Young Global Leaders Lab Aligning values and capital to promote … · 2017. 2. 21. · Young Global Leaders Lab Aligning values and capital to promote human flourishing: the rise

Young Global Leaders Lab Al igning values and capital to promote human

f lour ishing: the r ise of impact invest ing

Presentation by Sara Minard, PhD.

Executive Professor and Socio-economist D’Amore-McKim School of Business

Northeastern University

February 15, 2017

Agenda

•  Introductions •  Starting points:

• Capital Markets and Social Capital Markets • Trends in Responsible Investing (ESG/SRI/sustainable investing) • The rise of Impact Investing and what it offers

•  Impact investing at NU •  Research on impact investing and social enterprise in India •  Questions and discussion

My goals for this session

•  Learn about your respective interest areas •  Provide background on social capital markets and trends

in ESG, SRI, Philanthropy that help to explain the rise of Impact Investing and Social Enterprise

•  Share our current student-led activities, programs and initiatives at Northeastern on impact investing and ways to be involved

•  Share my current research on impact investing and social enterprise in the context of the Summer India Dialogue

•  Answer any questions and share additional resources

Starting points: Understanding capital markets

•  Capital markets (as opposed to the capital exchanges) do not occur because a set of actors simply decide to be rational in their allocation of capital.

•  Global, national, and regional capital markets have all evolved through complex interplay between governmental policy, private enterprise, individual entrepreneurship, and chance.

•  The evolution of capital investment transpiring in three different forums:

•  Specific or ad hoc deals, •  Professionally managed funds •  Increasingly organized marketplaces.

•  Capital markets are intended to be voluntary where buyer and seller are able to veto any deal but their choices are not completely free – they are constrained by the rules of the marketplace.

•  Markets fail for many reasons (monopolies, cartels, barriers to entry, other inefficiencies, imbalances in bargaining power), and social capital markets seek to remedy failures.

Mapping capital market flows

Source: World Economic Forum, Mainstream Impact Investing initiative

The term social capital has many definitions. Essentially two forms: Interactive (James Coleman, Robert Putnam): the norms, systems, institutions that maintain our sense of being part of a connected community with shared values and ideas Transactive: market enactments (non-financial and financial transactions) made possible by possible by our connections and networks which rely on cooperation (and sometimes trust). ü  Bonding social capital: strong ties, low mobility ü  Bridging social capital: weak ties, mobility ü  Linking social capital: weaker ties, high mobility

Understanding social capital markets

Understanding social capital markets

•  Historically, foundations and nonprofits have played key roles in addressing market failures by subsidizing goods, providing services, and delivering other functions that a market cannot efficiently offer.

•  However, effects of market failures post-WW II, coupled with population growth, higher income and wealth accumulation, declining state power, and the emergence of sophisticated informal markets through technology have increased the supply and demand for social capital investment from public, private (institutions and individuals) and social sector organizations and communities.

•  Social capital markets address how market forces may be harnessed to rectify and/or eliminate certain historical market failures, while simultaneously acknowledging blind adherence to markets will not solve our growing social and environmental challenges

New global actors & institutions

Source: Accelerating Impact, a report prepared by E.T. Jackson and Associates and commissioned by The Rockefeller Foundation 2012

State level ecosystem

Organizational level ecosystem

Impact Investing: New supply and demand for social finance

12

Impactinves-ng…makingvaluesmoreexplicit

ThreeGoodReasonsWhyImpactInves5ngisA9rac5ve:

1.Established:Investmentsintocompanies,organiza-ons,orfundswithscalablemodelsforsustainableimpact2.MenuforEveryone:Opportuni-esacrossallassetclasses(cash,fixed-income,structurednotes,realassets,privateequity,privatedebt,publicequity)3.MeasurableSocialandEnvironmentalImpact:throughoutthelifeoftheinvestment,withafocusonPay-for-Success(incen-vizeandrewardposi-veoutcomes)

Investmentsmadeintoorganiza-ons,projectsandfundsthatinten8onallygeneratemeasurable,posi-vesocialorenvironmental

impactinthepursuitofappropriatelevelsoffinancialreturn.

13

MenuforEveryone,AcrossAssetClasses

14

15

Differen-a-onBetweenApproaches

Millennials & Impact Investment Report 2016 12

iii. Millennials Are Investing Across the Impact Investing Spectrum

In which impact categories do you invest?

Various organizations have created impact categories to help investors define and in many cases allocate their impact

investments. Within each category, levels of risk and financial return expectations can be considered. Impact categories have been published by various groups including the G8 Social Impact Investment Task Force,21 World Economic Forum,22 GIIN,23 Bridges Ventures24 and Sonen Capital.25 Following is an example from Sonen Capital.26

CLASSIC INVESTING

RESPONSIBLE SUSTAINABLE THEMATIC IMPACT FIRST

PHILANTHROPY

Emphasis on profit maximization without regard for ESG factors

Consideration of ESG risk

and, or personal

values across a range of factors to screen out

investments

Targeting investments

best positioned to benefit from the

integration of ESG factors and broad-

based macro trends

Focus on issue areas where

social or environmental

needs offer commercial

growth opportunities

for market- rate return

Emphasis on the

optimization of social or

environmental needs

(e.g. PRI**), which may

result in financial trade-off

Where social and, or

environmental needs

outweigh any consideration for financial

return

ESG* Risk Management

ESG Opportunities

Maximum-Impact Solutions

Competitive Returns

Adapted from Bridges Ventures and Clara Barby, June 2012 * ESG-Environmental, Social and Governance factors ** PRI - Program Related Investments available to US Foundations as defined by the Tax Reform Act of 1996

Sonen Capital’s Impact Investing Spectrum

21 G8 Social Impact Investment Task Force, Web. (http://www.socialimpactinvestment.org/)22 From the Margins to the Mainstream, World Economic Forum Investors Industries, 2013, September, Web. (http://www3.weforum.org/docs/WEF_II_FromMarginsMainstream_Report_2013.pdf)23 What You Need to Know About Impact Investing, Global Impact Investing Network, Web. (https://thegiin.org/impact-investing/need-to-know/#s1)24 Bridges IMPACT Report, Bridges Ventures, 2013, Web. (http://bridgesventures.com/wp-content/uploads/2015/03/IMPACT_REPORT_2013-spreads1.pdf)25 Sonen Capital is a dedicated impact investment management firm. (www.sonencapital.com)26 Sonen Capital’s Impact Investing Spectrum, Sonen Capital, 2013.

Compe--vereturns

16

ShiLingLandscape:RapidlyGrowingESGInves-ng

Source:FBHeronFounda-on,Pensions&Investments,2016

ESGinves5ngamongins-tu-onalasset

ownersjumpedto61%

between2012and2014to$4Trillion.

Retailinvestorsnowhaveover150public

mutualfundstochoosefromincorporatesomevalues-basedscreening

(USSIF)

17

ShiLingLandscape:Heron’sTotalImpactPor\olio

“afiduciarydutytounderstandtheimpactofallofourassets”

18

ShiLingLandscape:FromTrendtoEstablished

1.Post-2008ImpactPriori5esforMillennials(Deloi]e/Toniic/WEF)•  44%ofMillennialssay,ifgiventhechoice,theywouldliketoleavetheir

currentemployersinthenexttwoyears.•  36%ofMillennialsbelievepurposeofbusinessistoimprovesociety•  $41TrillionwealthtransfertoMillennialsinnext25years.2.IndustryLeaders•  64%USPensionfundsexpecttomakeanimpactinvestment•  JPM,StateStreet,UBS,Goldman,Bain,BlackRock,Ci-,Barclays,allhave

createdsocialimpactfundsinpast6years•  MarketforGreenBondsskyrockets,$800Mto$42Bin8years3.GlobalImpactInves5ngIns5tu5ons•  Va-canCouncil’sTwoGlobalConferencesonImpactInves-ng•  OECD’sSocialImpactInvestment:BuildingtheEvidenceBase•  G8SocialImpactInves-ngWorkingGroup•  WhiteHouseRoundtableonImpactInves-ng,$2.5Billion

• 

19

Mo-va-onforImpactInves-ng

•  IncreaseddemandformeasurableESGoutcomes•  Increaseddemandforblendedsocialand

environmentallyresponsiblestrategies•  Dissa-sfac-onwithsustainabilityandimpactof

tradi-onalcharitablemodels(5%/95%)•  Increaseddissa-sfac-onwithgapsandinefficiencyin

publicservicesfunding•  Increasingdemandforpa5entventurecapitalinto

innova-vesocialbusinessesinemergingmarkets•  Increaseddemandfortransparencyandaccountability

amongmillennials:realimpact.

Source:Santos,INSEAD

20

RevealingtheImplicitImpactBias

•  Itiswrongtomakemoneyfromthepoor.......thisleadstotheimplica-onthatoneshouldmakelessmoneyservingthepoorthanservingtherich•  Thepoorareweakerandshouldbeprotected......butwehavelearnedfromdecadesattheBaseofthePyramidthatpoorpeopleneedmarketaccess,wanttobetreatedasconsumerswithchoicesandpreferences,andhavetheabilitytopay•  Theprofitmo5va5onwillleadtolowerimpact......thisisthemostdifficultissue…directinves8ngforsocialimpactassumesbothprofitandimpact.

Source:Santos,INSEAD

21

Fina

ncialperform

ance v  SocialRiskmi5ga5on

Socialandenvironmentalchallengescanbecomerisksforcompanies.Forexamplesocialunrestandenvironmentaldegrada-oncausesupplychaindisrup-ons,legalprosecu-onorstakeholderprotests.Firmsthatnotonlyunderstandandmanagetheserisks,butsetouttocreateposi-veimpactsarelessriskyinvestmentsinthelong-run.

v  Profitfromprovidingevidence-basedsolu5onsThereisahugedemandforsolu-onstocomplexsocialandenvironmentalchallenges.Firmsthatareabletooffersolu-onscouldbeveryprofitableinvestmentsofferinghighreturns.

v  DeepvaluespreferenceManyinvestorsprefertoputtheirmoneywheretheirheartis,likeshoppingfair-tradeproducts.Millennialshoweveraredemandingmorefromcapitalmarkets.Theyseevalues-basedinves-ngassomethingthatshouldbetransformingsociety.Thisiswhatweall“impact”,whichisaboutmeasuringchange.

v  Differen5a5onandtransparencyIns-tu-onsdecidethatitisimportanttoaligntheirinvestmentswiththeiroverallmission.Theabilitytotellthisblendedvalueimpactstorydifferen-atesthem.

Extra-fin

ancial

bene

fits

Thebasicra-onalesforImpactInves-ng

22

v  Impactisinten-onalandmeasurable,whichisnotthecasewiththeotherSRIapproaches.Investorscantargetspecificallywhatisdeartothem.

v  Incontrasttotradi-onalphilanthropicinvestments(noreturn)impactinves-ngcapitalcanbere-deployed,andthusachieveamul-pleofimpact.

v  Impactinves-ngreturnsarenotstronglycorrelatedwithotherassetclasses(diversifica-onpoten-al!).

Advantages Challenges

v  Narra-ve:Theconceptofachievingposi-ve,measurableimpactalongsidefinancialreturns,frombelowmarkettorisk-adjustedmarketrate,israthernewandcanleadtocontroversiessuchas“makingprofitsoffthepoor”.Measuringimpactwillcostmore.

v  Liquidity:Longterminvestments,notavailableforlargecappublicequity.OLenprivateequityinvestmentsandthusratherilliquid.

v  Data&Benchmarking:Newapproach,solimiteddataanaly-cs(outsideofGIINandWEF).Hardtoapplyonebenchmarktocomplexproblems.

Advantages&ChallengesofImpactInves-ng

23

EmpiricalFindingsfromGIIN/JPMStudy(n=145)

Risk:Businessmodelexecu5on&managementrisk

Focus:Housingleads,followedbymicrofinanceandotherfinancial

services

24

ExamplesofImpactInves-ngOpportuni-es

•  ImpactAssetsü  CommunityInvestmentPool(0-12months)ü  DonorAdvisedFunds(DAFs)ü  PrivateDebt&Equity“DirectImpact”(5-7years)ü  ESGScreenedMutualFundsandExchangeTradedFunds(Equity,

Interna-onalEquity,FixedIncome,Thema-c)ü  Newproduct:GlobalSustainableAgriculturalNote•  5-yearNote•  Liquidityfeature•  DTCEligible(holdinanapprovedinvestmentaccount)•  $25,000minimuminvestment•  Relaxedsuitability(investmentnottoexceed10%ofinvestor’s

liquidnetworth)*

•  RootCapital•  SeniorDebt:u-lizesdona-onsandinvestmentsinitsloanfundto

providecredittoruralsmallandgrowingbusinesses

25

WhenIsImpactInves-ngRelevant?

v  Foradvisors,whenclientswantadeepervalues-driveninvestmentopportunity,andwanttotapintoallofresourcesoutthere.

v  Forinvestorswhowanttomovebeyondsimplydemandingcompaniesdiscloseandmanagesustainabilityissuestoactuallyensuringtherearerigorouswaystomeasureimpact.

v  Forinvestorswhocareaboutanissuetothepointtheywanttobecomeanexpertinit,buildarela-onshipwiththecompany,andunderstandthecommunitywherethecompanyistryingtoachievesocialorenvironmentalimpact.

v Forinvestorswhobelievetheyarethemarket,anditisuptothemtodefinetheappropriateriskandreturnoninvestmentwhendeployingtheircapitaltosolvesocialproblems,i.e.,Millennials,otherHNWIs,familyoffices,Founda-ons,governments,otherretailinvestorsinthefourthsector

v  Forins-tu-onsofhigherlearning,whoholdthevaluecrea-onprocessasbeingfundamentallywholeandnon-divisible,wherethenatureofvalueisinherentlyablendofsocial,environmentalandfinancial.

26

NUCourses(ENTR3520&ENTR4520):“BuildinganImpactInves-ngPor\olio”

•  Findinga“home”–earlystagesocialenterpriseswith3yeartrackrecord–  Directcompanyinvestments(majority;debt,conver-bledebt;equity)–  Fund-levelinvestments(RSFSocialFinance,Calvert,ImpactAssets)–  Combina-on

•  Developinganimpactthesis–basedonstudentsurveydataandresearch–  Whatarethecausesandsolu-onsweshouldcareaboutandinvestin?–  Por\oliomission(E.g.,Povertyallevia-onforgirlsinIndiathroughfinancialinclusionand

technicaltraining),Targetpopula-on,Targetmodel,Targetimpact•  Seangperformanceparameters–aligningwithNU’sins5tu5onalmissionandmandate

–  Sustainability,securityandhealth;globalexperiencewithlocalresponsibili-es–  Geography,Sector,Instruments,Stage,Risk/Return/Impact,TimeHorizon

•  Focusanddiversifica5on–  Focusformeasurableimpactoutcomes;Diversifica-onforfinancialreturn

•  Evalua5onFramework(foreachinvestment)–  Impact+FinancialReturn–Risk(SocialandFinancial)–  Student-ledduediligenceprocesswithhyperfocusonmanagementandcontext

•  Benchmarking(withoutlosingimpactfocus)–  ImpactcapitalVs.grants,forimpactVs.tradi-onalfinancialinvestments–  Otherwaystostackcapital

27

NUStudentImpactInves-ngIni-a-ve:DMSBandLawSchoolCollabora-on

•  LateMarch:Day-longImpactInves8ngBootCampforbusinessandnon-businessstudents

•  Mid-March:DesignLabinENTR3520todesigntheimpactfundwithalumniandpro-bonoexper-se(UMichiganRossSchoolFundAdvisor

•  Mid-March:LawSchoolcoursetodesigntheappropriatelegalstructure,leveraginguniquevalueproposi-onofNU

•  March-April:Surveyofstudentsonimpactpriorityareas•  Mid-April:ENTR3520studentpitchcompe88on•  May:Collec-vedesignworkshopwithDMSBandLawSchool•  Summer/Fall:AlumniBoardandInvestmentCommi]ee•  Spring2018:Northeasterntohostregionalconferenceoninves-ng

forsocialimpact

An“OpenArchitectureInvestmentCommiHee”

•  Commi]eeismadeupofStudents,Alumni,Trustees,andCommunityMemberswhoserveonarota-ngbasis;Fundismanagedbythird-partyaccreditedinvestor

•  TheFund’sImpactStrategyalongwithlistofinvestmentopportuni-esgeneratedfromtheStudentIni-a-veismadeavailabletothepublicforcomment

•  Delibera-onsanddecisionsbytheInvestmentCommi]eearesharedinanopenforumalongwithimpactreports.

“Thehallmarkofimpactinves8ngisthecommitmenttotheinvestortoshareinforma7onwiththeinvesteeonhowtomeasureandreportthesocialand

environmentalperformanceandprogressofunderllyinginvestments;toensuretransparencyandaccountability.”(GIIN,2015)

Naviga-ngImpactInves-ng

h]ps://sites.duke.edu/impactclasses/1-execu-ve-summary/

Impact Investing in the Indian context: Exploring the interactions between corporate spending through CSR and the

rise in impact investing for social enterprises

•  Researchra8onale:Amajorques-onfordevelopmentagenciesandgovernmentsseekingtoadvanceprivatesectordevelopmentasthekeytosustainablegrowthishowtoeffec-velyscalesuccessfulsocialinnova-ons.Thisresearchstartsfromthefinancesideofthescalingdebatetoinves-gatewhatqualita-vedifferen-aleffectsexistforsocialenterprisesseekingfundingpartnershipswithimpactinvestorsascomparedtoreceivingthemandated2%CSRfundingfromcompanies.

•  Deskresearch–  LeadingfundswithofficesinIndia(Intellecap,UnitusCapitalFund)–  Leadingsocialauditfirmsandmethodologiesformeasuringimpact–  LeadingIndiancorpora8onsinCSRspendingandtheirkeythemes

•  Ini8alfieldresearchMay-June2017–  Demandandsupplyforimpactinves8ng

•  2%CSRruleforIndiancompanies•  ProlificsubsidizedNGOculture•  Extensivestatecorrup8oninsocialsectorspending•  Limitedcapacityforsocialenterprisestoconductthird-partyimpactevalua8ons•  IncreaseinFDItarge8ngevidence-drivensocialprograms•  Socialenterprisemodelsarediversifying

QUESTIONS&DISCUSSION

32

ResourcesforFurtherExplora-on•  Books•  Theimpactinvestor,byClark,EmersonandThornley(2015)•  Websites•  GlobalImpactInves-ngNetwork(GIIN.org)•  ImpactRepor-ngandInvestmentStandards(IRIS.org)•  GIIRSRa-ngandAnaly-cs(b-analy-cs.net/giirs-ra-ngs)•  Toniic,globalac-oncommunityforimpactinvestors•  News/Reports•  ImpactAssets50(h]p://impactassets.org/)•  ImpactAlpha(impactalpha.com)•  USSIF,UnlockingESGIntegra-on(h]p://www.ussif.org/files/Publica-ons/

UnlockingESGIntegra-on.pdf)•  WEF,ShapingtheFutureofImpactInves-ng(

h]ps://www.weforum.org/projects/mainstreaming-sustainable-and-impact-inves-ng/)

•  Contact me:SaraMinard,PhD,[email protected]

Addi-onalslidesontheurgencytoinvestinopportuni-estacklingthe

challengesofworkforcedevelopmentintheU.S.

34confidential Copyright © SquadLocker, Inc. All Rights Reserved.

NoMoreToilinginthe

Fields!MovetoMore

Produc8veWork

New“Wants”ThatCreateNewJobs

PROBLEMOFRISINGUNEMPLOYMENT


$1.50perdayGlobalPovertyratecon-nuestoplummet

“DrivenbyGDPgrowth”



1982 2002

MoreProduc-ve

LessOpportunity

LessJoy?

“De-Skilled”

LowerWages

LowerPricesforEveryone

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39confidential Copyright © SquadLocker, Inc. All Rights Reserved. Source:RajChe9y


Non-Rou-neInterpersonal

Non-Rou-neManual

Rou-neCogni-ve

Non-Rou-neAnaly-c

Rou-neManual

Educa-onRoadblock



Howdosocialenterprisesandimpactinvestorsrespond?

Newlegalframeworks:BCorpsandBenefitCorpora-ons(LaureateEduca-on,firstIPO)

Strengtheningexis5ngmodels:•   Worker-ownedstructureswithdemocra-cdecision-making:

•  “Capitalconstraintsandtheneedforinnova-ve,entrepreneurialapproacheshavereinforcedtheroleofsocialenterprises[inallfourcountries].”

•  Stakeholders(mul-)valuecrea-on,notjustshareholders•  “Differingbyvalueproposi-onandtargetedbeneficiariesinnewsustainable

businessmodels:the‘workintegrator’,the‘hiddenworkintegrator’,the‘entrepreneurialcoach’andthe‘skilldeveloper’

•  Impact-maximizing,notprofit-maximizing(mission-driven)andtransparencyandaccountabilitythroughoutthevaluechain

•  “Socialenterprisesacrossallofthesebusinessmodelshaveproventheireffec-venessintacklinglong-termunemployment;theydemonstratetheirsocialimpactthroughmeasurableoutputindicators(esp.iftheyarepubliccontractors).”

FromStephaniePetrick

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Young Global Leaders Lab Aligning values and capital to promote … · 2017. 2. 21. · Young Global Leaders Lab Aligning values and capital to promote human flourishing: the rise