Jane: Hello and welcome to the LSEG Sustainable Growth Podcast where we talk to leading experts about the big topics in sustainability, business and finance. I'm your host Jane Goodland and today I'm joined by Paul Ronalds who is the CEO of Save the Children Global Ventures. Now this is a really interesting, new innovative impact investing platform, really focused on transformative change for children around the world in some of the most challenging places. And this is in the context of a declining spend on official development aid by countries around the world, double-digit cuts over the last two years. So I'm really pleased to be speaking to Paul today about this new venture. Paul, thank you so much for joining us. Welcome to the show.
Paul: Thanks Jane. Delighted to be here.
Jane: So let's not waste any time, let's get straight in because Global Ventures is quite a new vehicle, isn't it? It was set up just in 2023 and you've been very busy indeed. Tell us a bit more about why this kind of venture is being set up under the umbrella of Save the Children, which of course is a very well-known international charity.
Paul: Yeah, thanks, Jane. So Save the Children Global Ventures looks to respond to two sort of significant challenges. The first you've already alluded to and that is that around the world we're seeing really significant declining support for Overseas Development Assistance, ODA. In fact in the US we've seen that the whole Department of Aid being disbanded but in the UK really significant cuts as governments really struggle with fiscal repair after COVID, with ageing populations, and of course, greater demands to increase other budgets. So Global Ventures looks to create alternative ways to fund, in our case, Save the Children's mission. So that's sort of first response and really, the genesis for Global Ventures goes back to 2013. And you may have picked up I’m an Australian by background. When a government came in and disbanded AusAID, as it was called back then and I was CEO of Save the Children Australia at the time, and we started to have to really grapple with looking for new business models, new ways to fund Save the Children's mission in Australia. And we started experimenting with impact investing funds and with climate finance and a range of other tools. So that's sort of one challenge, but there's actually a larger, more macro challenge. And that is even when ODA achieved its highest peak in 2023 of about $230 billion a year, it was still just a fraction of what we needed to really deliver the sustainable development goals, which is estimated now to be around a $4 trillion type figure. So about one 20th was only ever going to come from ODA anyway. So if you're serious about a mission like Save the Children's, we're looking to make sure that every child is healthy, is educated and is protected, then you have to be serious about how we crowd in private sector capital at scale.
Jane: And this is really quite a new phenomena. We'll come back to that a bit more, but I'm curious just to dig into Global Ventures specifically now. Tell me more about the investment philosophy of your approach and how in practise that's been implemented over the last couple of years?
Paul: Yes, so perhaps sort of two elements to the philosophy. The first is with UNICEF, Save the Children have started to develop this concept of 'child lens investing'. And really what that means is intentionally looking to support the wellbeing of children through our capital allocation strategies. And many of your listeners will be very familiar with gender lens investing. And we really were inspired by the success and the progress of gender lens investing to say, well, why can't we have children lens investing, child lens investing? Most parents, for example, allocate capital, their most significant capital, to things like where they buy their home based on where their children might go to school or a whole range of these things. So we're already actually in our personal lives doing a lot of child lens investing, let's do that in our professional financial allocation strategies as well. And then the second part to our philosophy is this hypothesis that an organisation like Save the Children, and many of you listeners will be very familiar with Save the Children, we're now 105 years old, we operate in more than a hundred countries around the world, implementing programmes in very underserved communities. Actually, we have capabilities and assets that are particularly well suited, in our view, to supporting impact investing in particular, and nature-based solutions, and we'll talk about some of those, perhaps through the podcast. But these were essentially not being leveraged by Save the Children. So there was both, if you like, the challenges that I outlined, but also these opportunities to say, well, can we bring the technical capability, the deep relationships we have in underserved communities around the world? And can we partner with asset allocators and fund managers and other financial institutions to accelerate the impact for children using capital more effectively than what we've done in the past? And I guess we're focused on two key areas in practise. One is impact investing. So we really look for investments where we can leverage that traditional platform and accelerate impact and financial returns for our investors. And then the second area is nature based solutions. So again, you'll be very familiar with the growing sort of voluntary carbon markets around the world. To be effective, they rely on really deep relationships with communities that understand the local power dynamics, the governance mechanisms and all of those sorts of things, to make sure that we're establishing a really rigorous project that will last the 20 or plus years that's required. And again, Save the Children works in thousands of those communities around the world already, you know, long history in those communities, deep understanding about the context. And we weren't really leveraging that for that new potential funding strain. So there are sort of two key areas that we're focused on.
Jane: Okay, and we'll touch on those in a bit more detail. In terms of the impact investing funds, I think you're on your fourth fund right now and you're capital raising, as we speak, probably a busy time for you. Let's kind of look at that in a bit more detail. I think it's, I'm not entirely sure of the official name, but it is the Asia Health Fund. I'm assuming kind of it does what it says on the tin, but do tell me more about kind of the aim of that fund?
Paul: Yeah, so that's the fund that we currently have in development. And essentially what we wanted to be able to do with this fund was to demonstrate that we could deliver commercial returns at the same time as achieving deep impact. And there's a lot of debate about the extent to which you have to trade off impact and financial returns. And I'm of the view that in many situations you do have to do some degree of trade-off. But we thought, you know, our hypothesis, if you like, is that health investing, particularly in markets like the Philippines and Indonesia and Vietnam, present a really unique opportunity to achieve both. And we're particularly going to be focused on health technology, which are obviously scalable, they have the potential to reach into quite remote and rural communities in many of the places that Save the Children works. And so really big impact, but because of their ability to scale, because of their cost effectiveness, there's a real opportunity for us, we believe, to grow these businesses at the sort of rates that achieve a really strong commercial return for our investors. And this is all happening in the context where both the population, particularly parents in those communities or in those countries, are looking to increase their spend on health, increase their proportion of the family budget that's going into health as they become wealthier. And actually their governments are also looking to, if you like, increase the proportion of the government revenues that's going into health. So there's this really great meeting of these different factors that we think means that this is a great opportunity. And of course, Save the Children has worked for decades in these countries, has hundreds of staff on the ground, deep technical capability into what it is required to achieve health outcomes in those places.
Jane: And just to clarify, these are closed end funds that you've been kind of working on, right? So can you give us an example of an investment, like a company that you have invested in so far, just to bring it to life a little bit?
Paul: Yeah, so just before Christmas, we announced an investment into a business called Amparo. Actually, I think technically based in the UK, it's got manufacturing operations in Portugal and other places. But almost all of its impact, if you like, is in fragile states in conflict. So we're talking here, Gaza, Ukraine, places like Iraq and Egypt even, where there are large numbers of people, and particularly large numbers of children that have suffered trauma generally from munitions and lost a leg or a limb and need a prosthetic. And Amparo developed a really innovative new approach to fitting particularly children with prosthetics, a much faster process. And that's particularly important in fragile context, places like refugee camps and war zones where populations might be on the move. And so if you go and do a sizing of a child and then want to come back two weeks later and see, you know, if you've got the sizing right, that child might not be there. Whereas Amparo's much more malleable prosthetics can be fitted within about two to three hours out the back of a mobile van. And so you can see how for Save the Children, that's a really significant innovation that helps us help children rebuild their lives after a really significant traumatic event. But it's also a pretty good commercial opportunity in our view. Unfortunately, there are many, many millions of people around the world that need this sort of support and a large portion of those are not currently accessing the sort of prosthetic opportunities that Amparo provides. So we've invested in that business and now our country offices are starting to look to partner with Amparo in applying for more traditional grants that actually combine trauma counselling of children, perhaps a local organisation will do the sort of post-fitting, long-term support for that child and of course Amparo sort of hardware their technical solution.
Jane: And just to dig into this a little bit more, so thinking about this fund in particular, so you've got an Asia focus, you've got a health focus, you've also got your kind of child lens. Tell me about the investment universe for kind of investments. Do you see lots of companies that are at that intersect of those three kind of dimensions?
Paul: Yeah, I mean, I have some impact investors who come to me and say, look, you know, we really struggle with pipeline, we don't struggle with pipeline. I mean I think part of it is, you know, how well our brand is known globally. And soon as people became aware that we were an impact investor, you know, we get a lot of inbound investment decks for us to review. So you know we're seeing something like 20 to 30 investment opportunities coming at the top of the funnel each month, that we sort of obviously whittle down. But just to give you another sort of really concrete example there, we've also just recently invested in a vaccine distribution business in Indonesia called PrimaKu. And PrimaKu have a great digital platform. They've already got about 1.5 million parents that are on that platform. But from Save the Children's perspective, parents who are on that platform are far more likely to finish the full range of childhood vaccinations and their children are far less likely to be malnourished. And so it really is a great merging of the sort of impact metrics that we're trying to achieve and align with Save the Children's mission, but Indonesia is a huge market. PrimaKu have really only touched it. They've got a digital solution that's backed by the government and about 95 percent of paediatric doctors in Indonesia and it's growing really rapidly. So we're confident that it's also going to be a really strong investment opportunity for us.
Jane: You talked about kind of helping these companies grow and scale. What sort of investment time horizon do you have with these companies?
Paul: Well, as you said, these are closed ended funds. So we generally have, you know, depending on where we've invested in the life of the fund, you know certainly six, seven years in the longest period up to eight or nine, even ten years. So out of our first fund that we set up in 2020, that's now fully deployed, all of the capital there into nine different investments. PrimaKu actually was the last investment out of that fund that we've made. So we'll hold PrimaKu for example, for at least five years, I would imagine, unless there's an exit event that's good value that comes up before that. And again, when we exit, we want to think about how do we make sure that the impact for children is going to keep going? We've helped to sort of really support and grow the business. Is the business now so entrenched? Is its impact so inherent to the nature of the business that it's just likely to continue and Save the Children can safely withdraw it, sell its equity stake in this case and maybe continue to partner in other ways but no longer need to invest and we either return the capital back to our investors or if it's our own catalytic balance sheet then we reinvest that into a new startup that has new impact for children.
Jane: Let's move to the other type of vehicle that you're setting up, which is around carbon and climate, well, climate finance and nature-based solutions. Let's start with kind of working out what, how does this fit into this child's lens, how does this fit into the Save the Children objective?
Paul: Yeah, so, I mean, climate finance in our view represents a really exciting new stream of funding for us to fund our mission. And in fact, when I was CEO of Save the Children Australia, Save the Children became the first development agency in the world that was accredited to the Green Climate Fund. And we now have about $200 million worth of grant funding that we are using to make sure that communities around the world are more prepared for climate change. And that can take a range of forms. But with our nature-based solutions opportunity, we said, well, hang on, there's a whole another growing source of funding, particularly voluntary carbon credits, that are long-term. So, your listeners might be interested to know the average length of a grant to Save the Children is about 18 months. And you can't do change in 18 months. Whereas if you can get 10 years of funding or even longer, and some of these nature-based solution projects can go on for 20 or even up to 25 years, you get this long-term, consistent form or source of funding that can do the sort of community development work that it's actually required in that community. But to give you an example of how we're using it in practise, we recently did an offtake agreement with eight London law firms who wanted to buy really high quality, high integrity carbon credits to offset those emissions that they haven't been otherwise able to reduce. And they wanted to make sure that they had some control and ownership over the projects and they wanted make sure that it was something that the whole firm, in this case eight firms would be really proud of, not just for the environmental impact, but also the social impact. So Save the Children Global Ventures looked across those thousands of communities that we work in and looked for a community that was a steward of a major natural resource that fitted what these eight London law firms was looking for. And what we came up with and ultimately agreed with the law firms, was a community in a province of Kenya called Nandi. This is a small holder tea farm, farming community where you know they're already being impacted by climate change as temperatures change there's already actually unfortunately very significant levels of child malnutrition and in some cases a degree of child labour associated with the tea growing. And what we wanted to do was to make these communities more climate resilient and we've done that by planting trees in denuded gullies near the farms, providing more shade, investing in other sorts of more diverse crops like avocado trees and things like that. And of course, all of that sequests carbon and we can sell that once we've got some rigorous verification going on. But the community itself then gets this flow of funding that can be used to do a range of things. One, to improve their livelihoods and we know that if communities increase their income, they're less likely to take their children out of school and those children are more likely to be better nourished, et cetera, et cetera. But also do some really exciting things. So we're looking to use some of the sale of the, or the proceeds of the sale of the carbon credits to buy some climate insurance for those farmers. And so if there is a drought, instead of doing what many farmers do in those sorts of situations. They will, you know, cope by often taking their children out of school and often girl children are the first ones to go out of school. So you see school attendance plummet. Those children then start working on the farms as the farmers get rid of other more costly sources of labour. And then you start to next see the farms perhaps selling off a cow that is providing, you know, critical nutrition for children with the milk and those sorts things. And so you see a whole range of these negative coping mechanisms. With this climate insurance, the farmer gets an upfront payment on the, it's called a parametric insurance issue and that insurance pays out when there's a drought. And so the farmer gets, let's say, a couple hundred US dollars, and that then gives them the coping mechanism to move through the drought and to protect their farm and their livelihood and their family's wellbeing.
Jane: I think that's a really helpful explanation about how climate finance is actually so relevant to people and children specifically, so thanks for helping me understand that because I think it's not immediately obvious how these two agendas link together. I'm kind of keen to understand um as as Save the Children turns into this impact investor, what's the investor profile? Who's investing in these funds that you're raising? Are we talking institutions? Are we taking high net worth?
Paul: So across the world, we're seeing a real growth in impact investing and each year, impact investing growing at sort of double digit rates. So overall, the investor universe is growing. But for us, absolutely foundations, high net worth individuals, perhaps with a donor advised fund. And these are sort of private foundation vehicles. We are absolutely targeting them. And they are a potentially really large unused source of capital. I guess, you know, one of my frustrations with many foundations and donor advised funds is that they, you might give 4 or 5% away a year out of the income that they're making, but actually the great bulk of their money, 95% of their money, is not having any impact. And in the US we're talking about very large sums of money. So in the US alone, there's about $250 billion held by just donor advised funds. Now there's much more than that held by foundations just in the US and of course, in Europe, in the UK and other places, there are similarly large sums that I would say are not being used as efficiently and effectively as they could. We would say that they're maybe lazy balance sheets in sort of commercial language. So let's take that and make that work harder. Absolutely provide a return because that return is important for the purposes of then giving grants and funding away. But let's use the whole corpus to be much more impactful. So that's absolutely one group that we're targeting. But we're only going to get to the scale that we want to achieve, Jane, if we can also attract institutional investors. And we're very excited to be very close to hopefully announcing some major institutional investors coming into some of our products. And that will be a real turning point. If we can demonstrate that institutional investors can meet all of their fiduciary obligations while also having impact in the sorts of communities where Save the Children works, then that will be a really significant breakthrough.
Jane: And that's something that, you know, let's tackle head on, which is about this, if you think about this spectrum from on the one hand, pure philanthropy donations, no return other than the impact, all the way down to the other end of the spectrum, which is kind of market based commercial returns, where, where would you say your funds sit on that spectrum? Are they, are they fully kind of market based commercially competitive?
Paul: So they reflect the spectrum. And what I say within Save the Children is that we need more tools in the toolbox. So absolutely, there are some very impact-first investors who say, look Paul, I'm less interested in return, I want to get my capital back, I perhaps want to make sure I'm meeting sort of inflation, but I really want outsized impact. And so we need products that provide that, that outsized impact while also preserving the capital of that investor. But as I said earlier, if we're not also offering products that provide commercial return and strong impact, we're not going to get to the sort of scale that we want to achieve. And that's why we're particularly excited about the Asia Health Fund, because we do think it could be a demonstration of the ability to do both of those things. So, yes a spectrum of returns, as you would expect for different investors.
Jane: And so we see this sort of, this innovation of charities entering this middle space almost, if you like. Do you think that what you guys are doing will become more common?
Paul: Yeah, absolutely. So within Save the Children, we talk about sort of two engines. The first engine is that sort of traditional grant-funded or philanthropy-funded work. And that's still really important. I mean, imagine the sort of humanitarian context where Save the Children works, there's not really many commercial opportunities. There's not a lot of Amparos in that sort of context. Whereas in perhaps more stable, middle income type of context there are many more opportunities. And it's really important that Save the Children has those two engines working together. And I think for other large development agencies, they're going to have to follow suit as well. And we're already seeing that. So, you know, even in the last sort of 12 months, there's been a number of announcements from other organisations about their move into this. Now, not all of those will set up a team like Save the Children Global Ventures. And in fact, we're talking to a lot of other development NGOs around partnering, allowing them to come in with the products that we're delivering and we're about to close an African debt fund. With that fund, we have the IDP Foundation, we have the Global Schools Forum, we have Child Fund, another large global child-focused NGO investing with us. All of those things are coming together in perhaps a way that they wouldn't be able to do by themselves. But collectively, we're actually much more impactful.
Jane: Yeah, and I think you've actually answered my final question, really, which was kind of the impact of this at a sector level for the NGO sector, because obviously you're able to leverage the very deep relationships and the expertise and the skills that Save the Children has around the world. But not every charity has that kind of breadth and therefore, you know, perhaps the larger charities might be able to benefit from this kind of new funding mechanism, but perhaps the smaller charities less able to do that. So what are some of the kind of broader implications of this move for the charity sector kind of at a whole wholesale level?
Paul: Yeah, so I certainly think if you're a large development, global development agency, but even if you are a large domestic agency, if you're not thinking about how you integrate innovative finance products into your business model mix, you are going to become, you're going to miss out on a very significant and growing space and you might be increasingly marginalised because governments around the world are looking to really catalyse private sector capital to bring that in alongside their more concessional capital. So I do think it becomes an existential issue. But for the smaller NGOs, I would say, understand what you're really good at and how you can partner, for example, with global ventures. So Global Schools Forum, you know, an organisation that supports low-cost community schools across Africa, brought a really important set of capabilities to our Africa debt fund that's focused on education. And we're partnering with them. So they're making a really significant contribution and they're enhancing the overall impact and I think ultimately the financial returns of that fund.
Jane: Brilliant. Thank you so much, Paul. We've run out of time. We could speak for ages because what you're doing, I think, is really, really interesting and innovative. And I wish you every success going forward. But thanks so much for sharing your expertise and your experience with us today. Thank you so much indeed.
Paul: Delighted. Thank you very much for having me.
Jane: Well, that's all we have time for in this episode. I hope you enjoyed that conversation with Paul as much as I did. And if you did, then don't forget to rate us and follow us on Spotify, Apple Podcasts or YouTube. And if want to get in touch, then you can do so by email at
[email protected]. That's all from me. See you again very soon.
