SilverStreet Capital is a UK and Africa-based investment advisor managing African agricultural funds. Its founder and chief investment officer Gary Vaughan-Smith and head of impact and ESG Julia Wakeling Bird talk to Environmental Finance about its award-winning Silverlands II Fund.
Environmental Finance: Tell us something of SilverStreet's history?
Gary Vaughan-Smith: We founded SilverStreet Capital in 2007. We have a central objective to achieve a positive long term social, environmental and climate impact whilst making attractive returns for investors. We look at how we can deploy capital to improve yields and productivity through the agricultural value chain in sub-Saharan Africa – in order to unlock both value and impact.
In sub-Saharan Africa, most food is produced by smallholder farms. If our investments can help those farmers to raise incomes, then we can benefit the poorest groups of people in these countries.
Our investor base comprises mostly institutional investors and family offices. We also have some Development Finance (DFi) investors, including the US, UK, Finnish and Danish governments.
EF: How do you approach environmental and social impacts in the same fund?
Julia Wakeling Bird: In Africa, the environmental challenges are also social challenges. Increasing productivity on existing land means that the livelihoods of smallholder farmers are improved, and those people can spend more on education, housing and healthcare etc. Improving yields on existing farms also has a positive environmental impact through increasing soil productivity and health, reducing erosion and reducing the need to deforest.
GVS: The main crop grown in sub-Saharan Africa is maize. Average yields are about two tonnes per hectare compared with the global average of six tonnes. Simply getting the farmers to four tonnes per hectare will double the amount of food and revenues for each farm. There is the opportunity to raise incomes materially for a very large number of farmers, more than 60% of whom are women.
EF: Do you work directly with the famers or seek impact via the companies you invest in?
GVS: As well has investing in businesses that can improve productivity, we provide technical support in conservation farming techniques and so on. Our investments also act as a market. We buy the crops and then produce or process an end product. We have done this in Tanzania with soyabean processing, for example. Before we started our work there, there was no soya processing in the country. Farmers in the area can now reliably introduce soybeans into their crop rotation. That has had a positive environmental and economic impact as the local farmers no longer need to rely just on one crop.
EF: How do you approach the topic of nature-related impacts and dependencies?
JWB: Smallholder farmers tend to be concentrated in certain areas. We want to make sure an area is as productive as possible so that there doesn't need to be expansion into the surrounding conservation areas to increase production. This has positive impacts on reducing deforestation.
GVS: If you look at current trends in population growth and crop yields then, without intervention, it has been projected that farmland will need to double in Africa. That's the equivalent of four-times the size of France.
JWB: If we don't fix the problem of low yields then this will have global implications both from a biodiversity perspective and a carbon emissions perspective, and we don't feel like the world is aware of that. We seem to be one of the very few who are trying to make this change at a large scale.
EF: Do you believe there is a trade-off between impact and return?
JWB: One of the great aspects of our strategy is that our impact and returns are completely linked. We invest in businesses where impact is baked into the business model. As the business grows, so does the impact. As an example, a seed company that we have invested into has seen growth of 32% per annum. The more people that can access improved seed the more their yields and incomes grow. There is a complete dovetailing between increased profits for the seed company and the positive impact that comes with that.
It's impacting investing at its best. Impact is not a nice-to-have additive; it's completely central to the to the business model.
EF: How do you think about ESG versus impact?
JWB: Historically, we have seen ESG as a risk management exercise and impact as being about the long-term positive impacts we can make on the climate, environment and people. In reality, it is all connected. For example, if you're thinking about energy use on a farm and you install solar panels – that reduces the business risk as well as making the operation more environmentally impactful.
EF: What would you like to tell potential investors who are considering supporting your fund?
GVS: The fund provides an opportunity to invest in the real assets sector, in a strategy that's well diversified from investments in most institutional portfolios, whose portfolio company profits are generally linked to food inflation can therefore provide something of an inflation hedge.
We have a target internal rate of return of 15% per annum. We are targeting exiting in four to five years. We would expect our profits and cash flows to be uncorrelated to global recessionary cycles.
Finally, you can achieve a substantial impact. Impact is implicit in everything we do.
For more information, see: www.silverstreetcapital.com