This is a transcript of my recent interview with Kristin Siegel, Head of EMEA for Toniic, as part of my contributor conversation series for our latest report, which you can get for free by clicking below:
You can also listen to the full interview on all good podcasts via the link below
Philip Bateman: Greetings and thanks for joining me. I’m here with Kristin Siegel, who is the head of Europe, Middle East and Africa for the Toniic Network. And we’re here to talk about “Driving evidence-based practice in ESG and Impact Investing”, which is the document that’s just come out from Bravo Charlie. And Kristin, wonderful to have you here. Thanks so much for your time.
Kristin Siegel: Thank you, Philip. Great to be here.
PB: Could you give us a little intro to what is the Toniic Network?
KS: Yeah, absolutely. The Toniic Network is a global network of mostly private impact investors. Currently we have 500 members worldwide, and really it is mostly high net-wealth individuals, family offices, foundations across the continent. Certainly North America, and Europe, Middle East and Africa, which I represent, are the two biggest regions. Though we are also growing quite a bit in APAC, also including Australia.
PB: And are you getting a difference in the different regions, like what’s really motivating for people? Or is it fairly spread across the board? Is everybody got an awareness of, “We need to be doing these things in these areas?”
KS: It is really interesting because I actually lived in San Francisco for five years and worked also for Toniic there. So I kind of got into the impact ecosystem over there and I would say probably specifically San Francisco, but maybe also the US in general, is really a little bit more driven by social entrepreneurship. While when I came back to Europe, specifically now to Germany three years ago, it’s really interesting that a lot of things have actually been covered by the social system, so there wasn’t as much social entrepreneurship needed. And so that was one really interesting difference.
Also, I guess generally in thinking about how do we think about entrepreneurship, I would say the US, certainly specifically the Bay Area, are very entrepreneurial-minded. Also in terms of, how do we see “failure”? When a startup doesn’t quite work out, then it’s rather like “Great, you learned a lot!” And here in Germany or in Europe, it’s still a little bit like, “Ooh, this didn’t work out. This is a failure.” So I think that’s certainly a difference in mindset, which is really interesting between North America and Europe.
And I guess also what I see in differences in terms of impact investing, is that maybe Europe was a little bit behind in the whole social entrepreneurship startup. But now everything around the EU taxonomy, that actually the governments are pushing forward in terms of regulation. I think they’re now in Europe a little bit ahead, and trying to avoid greenwashing, impact washing and things like that. Where maybe in, let’s say specifically the US there’s more private people, individuals or also private companies pushing a little bit more for impact.
PB: And I think that fascinates me in relation to the scale of impact investing over the overall investment landscape and, where the larger investment landscape is probably more into large infrastructure plays and things like that. They just have much more capacity to wield large amounts of capital for transformational projects, whether or not they are socially orientated or focused on an impact lens.
KS: Yeah, I guess that’s also interesting about Toniic, because I mentioned we mostly work with private investors, so really not with institutional investors. And in that specific role they are aware “We as investors don’t have the biggest capital.” That certainly lies with the institutions, like pension funds and asset managers and so on. But also our investors know they have probably the most flexible capital in terms of “This is my capital, I don’t have to go through a CIO or a big decision tree. But if I want to do this, try this out, then I can do it.” So this pioneering work almost, and trying alternative financing structures, or ways to measure impact and things like that. That’s really what our investors are trying out using their capital for, then getting the feedback, the learnings, and sharing that out. And we also, as Toniic, want to support them with that. So we actually are a membership network, but we also do quite a bit in terms of building up the impact ecosystem, using a lot of the learnings from our members that we then package up into reports that we publish publicly for others to read.
PB: And that catapulting those proof of concepts into scale is the beautiful thing about it. It’s because you’ve got the flexibility to do it as small teams with private capital that institutional people can then go, “Well, we can measure it, we can see it works, we’ll take that, and now we can use our pension funds with our mandates to legally actually put the money into these places and scale them.” And it’s such an exciting thing in that regard.
KS: Exactly. Having some data available, right? This is often what is needed for the investment offices to prove “This has already worked, so let’s try to scale it now.”
PB: And you mentioned the EU taxonomy, and that’s essentially what this is all about. What challenges do you see being created by greenwashing and impact washing, as a first thing, and then the regulatory.. “it’s coming.. the regulation is coming.” But I think inadvertently people don’t.. a lot of people aren’t trying to greenwash, it just might be happening through a lack of data or a lack of rigor or a lack of process. You wave the flag, “We’re going to.. this is good for everything!”, and it’s like “Oh yeah, prove it.”
KS: So I’ve been in the impact space now for about eight years. And the first four to five years, it was still beating the bushes and saying, “We also can do impact investing, right? You can have financial returns and have a positive impact.” So that was the first years where it was really more in the persuasive mode and finding others who are thinking the same way. I would say the last three to four years, this thing really which maybe was a trend, absolutely became a movement. And at least here in Europe, it feels like everybody is talking about it. And what I see is, this is something that sometimes I think it definitely is genuine that we see the issues in the world and also realising we can do something with our capital. And I think that’s where greenwashing comes in, as you say. I think for a lot of people, it’s not on purpose that they want to greenwash, but it’s a little bit the risk that I see.
And really, Toniic and I myself stand for deeper impact, real impact that helps, or real solutions that help solve the problems that we have in the world and not like, “Ooh, it sounds good.” I guess that is the biggest problem with greenwashing that especially with investors who, maybe are not so much into.. so deep in the issue and generally about impact investing, that then they feel like, “Oh great, I invested in a sustainable fund and now I’m doing a lot of good”, which I guess a lot of the products that partially that are out there suggest that they’re really sustainable in the long term and are really contributing to solutions, but in the end, it’s maybe just doing a tiny little bit, but not enough for what we need. And that is currently what I see is the risk.
My background is actually in banking. So I used to be a portfolio manager at a bank and I still am in contact with some of my former colleagues and also asset managers who manage bigger funds, be it ETFs or also mutual funds. And I met them recently and it was really interesting because they certainly are also now pushed by the EU regulation, the SFDR, Sustainable Finance Disclosure Regulation which is intact since March, where the asset managers have to actually disclose what they are doing in terms of sustainability. And there are these three kind of articles that you often hear now, it’s Article Six, Eight and Nine. And let’s say when you have an “Article Six fund”, it’s not as sustainable. It is more like, “Okay, you do this and this and this, but it’s not yet sustainable.”
So everybody is pushing for this Article Eight, which is a little bit around sustainability, really making it super easy right now. And obviously there’s a lot more regulation around it. But then Article Nine is really maybe what we would rather call a little bit more impactful. And I heard from a lot of asset managers “We tried Article Nine, way too difficult, we’d rather not do that.” But still everybody is pushing for this Article Eight. And also, something that maybe to me feels like it wouldn’t actually fit into that, this Article Six is not good enough.
There is also this pressure from society like “Oh no, Article Six funds, I don’t invest in anymore. I definitely want to do something in terms of sustainability.” Which I guess is generally a good movement, but we are just not yet there. also to maybe have all the products or it just also takes a little bit of transition time to adjust them. So now I guess the asset managers are like, “We don’t really want to greenwash, but somehow we also want to offer that.” So it’s an interesting dynamic. Plus that maybe you also do have a few people who maybe in the beginning weren’t maybe quite as genuine about general creating impact and rather like, “Great, okay, we can fit it in here. It sounds good. It’s a good marketing tool. Let’s do that.” So I guess that’s what I see currently on the market.
PB: And at scale. I was talking earlier with an asset manager earlier this morning about the process of divestment, and simply whilst it’s a good thing, arguably from a social license to operate, it moves it onto operators who may not be as ethically minded around acquiring assets that aren’t having the best impact in the world. So it’s a “wicked problem”, this idea that we’re using money within the constraints of a capitalistic system built on growth, to effect change that arguably has been created by that system in the first place. It’s quite a..
KS: No, absolutely it is. And there also have been a few academic studies that, like this part about “divesting”, it has a certain signalling effect. But actually, the academic studies have found that the effect or that the impact of that divestment and signalling thing is not as big as if you actually actively engaged, for example, with companies.
So, for example, you keep actually your shares with a, let’s say, fossil fuel supplier and work with them, push for them to actually come up with an almost a new identity. Certainly with a fossil fuel provider, it’s a little bit difficult to say “We are creating energy.” So in terms of like, with an oil producer, you would need to move your whole mission around like “We are actually creating energy.” And it doesn’t have to be oil, right? It can also be something else. So that certainly doesn’t happen overnight.
And obviously also, these big corporations need time and support, and starting their thinking and evolving their thinking to “How can we as a company potentially still survive but provide something better for the world?” Because certainly also, maybe a tobacco company, telling them “You’re actually not needed anymore.” I mean, how’s that going to unfold?
PB: Yeah, that never does. People and Directors aren’t going to give up the legacy of their grandchildren because somebody is saying “You should shut down because we don’t agree with you.” And they got us here in the first place. We’ve got the society we do because of these energy assets that have got us here to this level of technology and quality of life. So it is a “wicked problem” per se.
And the argument for actually even bothering to measure things? I mean, if people have got money and they’re out there creating impact in their hearts and in the faces of the people, their shareholders or their stakeholders who their lives are improving through the businesses and the services that are being provided. Do people even need to measure that? Or put any frameworks around it? Should they just not bother?
Because the whole point of this paper really is to get people quickly up to speed with the massive amount of regulatory change coming across Europe, the UK, Australia, and I even say in the title “evidence-based progress in ESG and Impact Investing”, and they’re fundamentally different things, around single and double materiality, and one’s looking at risks to the business and the others looking at impact on a societal level.. There’s so much complexity here in what’s going on.. Yeah, why bother?
KS: Absolutely. It is really an interesting conversation that also we have a lot within the community and certainly also that thinking is evolving quite a lot. I guess several thoughts.
In terms of when you think about ESG mostly or let’s say big capital, probably you do need some data. When we got started, and I certainly got started more on the social entrepreneur side, where maybe you also had a lot of storytelling to see how have the lives of people improved, for example, who got access to education or to basic services, things like that. There is still the ongoing conversation “Did we put too much of it on the entrepreneurs, that they are just measuring impact but not actually doing their actual work anymore?”
So I guess there is really this conversation between the investor and investee of saying “Okay, what are you measuring maybe already? And if impact is inherent in your business model, then probably a general business KPI is already also an impact KPI”. So it makes it easy. So I think there, investors are a little bit cautious to say “Yes, to measure it on the one hand is important, but let’s also not overdo it, so that they can still also focus on building their company”. I guess in bigger companies there it currently feels like you have a huge team, so it would be good if some resources you actually dedicate to measuring what are you doing, or what harm maybe are you also doing? Where there may be there let’s say, “feel good stories” are not good enough anymore, because saying, “Well, it’s nice that you have solar panels maybe on your roof and you recycle your waste and things like that”, so how you do your business, that’s one part. But it’s also about what you do, right? And what impact do you have with that?
And I think this whole conversation’s about also measuring Scope One, Two and Three and certainly Scope Three is super difficult, right? in terms of just focusing now on the greenhouse gas emissions. Obviously, there are way more impact metrics. So I guess that is important. To get a little bit of an idea, because obviously also for the big companies investing in more greener or sustainable processes, that costs money. And currently while we are still in this capitalistic system and measuring in money, I think there also it needs to be a fair comparison of which company really does try to change something, and then also show the outcomes of that, or maybe rather the outputs, versus another company who is maybe just saying they’re doing it, but not really proving it. So I think in that regard, I personally think that yes, we should bother. Also measuring the positive and the negative impact that is coming out.
PB: It was put to me during the initial research I was doing anecdotally that, if you don’t have a theory of change, then you are greenwashing. And I went “Ooh! That’s the point”. If you don’t know why you’re setting out to do things and you just say, “We’re doing it for good”, then.. And it got me wondering. It’s like, are you seeing families investing based on a succinct theory of change, or are they more saying, “We’ve got wealth, we need to not burn everything down, let’s go do something good with it”?
KS: Yeah, I guess it’s interesting when you say “theory of change”. I would say it definitely is a journey. It starts generally with the awareness of “Hey, we have to do something different and we also can do something with our capital”. To have a real, distinct written-out theory of change we see takes some time, and that often can hinder people to even get started to do something.
So sometimes we say “Yes, you do definitely want to have an intention and think about what are your values, what is important to you”. Maybe also research what is the biggest issue right now in the world and where should we put our capital? I think that’s mostly where at least the private investors are coming from, either from something like, a paediatrician really wants to work on alleviating pain in children, for example. Then often they invest in that theme, but maybe others come from more like evidence-based, maybe Project Drawdown. So what are the bigger solutions to our problems? Let’s invest in them. So I think these are the two ways often private investors commit, and we say, “Yes, you do want to think about your theory of change, but maybe also particularly in a family context, the individual people who have, you know, their passion areas and yes, theory of changes maybe. But then how do you bring that together in a family context?”
So that can be a process over potentially years and where we say, absolutely, you need to start with your values and what’s important to you, and think about that. But maybe you don’t need to have a detailed investment policy statement that includes impact right from the start, but also you can learn by doing, a little bit.
But yes, definitely you do want to get to that part, like “Why are you actually doing what you are doing?”
PB: It must be extremely overwhelming to think that we’ve got to do something and then the opportunity cost of spending two years doing something that potentially isn’t as good as something else you could be doing. And it’s that sort of..
KS: And obviously the impact space is evolving quite rapidly. Something that was really impactful three years ago, maybe now there is something else, another product that is better and then we’ll adapt. So that is maybe also for the traditional finance world, really difficult to grasp because it used to be those two metrics, return and risk, and now all of a sudden also with impact measurement, we have different impact metrics. So obviously that is a little bit overwhelming to grasp.
PB: And what’s your sphere of influence that you’re measuring against? Is it individual, community, city, state, world? Demographic? Specific group? Yeah, it’s just huge. And how would you gauge their interest to measure their impact? And how they’re going about it if they are?
KS: When you say “they” who do you mean?
PB: The families you work with. They’re on the journey, they’re investing, they’ve gone “Right, we’re going to do this. Let’s try that”. Do they see measuring their impact as par for the course and they’re just going for it and grabbing systems and trying it out? Or is it a bit like, “Oh, let’s get some traction first”?
KS: I think there also it varies depending on maybe where they are in their journey. If they’re just getting started, maybe this might be a little bit overwhelming. The ones who are little further down the path may also see this is actually important to do.
So there are over the last years a bunch of movements, or also projects, for example, the Impact Management Project from the UK, has really helped to become a little bit of a standard, where especially private investors, those families really appreciate using some of those standards and applying them to their own portfolio, while again, others are then cautioning, especially when they work with entrepreneurs, “Let’s not overdo it. We can also measure too much”.
So I guess in that regard, probably mostly with the entrepreneurs where they have a direct influence, they try to push a little bit for impact. With the ESG, big corporations, I think there it is actually appreciated what the regulation is coming up with, to create a bigger data set. There’s also data providers that are collecting that now. So where also there, the private investors have realised “We don’t have the capacity to do all that”. And actually it is good that also this movement is going there, or that there are organizations and companies who are doing that for them.
PB: So for people watching, what’s the quick start guide to getting into this? Is it: Join Toniic, turn up to some member events, get in touch, we’ll sort you out. Is that..?
KS: Absolutely. I think it’s really starting about thinking what is important to you, talking to peers and other impact investors definitely is a really good thing. That can be Toniic, that can be Pymwymic in the Netherlands, NEXUS or The ImPact. So there are several organisations out there, find one that fits for you. But definitely talking to others is really important. And then I guess also figuring out, do you want to do this alone? Do you want to do it with your family? Do you maybe want to do it with a financial advisor? Also really important part, if maybe you’re not so much into investing yourself.
And, then we always say, don’t get discouraged, but also do get started maybe, dip your toe into the water with one investment that you try out. If it doesn’t work out that’s okay, you definitely learn a lot by doing it.
PB: And what’s something you’ve changed your mind about recently in relation to your role in this whole industry?
KS: I would say generally, probably, the role, or the purpose of capital. I think that certainly something, me coming from a more financial background, and very structured and so on, and let’s say maybe a little bit more of a philosophical conversation around “What is actually the role of capital?” Maybe the capital in itself is not the system that we need.
Also thinking about maybe measuring our economy in GDP is certainly not the right way to do it. Maybe, you know, global happiness, rather, something like that would be the way to do it. And I’m educating myself a little bit more in these theories around systems change also now, and to see which role can impact investors and I as an intermediary and facilitator, play in this system.
PB: Yeah. Wonderful. It’s the evolution of self and the evolution of the world, right? Ideally, we’re all transcending up to a higher level of consciousness, essentially. And thank you so much for your time. For those watching at home, do download the new booklet, have a look at all the regulatory changes that are going on. It’s a good idea to get yourself up to speed and pick something, put that first step forward and go for it. If you need any help in communicating what you’re doing, we build investor engagement systems for your brand and your business and your impact fund. And it’s just a really exciting time. There’s so much to do in the world if you’re an optimist, because the alternative is not being an optimist. And that’ll get you down quick.
KS: Yeah. Thank you very much. Fully agree. Thank you so much, Philip.