Connecting businesses and public sector bodies with investors of all types and sizes by issuing debt instruments that fund activities with social or environmental benefits is what Abundance Investment is all about.
It enables investors to have a direct relationship with the project or business that they choose to fund. “We want to facilitate that,” says Bruce Davis, Co-founder and Joint Managing Director of Abundance Investment. “We started out funding quite simple projects like wind turbines and solar energy, and we have graduated to funding much bigger projects, and funding larger innovative companies based in the UK, for example providing electric vehicle charging, and most recently providing finance directly for local authorities issuing green municipal bonds.”
Across the 10 years Abundance Investment has operated, it has concluded just over £115m in investments. “On average, our investors have invested in around 10 projects, and maybe invested upwards of £15,000 each. We’ve gone from something that was designed to be relatively accessible and democratic so anyone can participate, to being an important source of financing for green businesses in particular.”
Along the way, the UK Government created crowdfunding rules in 2014, and in 2016, and launched a new type of Innovative Finance ISA that many of Abundance’s investors use as a tax-efficient vehicle for their investments while also supporting green projects.
“We are open to all businesses that put themselves forward for investment, but they have to get through our due diligence process,” he says. “The due diligence does two things: it enables us to verify what they are saying can be evidenced and whether what is proposed is an appropriate investment, and it enables us to make sure the communications about that investment are fair, clear and not misleading.”
Abundance finances projects that get through that process by marketing bonds issued by the companies. “Not all companies are at the stage where they can take on debt financing,” he says. “If they want to raise equity – if the company is pre-revenue or does not have an immediate stream of revenue – then they would go somewhere else. We issue debt securities.”
In practice, the process works as follows. The company raising the money will decide it needs to raise, say, £3m across five years. Abundance would make £3m worth of bonds available and the investors would buy as many bonds as they choose. These bonds would sit in their portfolio. The investor will receive repayments from that bond for the next five years through the Abundance platform. If the investor also has bonds in a different company across a different period, they sit separately in the investor’s portfolio as a separate risk.
The bonds are tradable to other investors through the marketplace. The investor would set a price and other investors would bid for them. Equally, the company in question can undertake further rounds of debt-raising through the Abundance platform.
Under the prevailing regulations, companies can issue up to £7m per annum but the rules are subject to change in wake of the UK’s departure from the European Union. Some companies have raised debt finance through these bonds perhaps three or four times, but most will undertake only one or two fundraisings of this kind because they will probably have grown into alternative financing arrangements.
When asked if Abundance is literally shaping the market for green projects, Davis responds: “Yes. We’re focused on financing green investments. Our business has a mission to accelerate net zero, which is in effect to grow the green economy. We will look at projects that are socially positive too, but in general we would also want those to incorporate sustainability. So, we've funded things like social housing projects, but we've encouraged the developers to look at renewable energy provision for that social housing. We do that, in part, because of our mission, but also we think that it’s sensible, if it's a long-term investment, that they should be aligned with net zero.”
He adds that Abundance’s view is that if you are making a 10-20-year investment now, you're automatically making a green investment because there isn't really another option. “However, we will work with fossil fuel companies if they are looking to transition to renewable energy. We worked with a gas pipeline company that wants to switch to hydrogen,” he adds.
As for natural capital investments, Davis says Abundance is waiting for further clarity from the government on what it is going to do to support projects that support biodiversity. “They don’t have the profile of an investment that's set up for debt financing, but we would look at it if it were something active like a store of value, for example forestry,” he says.
Parties to these crowdfunding debt arrangements are pretty easy to identify. On the investor side, they are impact-led and tend to be relatively sophisticated – not first-time investors. “They're looking for an alternative,” says Davis. “They're looking for something that isn't the stock market, partly because there are better financial returns in private markets for investors at the moment.”
On the other side of the equation, to issue a regulated investment, you have to be a company or a local authority – charities tend not to be eligible. “When we're dealing with green infrastructure, it's not an altruistic project in itself. It has to be financial, and it has to stack up. If it doesn't stack up financially, then it's not going to get through our due diligence,” he says.
There was a time when crowdfunding – and crowdfunding green projects especially – would have been considered highly alternative. Now, this type of activity is hurtling towards the mainstream. And Davis points out that all investments now will either have to have a net zero element or will contribute to net zero in some way. “There isn't a point where we will go back to burning carbon,” he points out.
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