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Whitni Thomas, head of corporate finance at Triodos Bank, talks to Marc Shoffman about the importance of social impact investing
Investment banking may not be seen as the most direct way to get into social enterprise funding, but Triodos Bank’s Whitni Thomas started her career as an associate at JP Morgan and is now running the crowdfunding side of the ethical lender.
She explains how she went from investment banking to sustainably-backed crowdfunding.
Marc Shoffman (MS): What attracted you to Triodos Bank?
Whitni Thomas (WT): I come from a family with public service orientated careers, so it was actually an oddity that I ended up in banking.
Triodos gave me the opportunity to use my investment banking background, but to do so with an organisation with values at its heart.
All our projects at Triodos have a clear purpose around making the world a better place, supporting individuals or having a positive impact on the environment.
MS: When was the crowdfunding site launched by Triodos and why?
WT: The bank for a number of years had sporadically assisted pioneering social enterprises, for example Cafédirect, and had helped them access capital directly from investors.
Starting in 2010, we were seeing more social enterprises, charities and environmental organisations needing access to capital where a secured bank loan wasn’t the right fit.
We decided to set up a corporate finance team to advise organisations and introduce them to investors.
Online platforms were developing, but we were still doing things in an analogue way.
We partnered with a few online platforms and then we decided in 2017 to develop our own offering, which launched in 2018.
MS: What type of projects can investors back?
WT: The common thread is they need to have an investable business model and commercial operating model, they have to be suitable for repayable capital.
They need to be able to demonstrate the positive impact they are having.
We take a more proactive approach in that regard, not saying just do no harm, but what difference are you making?
We tend to prefer organisations and projects where the impact is embedded in the business model as opposed to where it just gives away a percentage of profits, for example. We want it baked into the DNA.
Examples include community-owned renewable energy, where all surplus revenue is passed back locally.
Read more: The 15 P2P and crowdfunding platforms with B Corp status
A great example is currently live on the platform in the shape of Empower Community Foundation. It is a £4.7m bond that has a term of 16 years paying 4.25 per cent gross interest annually. The interest rate will rise with inflation each year.
Social enterprises are another example. We are currently hosting a £1.5m charity bond from one of UK’s largest charitable social enterprises, London Early Years Foundation (LEYF). They are a nursery provider offering high-quality and affordable options, particularly for those from disadvantaged backgrounds.
MS: How do you find projects?
WT: We are lucky enough to be part of Triodos Bank, getting enquiries through business lending colleagues, we also get a number of projects that come through client referrals and we get a third directly through the platform.
Unlike other platforms, we are very much a corporate finance team first and a crowdfunding platform second.
Read more: Over half of P2P investors consider ESG when investing in the sector
We need to understand the business model, growth ambitions, and structure the investment to balance the requirements of the company raising the capital and the prospective investors.
Some enquiries just aren’t suitable because they are very early stage, some of the organisations that approach us are not a mission fit and some just aren’t credible financially.
MS: Do you get the projects that are too risky for a bank?
WT: It’s an opportunity for us because banks are looking at ability to repay, fixed assets or buildings to secure on, whereas we are looking at the cashflow of the company and the ability to repay the debt.
We are able to raise unsecured debt whereas the bank will only do secured so some rejected loan applications to the bank can be a good fit for us.
MS: What type of returns are investors getting?
WT: Returns are around five per cent for some of the charity seven-year bonds.
Some of the investment opportunities in the past two years have been at around six per cent where there is more risk in the business model.
Most of the investments can be held in an Innovative Finance ISA.
There is no secondary market, but the bonds and shares are always transferable and we will facilitate transfers if an investor can find someone to sell to.
There is no bulletin board, but this is something on our roadmap.
We are clear these are buy to hold investments.
Since we have been doing this, we have funded coming up to £190m over 15 years for more than 80 projects.
MS: Why is social impact investment important?
WT: Based on our surveys of investors, people are generally looking for a reasonable financial return, an investment plan and something not correlated to mainstream markets.
The reason for coming to us is because of the types of organisation, for example they want to be investing their money into providing homes for people with disabilities or generating clean energy.
The 2008 financial crisis was an awakening for people who realised what banks are doing with their money and they could see what happened if the system collapsed.
The work of David Attenborough and the COP26 in Glasgow have also caused a massive acceleration of people concerned about the planet and climate change.
MS: Are you worried about future regulations?
WT: We have seen the development since the Financial Conduct Authority (FCA) first brought in regulations.
I would say on the whole, the vast majority of the rules were sound and sensible in the early years.
Those who work collaboratively through the UK Crowdfunding Association (UKCFA) have been able to create a good dialogue with the FCA.
The past 12 months have been more challenging as the FCA tries to navigate its way through the collapses that have actually happened in unregulated sectors.
Read more: Triodos Bank unveils latest IFISA-eligible charity bond
Our main concern is that we need and want to ensure every single one of our investors is clear on the risk he or she is taking.
It would be a shame if this type of positive impact investing went back to being the preserve of high-net-worth or sophisticated investors.
We understand consumers need to be protected and want proportionate regulation, we want to ensure we can continue to offer this to everyday retail investors.
MS: What’s your outlook for the business?
WT: We are focused in the team on helping create positive change in society and enabling organisations to access the capital they need.
We want to make sure our platform’s investors have a steady stream of opportunities to choose from throughout the year.
For us that means offering seven to 10 investment opportunities ideally in a year.
We are going to continue along those lines and will be boosting awareness.
We have recently re-launched the platform with a new design and more user-friendly experience.
We are keen to grow our presence, particularly in terms of crowdfunding activity.
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