Impact investing: An interview with Palladium’s CEO

Christopher Hirst talks about how the market has developed in recent years

Indian state Rajasthan has one of the highest maternal and newborn mortality rates in the country, with 244 maternal deaths per 100,000 births, compared with 130 for the rest of the country.
To tackle the problem, the world’s first healthcare development impact bond was designed by consultancy Palladium, with the aim of preventing up to 10,000 maternal and newborn deaths over a five-year period.
Investors, including the UBS Optimus Foundation, will pay $3.5m working capital to service providers to begin work in healthcare facilities in Rajasthan, while development agency USAID and NGO MSD for Mothers will pay investors up to $8m in return, if measured outcomes are met.
But, for Palladium’s new CEO Christopher Hirst, the so-called ‘Utkrisht bond’ “is still not large enough to be viable in its own commercial right”.
On being promoted to CEO, after 20 years in various senior roles at Palladium, Hirst says his vision for the organisation is to bring a “commercial approach to international development, unlocking private capital to drive change around the world”.
Development impact bonds are part of its mission in this respect, though Hirst admits there is still “a lot of talk, but not enough action”.
“There has been a lot of momentum since the Utkrisht bond launched. Before that, people were interested in the concept from an academic perspective but not interested in moving it forward. Since our launch, we have had an enormous amount of attention. Mark Green, the head of USAID, has said the bond is one of their top ten activities of 2017. Everyone wants to build on it, which is great, and it can definitely be considered a proof of concept.”
Palladium describes itself as a global impact firm. The AUD$500m business manages development projects but also directly consults on management and strategy for both governments and the private sector. Hirst says these consulting conversations provide the chance to have a dialogue on an organisation’s impact on society.
“Some will say they’re not interested, but they represent the minority,” he says.
Increasingly, this is leading to consulting on positive impact as a business opportunity and designing strategic initiatives to harness it.
“Our clients are some of the world’s largest multinational companies across a diverse range of sectors,” says Hirst.
Palladium started over 53 years ago, consulting on rural management in Australia. It expanded globally into wider development, earning income from government donors. In 2014, it found donor money wasn’t sufficient to scale development, leading to the takeover of management consultancy Palladium and the Palladium’s founders developed the famed ‘balanced scorecard’, a strategic planning and management system, measuring performance incorporating financial and non-financial factors. It was selected by editors of Harvard Business Review as one of the most influential management ideas of the past 75 years.Harvard professor Dr. Robert Kaplan who co-developed the balanced scorecard with Dr. David Norton is still involved with Palladium.

“People saw it as a conflict of interest to help commercial operations with donor money”

Talking about the takeover and the subsequent change in company culture, Hirst says: “Our vision was for the private sector to be heavily engaged in creating positive impact. Companies can’t do this through bolt-on CSR initiatives as has traditionally been the case. They really need to embed it into their organisational strategy, which can be done using the strategy tools and methodologies, in combination with our expertise on delivering and measuring impact. It’s a good value proposition.”
Hirst says as part of this process Palladium realised it needed to start thinking about how to deal with investment dollars. “What we discovered through our development projects, and from operating in over 90 countries, was that often limitations to growth are due to a lack of access to capital.
“But in many of the countries where we operate, our mandate comes from the donor. 5-10 years ago, if we approached some of the donors saying our aim was to catalyse financial investment into business with the support of a development programme, we would get a lot of strange looks. People saw it as a conflict of interest to help commercial operations with donor money.”
“But we realised that we had a pipeline of potential investees and a lot of people who were becoming more interested in impact investing but did not know where to invest.”
For the past three years, Palladium has been building a team and the infrastructure to create an investment business. It’s currently focused on West Africa, and Palladium has already made investments off its own balance sheet. Currently their mandate is on co-investments into SMEs of between $400,000 and $1m, and it won’t take more that 40% of any investment. It will be focused on debt.
The company had done ad-hoc investment advisory work, but it consolidated this work a few months ago with the acquisition of financial advisory firm Enclude, from Triodos Bank, for an undisclosed sum.
Its expansion into impact investment is bolstered by what Hirst describes as its strengths in impact measurement, where the international development sector is a leader.
“One of the really interesting things about the international development industry is that for decades, it has been focused on demonstrating the impact of the investment dollar. As a result, the bilateral funds’ monitoring of international development programmes is extremely sophisticated.”