Geographies | April 17, 2018

Next-gen leaders of finance step up to the sustainable investing challenge

David Bank and Dennis Price
ImpactAlpha Editor

David Bank

ImpactAlpha Editor

Dennis Price

ImpactAlpha, April 17 – Impact investing is no longer just a passion at business schools around the world. It’s a smart career move for the next generation of grads that want to become leaders of the finance industry.

Take climate finance. The winner and runner-up of last week’s Kellogg-Morgan Stanley Sustainable Investing Challenge in London both developed practical financial vehicles for financing infrastructure and disaster resilience, as did several others among the dozen finalists.

The winning team among the weekend’s MBA Impact Investing Network & Training, or MIINT, competition at the University of Pennsylvania’s Wharton School in Philadelphia successfully pitched investors on a stormwater smart-sensor company on which the team conducted due diligence.

Their impact focus and solution orientation is giving such students an advantage as they enter the workforce with MBA degrees, says Audrey Choi, chief marketing officer and chief sustainability officer at Morgan Stanley. Financing climate adaptation and resilience is certain to be a major theme in coming decades, she said.

“They will see market opportunities, where others would see concerns about public policy issues,” Choi told ImpactAlpha. “Because they care about impact and business, they are able to harness more effective tools to serve the causes they care about. But it will also give them a leg up in business.”

The Kellogg-Morgan Stanley challenge, now in its eighth year, attracted 307 students in more than 100 teams from 65 schools in 20 countries. The winning team of Mayoying He, Felicia Shaw and Teng Kai Loh from Lee Kong Chian School of Business at Singapore Management University, designed the ASEAN Storm Resilience Fund, which would invest in structures to help communities withstand extreme weather events in Southeast Asia (you can see their protoype here).

The runner-up, from the Darden School of Business at the University of Virginia designed a Resilient Infrastructure Swap Exchange (RISE) that includes an “insurance-linked security with parametric triggers to mobilize investment and increase liquidity for resilient infrastructure in Vietnam.”

That non-finance-geeks may not grasp the significance of such structures is an indicator of the increasing sophistication with which the student teams are approaching major social and environmental challenges.

“We wanted to push students to think about financial instruments that aim for a market-rate of return, that can work in the capital markets and can bring institutional size and scale to this field,” Choi said. The students, she said, “are completely eyes-wide-open in seeing these enormous global challenges, and also seeing these are challenges that should be addressed by capital markets and private sector business models.”

Talent pipeline

Such impact investing competitions at business schools are stocking the impact talent pipeline. Alumni now fill positions at top impact investment firms. Investment vehicles presented at competitions are beginning to move capital. Companies that survive pitch contests are raising capital and delivering impact.

The winning team in the MIINT competition, from Yale School of Management, secured a investment of $50,000 in their selected venture. The two runners up were a University of Chicago Booth School of Business team that pitched an online platform for remote teaching assistants, and a team from the London Business School, which pitched a telehealth service provider for low-income communities in Pakistan. Each secured $25,000 for the ventures they pitched.

The MIINT competition, created by Bridges Fund Management and Wharton’s Social Impact Initiative, trains students to perform due diligence on actual companies, culminating in a pitch to an investment committee. The committee awards pre-committed funds from the Liquidnet For Good Fund, a donor-advised fund managed by ImpactAssets, and the Moelis Family Foundation, to the companies from the winning pitch. (Full disclosure: the Liquidnet For Good Fund also is an investor in ImpactAlpha). Liquidnet, along with Bank of America Merrill Lynch, sponsored the competition.

“Students want to embed impact into everything they do and every phase of their careers,” says Brian Walsh, head of LiquidNet for Good (and host of ImpactAlpha’s podcast, Returns on Investment). “The power of the MIINT is it teaches the next generation of business talent how to think critically about all the ways that companies can have an impact – both positive and negative – and then optimize for long-term financial value alongside net positive social and environmental contribution.”

MIINT alumni include Elaine Chou and Ashley Beckner, chief of staff and a principal, respectively, at Omidyar Network; Carlos Eyzaguirre of the Heron Foundation; Kate Loose at Capria Ventures; Amy Wang at PG Impact Investments; and Claire Churchill at Nesta, among hundreds that have completed the program. The MIINT, now in its sixth year, runs programs at 26 business and policy schools around the world. Of the 11 previous winning and runner-up companies, more than 70% are owned by women or minorities, Sarah Freeman from Bridges and Nick Ashburn from Wharton, told ImpactAlpha.

Instead of just studying about impact investing while at Wharton, Omidyar Network’s Elaine Chou told ImpactAlpha, “MIINT helped me understand first hand how the sourcing, diligence, assessment, and transaction process works, with real money on the line. This gave me the skills, experience, and confidence to enter the industry.”

Bearing fruit

Goalbook, the firm that received the first MIINT investment (from Acumen Fund), repaid the capital and has grown revenues by 50 times. Education analytics company LearnSprout, another MIINT winner, was acquired by Apple and also repaid. A third winner, Edovo, recently closed $9.8 million to expand its tablet-based inmate education.

Among the previous winners of the Kellogg-Morgan Stanley challenge, Fresh Coast Capital raised $1.25 million earlier this year for green water-management projects like rain gardens and bioswales. Blue Forest, another Kellogg-Morgan Stanley challenge winner, has teamed with Encourage Capital and the World Resource Institute, with funding from the Rockefeller, Packard and Moore foundations to pilot the Forest Resilience Bond in California, a way of financing forest management and fire prevention.

Across finance, asset growth is being driven by the interest, particularly among millennial-generation and women investors, in sustainable or impact investing. Financial firms as well are highlighting their impact investing efforts to recruit top students. Bill McGlashan, who heads TPG Growth and its $2 billion Rise Fund, said about two-thirds of students typically accept offers from the private-equity giant. With Rise, the rate was closer to 100%.

“The resonance with Millennials is amazing,” McGlashan said recently. “These folks were accepting on the spot: ‘I’ll take it. I want it.’”

Choi said members of the winning team, and other finalists, are committed to bringing their funds to market. “We’re seeing an empowered and boldly ambitious, idealistic generation that is combining that idealism with a high degree of financial sophistication,” she said. “These are the young people we are looking to take over in the next generation.”