ImpactAlpha, Apr. 15 – MBA programs generally teach students what’s achievable using common investment tools like venture capital, private equity and debt.
Business (and public policy) students competing in this year’s Kellogg-Morgan Stanley Sustainable Investing Challenge have been challenged first to imagine what’s possible, then to engineer a financial instrument to make it happen.
Competition finalists pitched investment products to reduce plastic waste, eradicate homelessness, curb carbon emissions and integrate refugees. Over video this week, judges selected three teams (to be announced this morning) for Friday’s virtual finale.
The Sustainable Investing Challenge, now in its 10th year, has been a breeding ground for sustainable investing talent and ideas. Participants from just last year’s competition have gone on to work at Big Society Capital, LISC, World Economic Forum and electric vehicle maker Rivian.
For ten years now, the student teams “have crafted financially-innovative solutions to intractable social and environmental problems,” says Megan Kashner of Northwestern’s Kellogg School of Management, which co-founder the competition. In the midst of a global crisis, Kashner says the students have excelled. “Our finalist teams showcase the next generation of sustainable investing talent.”
Over the last decade, an understanding that investment vehicles can be built intentionally to fill capital gaps, solve unsolved problems and generate positive impact has changed business education. It’s also reshaping financial markets. Impact and sustainable investing has moved squarely into the mainstream of finance.
“The Sustainable Investing Challenge can act as a leading indicator for the broader sustainable finance industry,” says Jamie Martin of Morgan Stanley, which has sponsored the event since 2011. “We see components of concepts that were in the finals four or five years ago that are now mainstream investment theses pursued by some of the world’s largest investors.”
This year’s focus encouraged concepts that target plastic waste. Among the finalists are students from the Fletcher School at Tufts University, who designed the Fund for Adopting Responsible Materials as an input credit program that aims to reduce agricultural plastic use by linking farmers with biodegradable mulch producers.
Sweepco bonds from MBAs at Columbia Business School are a form of “green” municipal bond targeting plastic waste reductions with municipal waste management facility upgrades.
The COVID crisis is making stark issues around social inequality, global health and climate, says Equilibrium Capital’s Dave Chen, an adjunct professor at Kellogg who helped start the challenge in 2011. “This is no longer just a classroom thing,” Chen says. “You can now feel in your bones why this is important.”
For students facing a tough job market, the competition is a way “to get their hands dirty,” he says. “They are getting a sense of how real some of the plans they put together really are.”
Other entrants focused on pandemic response capabilities in Nigeria and energy efficiency in Central and Eastern Europe. A finalist team from Cranfield University School of Management in England proposed an asset-backed security to bundle income streams from renewable energy assets.
A refugee exchange-traded fund, designed by MBAs at NYU’s Stern School of Business aims to encourage refugee integration with an index comprised of listed companies with robust refugee-focused policies. “You can bet there will be more of these,” says Chen.
More than 2,000 students from all over the world have participated in the competition. Winners have gone on to launch innovative new impact investment firms like Blue Forest, Greenprint Partners and Secha Capital . Two of last year’s winners, Kellogg’s Sam Schiller and Claire Pluard, have brought to market their Carbon Yield Fund to provide loans to Midwestern farms in the U.S. to convert to organics.
“It’s clear that the same people, ideas and focus will not create new results,” says Brendan Mullen, who cofounded Secha in Johannesburg. After pitching Worldwide Impact Index Notes from Duke’s Fuqua School of Business at the challenge in 2013, Mullen moved to Botswana to test the solar project-finance concept. Mullen and his team later launched Secha as a small fund that aligned incentives of its investors and small and medium-sized businesses in which it invests. The challenge “gave us the confidence to dare to do something different in private equity in sub-Saharan Africa,” he says.
Ana Raviña and her team pitched the Carbon Offset Investment Platform in 2017 to securitize carbon offsets of African forestry companies as policy students at School of International and Public Affairs at Columbia University. “The entire challenge experience helped me validate my passion to mobilise capital to further development initiatives,” she told ImpactAlpha. Raviña joined smallholder agriculture financial advisory ISF Advisors after graduating. “The competition gave me the confidence that I could be successful in a still-small and highly competitive space.”
Hannon Armstrong’s Chad Reed, whose Forest Conservation Notes’ team won the 2015 competition, flipped from an intelligence career into climate finance. Reed now spends his days pitching investors on sustainable infrastructure assets. He credits the competition with helping him craft investment narratives that combine technical and financial expertise. The Sustainable Investing Challenge, he says, is “about building a pipeline of professionals who can enter the space on the ground running.”