Patient capital drives India's affordable home lending market + Nippon's foray into system-level investing

It's Friday, February 6th. I'm Brian Walsh and welcome to this Week in Impact, where I talk with Impact Alpha journalists and editors about some of the most interesting impact investing stories we featured. This week. I'm joined by editor David Bank. We'll discuss how patient capital is the key to India's booming affordable home lending market. Plus, with people, Times Planet, Japan's massive Nippon life insurance company steps up to system level investing and finally returns on resilience amidst rising risks. The latest efforts at climate adaptation. That's all coming up on this Week in Impact. Hi, David, how are you doing?

0:01

I'm doing great, Brian. It's just another week in the kind of rolling AI apocalypse out here in San Francisco.

0:38

Indeed, it's been quite the week for AI agent social networks, Agents of impact. There you go. All right. Well, speaking of agents of impact, I'm actually in New York for the Impact Capital Managers annual Impact Awards gala. Each year they recognize a gp, an LP and an emerging leader in the field. So really excited about this year's honorees. We have Daniel Pianco of Achieve Partners. He is the GP of the Year. The LP leader is Noel Lang of Builder's Vision, and the emerging leader is Emma Sissman of Goldman Sachs Asset Management. And particularly excited about Daniel because he hosts for Impact Capital Managers their Better Money, Better World podcast, which we are excited to bring onto the Impact Alpha podcast network soon.

0:43

Yeah, I was very happy a couple years ago. Daniel and I interviewed each other actually and we released it on both the Impact Alpha platform and on the Better Money, Better World platform. So great to have Daniel and ICM in the fold of the podcast network.

1:25

Yeah, we love ICM and the team there and also all the members of the ICM network. But first up, let's get to our first story. David, we turn to affordable housing in India. As AR Shaifal E. Anand reported this week, the market for affordable housing finance in India has scaled dramatically by combining patient impact capital with tailored lending models to serve low income and financially excluded households. So, David, patient capital has long been a hallmark of impact investing. Tell us more about this approach which early pioneers in the field are now touting, have some significant wins.

1:41

Well, it's one of the cases where what folks thought might happen with the kind of impact finance category actually over 10 years, you know, developed into a real commercial market, brought in other kinds of investors, and is now booming. Mortgages for low income home buyers in India, of which there are many, as you can imagine, is one of the largest growing financial service products in the.

2:14

Country now, now Shefali's story suggests that Patient Impact Capital didn't just finance companies, it helped build the underlying market. So to what extent do you see Patient Capital functioning as infrastructure and not just investment, especially in India's affordable housing sector?

2:38

Well, you know, it was folks like Elevar Equity, Loke Capital. They, the infrastructure are things like underwriting standards. And how do you assess the credit score of folks who are earning, you know, 435 bucks a month and you're, you're lending them 6,000 bucks for a, for a mortgage. So it's quite a different market than it is, you know, maybe in the US So it's adapted to Indian realities. There's now also obviously a fintech component. One of the products that I thought was interesting is a build it yourself home loan. And you send in video reports and other ways of verifying the progress you've made and they release another transfer of money. And so you have the money to put up your walls, put up your roof, put in the plumbing and off you go. So again, it's quite different than the US market, but it's quite a big market. One of our folks we talked to think there's something like $250 billion worth of mortgages to be written. They're doing, all told in that market, about 15 billion a year now. Lots of room to grow.

2:52

And what has been the role of that patient flexible capital on this market development?

3:54

Yeah, well, just the ability to look out over the horizon and then to stay in long enough for that horizon to arrive. So Elevar Capital, which many folks might know, invested in a company called shoebomb about 10 or 15 years ago and stayed in until they exited to another company. Folks might know leapfrog, which tends to get in at more of a growth stage. So Elevar seated the market with some early investments, found somebody to take them out. Loke had a string of investments, three or four. Some of them even went out into the IPO market. And there have been other mortgage lenders that have IPO'd in India as well. And that obviously brings in public markets capital at a lower price. So the market has really gone through stages of evolution over the last 10 or 15 years that have brought down the cost of capital, made it much more accessible to folks. As I said, bring in technology, fintech type applications and really become quite a vibrant, multi sided market with lots of capital providers, lots of distribution channels. So now the challenge people are worried about is whether credit has become too easy and whether folks might be getting caught in debt traps or over indebtedness that famously took down the Indian micro finance market about 20 years ago. Took them about a decade to recover from that. So you want to make sure that you don't go overboard on inclusion and get folks in trouble.

3:59

So it sounds like this market for affordable housing in India has gotten to some level of scale and commercial scale. But let's talk about replicability. Does this Indian experience offer a blueprint for other emerging markets?

5:27

Well, you know, every market is different. In particular, housing markets tend to be very different the way, you know, things get organized in different places. But I think what is common is this notion and Elevar in fact calls them entrepreneurial households that folks want to get in on sort of the wealth building ladder. They have steady incomes, they might have more than one income under the roof and ways to make financial services available so that they can essentially finance these very basic needs. And also these wealth building assets is something that I think does go across many markets.

5:36

Well, in addition to wealth building, they also have a place to live. And getting back to our ongoing theme of the ownership economy and increasing home ownership in India is probably a good.

6:10

Social impact outcome overall in India as in the US Security in your home and then the wealth building as well. But as you say, a roof over your head and a place to raise your family.

6:20

All right, well, you can read Shefali's full piece on India's booming market for affordable home lending and the role of patient capital in getting that to scale on impactalpha.com there's also a link in our show Notes. Later on we'll discuss returns on resilience in the latest efforts at climate adaptation. But for now we'll take a quick break. When we come back, how the massive Japanese insurance company Nippon is applying a system level approach to its investment process.

6:31

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6:58

All right, next up, system level investing. This is an approach long championed by our friends at the Investment Integration Project or tip. As our Eric Stein wrote this week, this approach is now being utilized by one of the largest investors in Japan, the Nippon Life Insurance Company, which has over $675 billion in assets under management. David, we've been hearing for some time that investors in Japan are taking sustainable investing much more seriously than their counterparts. At least in the US now, it appears that Nippon Life is repositioning capital deployment as a tool for system change, not just financial return. So tell us about what we're learning about this new approach.

7:21

Yeah, well, Nippon Life and I didn't fully appreciate just how big an influence they are in the Japanese economy. 15 million policyholders, that's something like 12% of all Japanese households and investments in 3,300 companies. And if you look at the sort of biggest companies on the Japanese stock market, Nippon Life is generally among the top shareholders. So they have a big system level responsibility for the Japanese economy. I think you could probably argue for the world economy. And this is kind of the universal owner thesis, that you can't just pick stocks at that level because you own essentially the whole market. And so therefore the fate or the health of the market is probably the biggest indicator of what your returns are gonna be like more than your stock picking ability. And so Nippon has kind of embraced that system level approach. They call it people Times Planet. They want to make sure that it's not just carbon and climate and decarbonization, which they've been leaning into in various ways, but that they've also got folks, you know, livelihoods and economic security and economic mobility in mind as well. They have made the observation that if you don't take that into account and then you get something like an energy shock because of, for example, Russian invasion of Ukraine or something that pushed up oil prices, that folks appetite for sort of the green transition kind of goes away if it comes at the cost of their own, you know, kind of quality of life or standard of living. So you got to make sure that you're taking care of the people as well as the planet.

7:55

Yeah. What's interesting about Nippon being this kind of universal owner, as you put it, is that it's not just that it has such a massive amount to invest, but it also has such a long time horizon. The fact that it's an insurance company that has obligations decades into the future. And so it needs to look at sustainability from not only the holistic sustainability of the economy today, but the long term sustainability of the economy well into the future.

9:29

Yeah, well, we've been seeing that with insurance companies, you know, all over the world. Prudential here in the us, Liberty Mutual, you know, Allianz in Germany. In many ways the insurance companies are much more tuned into systemic risk because they essentially have to pay off when those risks come due. And so Nippon Life has that, as you say, responsibility for its policyholders. Those are kind of like financial instruments, savings instruments, and they have to make sure that they can pay off on those as well as on the claims. And then as I say, because they're so broadly invested, they have this broader responsibility. They took on a kind of study that our friends at the Investment Integration Project put together, a sort of case study of their kind of march towards this system level approach.

9:52

And this People Times Planet framework explicitly ties human well being with environmental outcomes. So what are the challenges and opportunities when you try to blend those social and environmental metrics in an institutional framework?

10:36

Well, I think we've seen that they're really quite intertwined and certainly at the sort of public opinion level, as we discussed, but also just, just at the kind of economic opportunity and systemic risk level. And so Nippon Life, as many others, has started to try to go beyond esg, environmental, social and governance factors. They deduced over time that that essentially was sort of an entity level, like a company level, or even a fund level way to think about it. And so you could think about like the effects of system risks, water, climate, what have you on your company, but what about the effect of your company on the rest of the world or your investments on the rest of the world? What people sometimes call dual materiality, the effect of risks on you and your effect on risks. And so they, for example, just one commitment they've made is to put down something like $35 billion against the UN Sustainable Development Goals by 2030, and they're about 3/5 of the way there already. So those are proactive investments that presumably have positive outcomes, not just reducing their own risks in their portfolio.

10:47

What barriers remain, David, for other large insurers or other large asset owners to adopt a similar integrated impact framework?

11:59

Well, one of the biggest problems is that you are an owner of a particular company in some cases, if that company is doing harm and people have tried to tote up the externalities, as it were, and see whether your company actually is a net positive in the world or a net negative. And in fact, in many cases it turns out to be a net negative. And so if that's the case, and if that company is doing harm to the system or to your portfolio as a whole, you may need to do something that's not in the interest of that company or that's not maximizing your returns on that company in order to maximize your returns and kind of solidify your portfolio for the long term. So getting over that hurdle of what's your responsibility as an investor in a particular company, sometimes in voting on the board of directors or voting on a shareholder resolution kind of thing versus what's your responsibility to the system as a whole and to your portfolio as a whole?

12:08

All right. Well, you can read Eric's article about Nippon Life Insurance on impactalpha.com there's also a link in our show notes. But for now, we'll take one more quick break. When we come back, why rising risks and returns on resilience are the push and pull for climate adaptation. Finally, David, you wrote this week exploring how climate adaptation financing is being shaped by the dual forces of both rising climate risks and emerging evidence of financial returns from resilience investments. Tell us about how this push and pull work.

13:05

Well, the risks I think people starting to understand, hurricanes, wildfires, droughts and floods last year I think actually ticked down. So that's maybe good climate news. I think it went down to something like 1.3 trillion from 1.4 trillion in 2024. I think fewer hurricanes made landfall. So it wasn't quite as bad. But those numbers, generally speaking, have been on a very upward trend over years. And again, the insurers are understanding that. And so at the Bloomberg NEF New Energy Finance conference out here in San Francisco, Donya Liu traced kind of the domino effect of rising property insurance rates, whether that's homeowners insurance or what have you, leading to falling property values. Real estate values go down as costs go up, leading to lower tax takes for those local governments and then leading possibly to, you know, defaults or municipal bond repricing and that sort of thing. So the effect of these risks, it's already kind of rippling through the economy. And that's the push. The pull, as you say, is that the worse things get, the better adaptation investments look. And so the first order, the tier one sort of thing is insurance and hedging and figuring out sort of financial ways to protect your portfolio that doesn't actually do anything about changing the real physical risks. The second are things like sensors and analytics and ways of sort of being able to sort risks and possibly anticipate them in your portfolio or even in a wildfire zone by understanding the moisture content of the forest with your satellite or drone sensors. And then only the third thing are the actual put real infrastructure in the ground, you think, seawalls or big kind of wildfire mitigation kind of things where you do lots of clearance and forest management and that sort of thing. So those things cost real money and real capital. Those have been the last on the list because they're the most expensive. But again, the returns on those and the ability to finance those in part paid for by reducing the risks. Maybe it's paid for by reduced insurance premiums or better muni bond ratings or higher property values in places where there's better climate resilience, which is what Bloomberg has found. So finding ways to finance the upside of resilience investments is the next challenge on the horizon.

13:38

So on that finance on the upside. But to what extent are these evolution of traditional risk assessments helping to price in those climate hazards?

16:06

Well, little by little. So I think people think there's a lag in the muni bond market about pricing risks. You can go to any number of providers now and find out the actual sort of rising floodwaters risk of any parcel in the country and you could do that analysis yourself. So you'd think you could roll all that up into a muni pricing model. And some folks have, but I think generally speaking, the muni market has not fully price a climate risk. Insurance, you know, is, is more sensitive to it and is getting priced in. And then there's sometimes, you know, you know, more like, you know, shocks like PG&E's bankruptcy several years ago because of California wildfires sort of turned, you know, turned that into a material risk for all utilities. And everybody had to sort of scurry around, make sure that they didn't have, you know, exposed, you know, wires that were going to come down in storms. So things do, you know, over time find their way into the models. But, but it hasn't been a sort of full scale climate risk repricing event that some folks have been waiting for.

16:16

So the top of the article, there's a map of the US that is color coded to four different dimensions and it's essentially a classic two by two. So one dimension is high risk, low resilience, low risk, high resilience, low risk, low resilience and high risk, high resilience. So how do we think about where are we seeing some themes there around. Where are there, you know, people in communities most at risk that don't have that resilience baked in?

17:17

Well, I noticed on that map that the, you know, the red, the high risk, low resilience, you know, covered most of California and a lot of the Southwest and a lot of the south actually. And then interestingly, the low risk and high resilience, the green was kind of around the Great Lakes region and further north, which I think maybe, you know, spared, you know, some of the, you know, maybe heat waves, although I think they've been getting some cold recently. So, you know, I don't know what really resilience actually means in that case, but it is an interesting map and brings together kind of county level data and I think shows that resilience investments or resilience planning can be a major factor in the capital flows into communities over the next few decades. And people will be looking for these kind of climate havens, if in fact there are any.

17:41

And what's interesting about the map too, from my read of it, is that there's no correlation between the kind of political map and the climate risk map.

18:30

Yeah, well, I think the weather will affect everybody equally regardless of which party you're in. And so that has always been one of the thoughts that as these things come home, these risks come home, that people will try to make common cause about just doing the common sense things. And adaptation, frankly, people talk about being in the age of adaptation. We've blown through the 1.5 degrees. Who knows exactly how far it will go? But this adaptation is really the front and center now. It's long been the kind of neglected step sibling of climate mitigation, of reducing carbon with solar and wind and that sort of thing. But adaptation really cuts across almost any project now. Any infrastructure project, any real estate project, anything that has to do with sort of the real world and real assets now has to take climate risk and climate adaptation into account.

18:39

All right, well, you can read David's story about climate adaptation on impactalpha.com there's also a link in our show notes, but for now, that's going to do it for this episode of this week in Impact. Thank you, David.

19:31

Well, thanks, Brian, and congratulations to the Impact Capital Managers awardees.

19:42

All right, and thank you all for listening. This week in Impact is a production of Impact Alpha and part of the Impact Alpha podcast network. Smart conversations by and large for impact investing professionals. For exclusive stories and insights about the world of impact investing and sustainable finance, join thousands of other agents of impact by subscribing. Just go to impactalpha.com subscribe for full access. Thanks as always to our producer extraordinaire, Isaac Silk. For David Bank, I'm Brian Walsh, managing director of the impact advisory firm Human Nature. We'll see you next week for more impact.

19:47

Sam.

20:22