, with the close involvement of our Investment Committee and Board as we contemplated how McConnell could invest to achieve the greatest impact. We are enormously grateful to everyone who was, and will continue to be involved in the design and implementation of this strategy and to those foundations who have led the way with similar commitments to 100% mission alignment.
As part of our new strategy, we recently published a net-zero carbon action plan, where we discuss our plans for reaching net-zero carbon emissions by 2050 at the latest, including investing in assets that are net-zero aligned, engaging with fund managers, and disclosing our progress on an annual basis.
The year so far and looking ahead
If 2022 was a year of strategizing, 2023 has so far been a year of implementation. We are excited about making additional investments into impact-driven funds that are committed to innovating and unlocking significant amounts of additional capital for impact. We look forward to continuing to work towards our annual impact investment targets along with complete divestment from our fossil fuel holdings by the end of this year.
These are gradual yet purposeful steps towards our 100% impact goal. Wherever you are on your own impact journey, we invite you to get in touch with our investment team. Together we can continue to demonstrate what is possible when impact is placed at the heart of investment decision-making.