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In the second piece of our investment insights series, Alastair Rhodes, CEO of BayTrust, tells us how impact investing is moving from the margins to the mainstream – and in doing so, it’s reshaping how investors think about value. The question is no longer whether to allocate a portion of capital to impact, but how every investment decision shapes the world around us.
Impact investing has long sat at the edge of mainstream finance. For years, it was viewed as a niche allocation made by philanthropic foundations, community trusts, family offices or values-led investors willing to accept lower returns in exchange for social or environmental outcomes. That framing is rapidly changing. Today, the more important conversation is not whether investors should have a small ‘impact bucket’ within a portfolio. It is whether the entire portfolio itself should be viewed through an impact lens.
This shift matters because every investment already creates impact. A portfolio invested heavily in extractive industries, poor labour practices or high-emissions infrastructure shapes society just as much as a dedicated impact fund does. The difference is that one form of impact (the financial) has historically been measured and intentional, while the broader social and environmental costs are often excluded from financial analysis and assumed to be financially neutral. However, this is not true as the cost is actually paid by future generations, and investors are increasingly recognising that this neutrality does not really exist.
As a result, capital markets are evolving. Rather than asking, “What percentage of our portfolio is impact?”, many investors are now asking, “What outcomes are our total investments creating?” That is a fundamentally different question.
Historically, impact investing referred to intentionally deploying capital to generate measurable social or environmental outcomes alongside financial returns. This often-included investments in renewable energy, affordable housing, social enterprises, healthcare access, indigenous development or climate resilience projects. Those investments remain critically important, particularly within the foundation and endowment sector where organisations can take longer-term views and provide catalytic capital into areas traditional markets may underinvest in.
However, limiting impact to a small carved-out allocation increasingly feels outdated. Importantly, there is a growing argument that investors have an ethical responsibility over and above traditional investment fiduciary responsibilities, to consider the broader consequences of their investment decisions. Traditionally, fiduciary duty has been interpreted narrowly through the lens of maximising financial returns. But many investors are now questioning whether generating strong returns alone can truly be considered responsible stewardship if those returns contribute to environmental degradation, worsening inequality or declining social cohesion. After all, what is the value of maximising portfolio performance today if it contributes to poorer outcomes for our children and grandchildren tomorrow?
Long-term wealth creation depends on functioning communities, stable institutions, healthy ecosystems and social cohesion. Capital markets do not operate independently from these realities. They are shaped by them. This perspective is not new within Aotearoa New Zealand.
Long before ‘impact investing’ became a recognised term within global finance, many Māori organisations and iwi entities had taken an intergenerational view of investment. Decisions were rarely assessed purely on immediate financial return. They were also considered through the lens of environmental stewardship, employment opportunities for whānau, cultural wellbeing and the sustainability of resources for future generations. Concepts such as kaitiakitanga, manaakitanga and whakapapa naturally encourage a more holistic understanding of value creation. The health of waterways, the protection of whenua and the strength of communities are viewed as interconnected with economic performance rather than separate from it.
In many ways, what global markets now describe as impact investing reflects principles many Māori organisations have embedded for generations. This perspective is increasingly influencing wider investment conversations across New Zealand. Many iwi investment entities are demonstrating that long-term intergenerational thinking and strong commercial performance are not mutually exclusive. For the wider business community, there is something important in that.
The emerging shift toward whole-of-portfolio impact thinking is not about replacing capitalism with philanthropy. It is about recognising that enduring prosperity depends on healthy social, environmental and economic systems functioning together over long timeframes. For businesses, this shift has major implications.
First, the definition of risk is changing. Traditional financial analysis focused heavily on profitability, market movements and balance sheet strength. Those factors still matter enormously. But investors are increasingly assessing exposure to climate transition risk, workforce wellbeing, supply chain resilience, social licence and governance quality.
These are no longer ‘soft’ considerations. They are increasingly viewed as core indicators of long-term value creation.
Businesses that fail to adapt to changing environmental or social expectations may face rising insurance costs, constrained access to capital, reputational damage, or declining investor confidence and reduced access to critical natural resources such as water. Conversely, organisations positioned to contribute positively to major structural challenges are often attracting stronger long-term interest.
Second, capital itself is becoming more ‘values conscious’. This does not mean investors are abandoning returns. In fact, many would argue the opposite. Long-term financial performance increasingly depends on understanding societal and environmental realities. Climate change is a clear example. Regardless of political perspective, the economic implications are already material. Physical infrastructure damage, insurance retreat, energy transition costs and supply chain disruption all carry financial consequences. Investors ignoring those realities may simply be under-pricing future risk.
Importantly, this shift is also blurring the boundaries between philanthropy and investment.
Traditionally, many foundations operated with a clear divide. Their investment portfolio existed to maximise financial returns, while their granting programme attempted to address social issues created within the broader economy. Increasingly, organisations are questioning whether those two functions should be disconnected. Why fund climate resilience initiatives while simultaneously investing heavily in industries accelerating emissions? Why support community wellbeing programmes while holding investments that may undermine workforce stability or housing affordability? This conversation has been held for over 20 years.
As a result, many endowments and trusts are beginning to align their corpus investments with their mission, not just their granting. This does not necessarily mean divesting from every imperfect company or pursuing concessionary returns. More often, it means applying a broader lens across all investment decisions and considering whether capital allocation supports the kind of future society and economy investors ultimately want to operate within.
That broader whole-of-portfolio approach is arguably where the next phase of impact investing is heading. Transparency, adaptability and credibility will increasingly matter. Investors want clearer reporting, measurable outcomes and businesses capable of navigating long-term structural change. Impact investing is no longer just about allocating a small portion of funds into worthy projects, it is becoming a broader reassessment of the role capital plays in shaping economies and societies.
That conversation is only just beginning, and at BayTrust we are on this journey and actively considering how our capital allocations impact our communities and the environment, both now and in the future. Furthermore, I am more than happy to connect with anyone interested in discussing this area.
Priority One is working to position Tauranga Moana as a destination of choice for people and organisations who want to invest, build and thrive in the region. Following on from our inaugural Tauranga Moana Investment Summit, we are running a series of insightful pieces from members of our Tauranga Moana Investment Attraction Group and other local investment specialists. To learn more about Priority One’s investment work, and to download our Insights Guide, click here.
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