Trill Impact: Creating real returns and lasting impact

Investing with an impact lens will not only make the world a better place; it will also create more sustainable and valuable businesses, say Trill Impact’s Jan Ståhlberg and Pia Irell.

This article is sponsored by Trill Impact.

The allocation of private investments will play a crucial role in the sustainability revolution now affecting everyone and everything on our planet – an evolution necessary to transform how people, businesses and governments act. This fundamental change will also generate significant business opportunities for the future.

Trill Impact’s founder and managing partner, Jan Ståhlberg, and impact partner, Pia Irell, explain why it has been important for the firm to take impact a step further by seamlessly integrating its impact approach in its investment and ownership process, from sourcing to exit.

Trill Impact recently raised €900 million for its inaugural impact fund. What does impact mean to you as a firm and why have you taken this direction?

Jan Stahlberg

Jan Ståhlberg: To answer that question, you have to look at our backgrounds. I spent 24 years in private equity, deploying in Northern European markets. When I founded Trill Impact, I was determined to recruit a highly experienced team with the right private investments skill set. That was our starting point. That is where we have a great deal of knowledge and credibility with investors.

We have overlaid that with an impact framework to ensure every investment Trill Impact makes is contributing to a better world. We also strongly believe that impact is a value-creation tool, alongside operational excellence, digitisation and all the other measures that private equity firms typically take.

For us, it has been important to take impact a step further by seamlessly integrating our impact approach in our investment and ownership strategies, from sourcing to exit.

Trill Impact’s impact and ESG experts work hand in hand with our investment teams on all value-creation plans. A value-based mindset is also central to our culture.

What kind of investments are you looking to make with your private equity strategy?

Pia Irell: With our buyout strategy, we focus on accelerating impact in Northern European companies. That might mean a significant industry leading change in the value chain, or, more commonly, targeting purpose-driven businesses where the product or services offered are specifically designed to make an impact. And when we say impact, we are talking about contribution to one or more of the United Nations Sustainable Development Goals.

You also have a microfinance strategy. What role does that play within the broader firm?

JS: While the private equity strategy focuses on European companies, we also wanted to have an impact in developing nations, and that is where our microfinance strategy comes in. The microfinance fund provides loans of up to €25,000, working with Developing World Markets in New York and typically supporting some kind of retail activity. It could, for example, be used to buy fruit for a man or woman to sell at the side of the road, which may be the primary income for that person’s family.

Our microfinance strategy is an important element of Trill Impact’s offering and for our culture of delivering impact. We want to be able to operate across the spectrum from small to large, and from new businesses to those that are well established, where we can change the way they operate.

What skills or resources are required to execute on that type of strategy?

Pia Irell

PI: First, Jan has created a team from scratch who live and breathe impact. Every person he has recruited has gone through an impact screening process. They have either previously worked in impactful businesses or have a strong personal interest in that area.

Second, we have a unique partnership with Nordea Asset Management, where there is a team of impact and ESG experts dedicated to supporting us throughout the investment lifecycle. That team joins us in meeting with management teams to assess their impact appetite and ability and then works with us throughout our period of ownership.

JS: The private equity industry has historically been focused on making money from anything that is not illegal or highly immoral. But our very reason to exist is predicated on making the world a better place. While most traditional private equity firms would argue that creating value through operational excellence or pricing strategies or digitisation requires real expertise – putting specialists on boards or bringing them in as advisers to the portfolio company – when it comes to impact and sustainability, they think it is enough to make sure you have the right culture within the senior leadership.

I do not believe that for a second. This is such a complex area. What will the world’s energy or food requirements be in 2050? What will the regulatory landscape look like? You need impact experts to help unravel all that. Within our team of 23, we have five who are impact and ESG experts. That is a huge proportion when compared with the wider industry. That combination of being purpose-built to create impact and that level of resource means we are ideally positioned not only to make the world a better place, but to leverage that knowledge to create real returns.

How do your impact and ESG experts and deal experts work together?

JS: You do not often see impact and ESG experts engaged in sourcing deals or voting on whether a deal should be done, and you never see those people engaging with management teams on value-creation platforms. But we even have our impact and ESG experts joining portfolio company sales teams when they are meeting with their customers. That is because at Trill Impact we recognise that impact is a value-creation tool for our investee businesses and it is an important differentiator for us as a firm.

PI: At the same time, we are very analytical – even academic – about impact. We use all the global frameworks that exist, together with our own proprietary models, and then we ensure we can make that accessible, even exciting, for the CEO of a mid-sized company. In my experience, once those management teams and those employees recognise they have a purpose, you see an acceleration in change, value creation and impact.

Having just been through the fundraising process, do you believe that correlation between impact and value creation is widely accepted among investors?

JS: It is a mixed picture. There is still scepticism about whether impact firms can really deliver returns. Historically, management teams focused on doing good but without the necessary business acumen. Now we are seeing an increasing number of companies led by individuals with significant business experience but bringing that additional impact lens.

By backing this new breed of manager, we can look a pension fund trustee in the eye and say Trill Impact will meet its fiduciary duty of delivering the best possible returns, alongside its impact goals. After all, that pension fund trustee will recognise deep down that any company that overconsumes the planet or does not contribute to positive environmental or social outcomes will be struggling within the next 10 years, while these solution-driven companies, often run by the younger generation, will become immensely valuable. If you are an early mover in this space, which we believe we are, there should be a substantial opportunity to create real returns with lasting impact because, like digitisation for example, this is a mega trend that is not going away.

How do you incentivise impact?

PI: We are one of the only private investment firms in Europe that has linked impact and ESG performance to carried interest payments. We set targets for each portfolio company and then calculate impact made on divestment, and that determines the total carry we receive. Annual bonuses also reflect both financial and impact success.

JS: The incentive programme we put in place for management teams is also tied to ESG and impact. We also have incentive structures in place with our banks. If we are in line with the Paris Agreement on climate change, we pay lower interest rates. So, the incentive runs all the way from our debt providers to portfolio management teams and the investment teams themselves. This is an industry where incentives matter. We have the dual goals of producing top-tier returns – without which our business won’t be sustainable – and delivering impact. It is right then that we should not receive our full compensation if we do not achieve both.

To what extent do you expect impact investment to become mainstream? Will it ever cease to be a separate investment class?

PI: We will continue to see a major shift in the way mainstream firms approach impact and ESG themes, but I don’t think it is realistic that impact will cease to be a separate investment class. We are focused on identifying an unmet societal or environmental need and then measuring our ability to fill it. I don’t think all firms will choose to go in that direction.

JS: I do think traditional private equity houses will increasingly incorporate ESG and impact into their existing processes, and of course, we are seeing some of the major private equity houses raise dedicated impact funds. At the same time, we will continue to see new impact-first managers enter the market.

At Trill Impact, we want to be an inspiration. Pia and her team meet regularly with other firms to help share our knowledge and experiences. We do not see them as competitors, but rather as peers. After all, we all have the same goal – to make the world a better place. There is frankly a negligible amount of money being targeted at impact today. We believe that the scope for growth is enormous.

Impact in action

Founded in 1967, Nordomatic is focused on building automation solutions to drive energy efficiency for property owners in Sweden, Denmark and Norway.

The company offers new project integrations, retrofits and upgrades, as well as aftermarket service and support. Its Ecopilot and Smart Heating intelligent systems enable energy cost reductions of up to 40 percent, as well as helping users to meet EU climate and energy goals.

Trill Impact invested in the business in 2020. Together with management, Trill Impact created six targets, three of which were linked to impact. The first was linked to CO2 avoidance, the second to smart buildings and the third to the creation of green jobs. The other three targets related to the business’s own ESG credentials, covering CO2 emissions, gender diversity and business ethics. Not only has the company performed well against all six metrics thus far, but the management team has also embraced its impact journey with the ambition to become the European impact leader in smart buildings.