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December 2022

December 22, 2022 – Newsletter – ESG Alphabet Soup

By Green Investing, Purpose of Finance, Recruiting Help, Uncategorized No Comments

December 22, 2022: The ESG Alphabet Soup &  Impact Investing

In this edition of Purposeful Finance:

  • Summer Internships: Impact Investing, ESG, and Sustainable Finance 
  • Topic Breakdown: Impact Investing
  • World: Tour De Headlines
  • Market Updates: Deal Flow

Internships

GenZero is looking for an Intern – Strategy and Development

Ares Management Corp. is hiring an ESG associate and an ESG analyst in New York

PepsiCo is looking for a 2023 Summer Intern: Global Sustainability Intern

Con Edison Clean Energy Businesses is looking for a Corporate Finance Intern

Guidehouse is looking for an Intern – Energy, Sustainability, & Infrastructure Solutions – Mobility Solutions and an Intern – Commercial Sustainability – Guidehouse Resilience, ESG and Disaster Recovery

AIG is looking for a 2023 – Early Career – Strategy & ESG – Summer Intern 

ORIX Growth Capital is looking for an Investment Analyst Intern

FLIT Invest is looking for a Undergraduate Campus Ambassador

BlueMark is looking for a Business Development Analyst, Impact Investing and Verification

Atento Capital is looking for a 2023 Summer Intern

Kiva is looking for a Climate Smart Finance Intern and an Impact Intern

Opportunity Finance Network is looking for an Impacting Investing Intern

CIBC (Canadian Imperial Bank of Commerce) is looking for a 2023 Summer Intern – ESG Investment

UNICEF is looking for a Finance Intern for their Education Cannot Wait (ECW) Fund

 

Topic Breakdown: The ESG Alphabet Soup

You might have heard the term ESG getting thrown around lately and controversial things about it. Today, we will be explaining what ESG stands for, how to measure it, measurement standards, and some recent news about it. 

What is ESG to begin with? 

    1. ESG, an acronym for Environmental, Social, and Governance, is a framework that offers a holistic measurement of the impact a corporation generates beyond its materialistic goals to maximize profit.
    2. Environment measures a company’s interaction with the natural world through resource and energy consumption and waste discharge. Social measures a company’s relationships with people and institutions, particularly with employees. Governance measures a company’s internal system of practices, policies, and leadership.

When did ESG get “popular”?

    1. ESG has been in the know for the past decade and entered the mainstream around 2019, largely due to the push from retail and major institutional investors for companies to commit to ESG criteria. 
    2. It also got ‘popular’ as governments have been mandating companies incorporate ESG reporting through policy. The EU will be passing the Corporate Sustainability Reporting Directive in 2023, with the US, Canada and China following suit. Many countries like the UK, Singapore, Indonesia have already passed similar legislation to require large or publicly listed companies to report their climate-related financial disclosure. This global legislative push to normalize ESG will be the next step to transition us towards a more sustainable economy.

What is the difference between ESG Reporting and ESG Ratings? 

    1. ESG Reporting refers to individual companies that use standards from regulating bodies (GRI) to assess their compliance, often to report to investors or for disclosure mandated by government authorities.
    2. ESG Rating, on the other hand, is a metric given to companies based on the evaluation of their performance by independent third-parties. These rating platforms include the Institutional Shareholder Service (ISS), Carbon Disclosure Project (CDP) and Morgan Stanley Capital International (MSCI).

What regulating bodies are there? 

    1. United Nations Global Compact, Global Reporting Initiative (GRI) Standards and Sustainability Accounting Standards Board (SASB) Standards are the most common frameworks used to measure ESG within a company. 
    2. However, it is crucial to note that there is no one standard with ESG as it is difficult to have a single standardized framework to measure all 3 components across multiple different sectors and geographies. 

What is the whole controversy about ESG? 

    1. ESG has been faced with a multitude of challenges. Key amongst them is the issue of “greenwashing”, where companies present false or misleading information to market themselves under the name of ESG to boost business performance. 
    2.  The other main issue, particularly in the US, is that ESG has been facing political backlash from states like Florida and Texas, which have banned ESG Investing practices and want state funds to focus solely on pecuniary factors that maximize returns on investment. 
    3. Beyond that, there are the longstanding issues of data inconsistency, where inconsistency in ESG scores from ratings firms is ‘a stumbling block’ when incorporating research data into the investment decisions.

Where can I learn more? 

    1. This page breaks down ESG really well and this Forbes article talks about the history of ESG and where different organizations fit into the larger scope of history. 

Professional Spotlight

In this week’s spotlight, we have Joellen Nicholson, Vice President and Global Director of University Impact (UI). 

Why  Impact Investing?

Before entering impact investing, Joellen joined Nest, an NGO, as the program director where she supported over 100 global MSMEs (micro, small, and medium entrepreneurs) with business growth strategies and local compliance matters. 

“Most of the artisans that we helped were women who hired women employees nearby.  These entrepreneurs typically wouldn’t be qualified for loans from local financial institutions since their revenues were small and owners usually lacked credit histories. Although these small businesses could not grow like tech businesses, they were creating great livelihoods for themselves and their women employees. Such financing inequality made me think about the importance of working with underserved, small, non-traditional business owners and what that means in the context of management, and the impact that I could contribute to the social financing area. At that moment, I knew that the impact investing space was the space for me.”

Learn more about Joellen’s journey into Impact and how she sees nonprofits and the impact investing world intersect.

World: Tour De Headlines

  • Barclays updates Sustainable Financing Target to $1 Trillion by 2030. Following the announcement in February to capture opportunities from the transition to a low-carbon economy, Barclays has been investing its own capital and facilitating sustainable finance at pace, continuing to deliver against its climate strategy as endorsed by shareholders this year. (ESGNews)
  • The European Investment Bank (EIB), the bank of the European Union, will lend €790 million to the Czech energy utility company ČEZ. The loan will fund the expansion of the national electricity distribution network, including the installation of automation technology and remotely controlled energy supply systems. (ESGNews)
  • ExxonMobil announced its corporate plan for the next five years, with a sizable increase in investments aimed at emission reductions and accretive lower-emission initiatives, including its Low Carbon Solutions business. Their corporate plan includes growing lower-emissions investments to approximately $17 billion by 2027. (ESGNews)
  • Deloitte Report: 99% of Public Companies Expect to Invest in ESG Reporting and Tech by Next Year. (ESGNews)
  • UN Report: ‘Just Transition’ Policies Needed to Create 20 Million Green Jobs. New jobs and skills will be needed as we begin to see the shift we will see towards a net-zero economy. (ESGNews)


United States of America

  • The Biden administration wants to make more than $2B available to Puerto Rico to expand rooftop solar and distributed energy assets. (CM)
  • The Biden administration announced 5 winners for the California offshore wind auction, amounting to $757m in winning bids that will potentially power over 1.5m homes. Copenhagen Infrastructure Partners plans to build its first floating offshore wind farm with one of these permits. (DOI) (GNW)


Europe

  • France will ban short haul domestic flights less than 2.5 hours long, a measure which will be reassessed by the EU Commission in three years. The ban comes off the back of a pause started in 2020 when the French government granted Air France COVID relief in exchange for canceling some domestic flight routes to encourage train 2usage. (Forbes, FT)
  • Switzerland-based mining giant Glencore will close 12 of its 36 coal mines over the next 12 years to meet its emissions targets by 2035. The move comes as major miners including Rio Tinto and BHP pull away from carbon-emitting fossil fuels in favor of minerals necessary in the low-carbon energy transition, such as nickel, copper, lithium and cobalt. (FT)

 

Market Updates: Deal Flow

Launches

  • Another week, another major battery factory announcement. American Battery Factory announces a $1.2B investment to make lithium iron phosphate (LFP) batteries in what will be America’s first gigafactory in Tucson, Arizona. LFP batteries are gaining market share to reduce EVs’ need for cobalt (TR)

 

Funds Raised

  • PE firm Thoma Bravo raised $32.4B for three new tech-focused funds: $24.3B for Thoma Bravo Fund XV, $6.2B for Thoma Bravo Discover Fund IV, and $1.8B for Thoma Bravo Explore Fund II; their Fund XV is the largest tech-focused buyout fund ever raised (PRN)
  • Swedish autonomous and electric truck startup Einride raised a $500M Series C which consisted of $200M in equity led by Northzone, EQT Ventures, Temasek, and others, plus $300M in debt led by Barclays Europe (TwC)
  • HSBC-Backed Natural Capital Funds Raise $650 Million (ESGNews)
  • Chicago-based credit fintech startup Avant raised $250M in preferred equity & debt from Ares (BW)
  • Union Square Ventures, based out of New York, raised $200M for its second climate tech fund (The Information
  • Jenson Funding Partners, based out of London, raised €69.7M for its Aurora I Fund to invest in companies in the energy transition and sustainability (EUS)

 

Sustainability 

  • Microsoft, Nike, Common Energy Partner To Energize Community Solar in Oregon (ESGNews)
  • European climate tech VC World Fund received a $52.5M investment from EU’s European Investment Fund to invest in climate-related ventures (EUS)

 

Healthcare VC

  • Apogee Therapeutics, a biotech company developing therapies for immunological and inflammatory disorders, raised a $169M Series B led by Deep Track Capital and RTW Investments (PRN)
  • CardioSense, a digital health startup focused on cardiovascular disease, raised a $15.1M Series A led by Broadview Ventures and Hatteras Venture Partners (PRN)

 

Affordable Housing

  • Greystone Affiliate Provides $153.6 Million for Large California Development (AHF)
  • JPMorgan Chase Community Development Banking has hired Rochelle Dotzenrod as division manager. Read more about her role here

 

Development Finance

  • IMF has approved a $319 million loan for Rwanda to finance projects tackling climate change (Bloomberg)
  • UNFPA is appealing for $1.2 billion to support 66 million women, girls, and young people in 65 crisis-affected countries (UN News)

 

Catalytic Capital

  • U.K.’s British International Investment and Nairobi-based African Guarantee Fund established a $75 million partnership to guarantee loans from lenders to small businesses in Africa, especially women-led firms addressing climate impacts (ImpactAlpha)

Interviewing Joellen Nicholson, Impact Investor & Opportunity Creator

By Finance, Green Investing, Leadership, Stewardship No Comments

An Interview by Purposeful Finance


About Joellen Nicholson

Ms. Joellen Nicholson is the Vice President and Global Director of University Impact (UI), where she partners with universities in providing capital to social ventures that solve social and environmental problems.

Joellen started her career at Martha Stewart Living Omnimedia, a US omnimedia and merchandising company. In 2010, she moved to Cambodia where she co-founded and managed the scale-up of a manufacturing startup called Basik 855. In 2016, she launched the Gap for Good branded sustainability program for Gap, Inc. in five of its global markets. 

Later Joellen joined Nest, an NGO, as the Program Director where she supported over 100 global MSMEs (micro, small, and medium entrepreneurs) with business growth strategies and local compliance matters. 

Joellen has a Master’s in Social Innovation from the University of Cambridge and a Bachelor’s in Supply Chain Management and Marketing from Michigan State University. 

Joellen’s Early Career Path & Background


How has your career evolved? Could you share your early career path? 

I started my undergrad at Michigan State University studying international relations and switched to studying supply chain management and marketing. I wished there had been a University Impact around that time! 

My business career first took me to New York City, where I began my career in retail home and apparel at Martha Stewart and was a buyer there until I was moved into marketing. I had the fortune of being young during the first tech wave and helped to launch Martha Stewart’s website and E-commerce platform and formed partnerships with AOL and Yahoo right when the digital advertising wave began. 

Then, there was a tech boom, also known as the dot-com bubble. Even though workers were being laid off, I landed a full-time position in the National Hockey League (NHL), which transitioned my career into the sports world. My career took off from there as I became an expert in consumer and data marketing. 

Could you talk about how you started Basik 855 and what you learned from that?

During my career, I felt that my actions were not making an impact in people’s lives or having any international exposure. In addition, I am also very passionate about women’s livelihood creation. I strived to create better opportunities for women, whether that be here in the US or internationally. 

It was then that I started thinking about opening businesses overseas in developing and emerging economies. I researched the women’s livelihood in those areas, talking to emerging leaders about how they carry out their lives. I was working at an agency at that time and decided to take a sabbatical to use my skills to volunteer overseas. 

The sabbatical landed me in Cambodia for a three-month (or so I thought) volunteer trip to work with a small NGO producing artisan products. In the process, we realized that many of the NGO workers did not understand the retail business, how to price products and how to enter new markets during expansion.

How did you respond when you realized the business challenges with the NGO?

Our team decided to transition our NGO into a for-profit venture under Fair Trade principles, so I co-founded the company Basik 855. We launched our weaving center and transited our team of artisans out of their homes into a central workshop making hand-woven textiles, fashion, and home products and helped them to promote products to the marketplace. In addition, we hired a team of approximately 54% women to work alongside men as supervisors where they could thrive and be seen as women leaders.

After 2 years, I eventually came back to the United States where I was hired as a consultant at a global customer data science consultancy company while I still managed Basik 855. Eventually, it became difficult running a small business, setting up centers in different countries, and managing sourcing for Basik 855.

What happened to Basik 855 and what did you learn from the experience?

There was an inflection point when the artisan product sales were not growing as we expected because our products were too ahead of the market at the time, but expenses continued to increase.  Ultimately, we ran out of funding and were forced to close down Basik 855.  Stepping away from that chapter in my life after everything I did was tough. I would say that was my first foray into understanding the importance of the accessibility of capital

Transitioning to a Career in Impact Investing


How did that lead you to GAP and Nest, and what drove you to choose a career in impact investing?

The opportunity to return to the United States led me to find a position as a global director for Gap where I was able to combine my corporate background and previous experiences working with artisans to develop specific artisan business-focused programs. We made a significant impact by implementing innovative technologies to save water in the denim-making process and improve the sourcing process for materials.

This opportunity got me back on my feet and led me to work for an organization called Nest – a nonprofit that focused on Fair Trade Practices, sustainability and diversity – such as hiring a diverse workforce of artisans and craftspeople in the global market. I was able to combine my corporate background and previous experiences working with artisans to develop the first worker assessment program for artisans to create the workshop out of their homes.

What specifically did you do at Nest?

In Nest, I launched two major programs. One was an accelerator program, which was a year-long program for 10 artists in businesses around the world who would receive curated personalized programs to establish the workshops in their residences.  Our team would work side by side with them to assess their business progress and create business plans to help their business needs including funding.

Simultaneously, we partnered with Mastercard Center for Inclusive Growth to launch Nest’s Makers United program in Birmingham, Alabama, in order to establish an inclusive and greater gender equal environment to support small artisan business owners to grow their businesses.

For both of these programs, our work focused on strengthening artisan businesses and supporting their access to local and global value chains to sell products. At the end of the day, selling products was the path to a sustainable business that could provide jobs to artisan women. Being able to grow also requires capital, and a challenge for these artisan businesses was having the money to grow.

How did working with these women and small businesses shape your perspective on impact investing?

While these small businesses could not grow like tech businesses, they were creating great livelihood for themselves and their women employees. This financing inequality made me think about the importance of working with underserved small non-traditional business owners and what that means in the context of management and the impact that I could contribute to the financing area. At that moment, I knew that impact investing for me. This is what landed me here at University Impact – helping individuals gain access to capital, expanding these businesses, and creating jobs.

University Impact: Donor-Advised Fund


Could you touch upon how the donor-advised fund works at University Impact?  How do you think the non-profit world and the impact investing world intersect? 

University Impact is a donor-advised fund and a 501(c)3 nonprofit, which means that people are donating contributions to us to get a tax deduction when they give to organizations.I believe similar contributions are being made when you’re looking in the world of nonprofits, inclusive finance, and innovative finance. We are adept at bringing in a plethora of capital from a donor-advised fund.

In the 2021 Donor-Advised Funds Report, there was an estimated $160 billion in DAF charitable assets generated and a $35 billion total money in DAF grant dollars in 2020, which is a 10% larger increase than independent foundations.

So the question is, how could we direct some of this money across the financing spectrum beyond traditional grant making? 

Traditionally, it just came in the form of grant money from the US, so how does our team look at other areas we could be distributing this money to create a greater impact? That is what University Impact has tried to do to differentiate itself from traditional funds. 

We could have done a grant program that you can give to any kind of organization. There are plenty of 501(c)3 nonprofits that have good standing with the Boys and Girls Club, YMCA, and even your local church. 

However, our team is focused on answering what else there could be. How can we find organizations around the world that may need a grant, but also look at how they are impactful as business ventures? Our team focuses on doing recoverable grants, and credit guarantees for all different types of funding vehicles. That is how University Impact has built its financing structure.

Why go with a Pay for Success model?

When you look into the broader world, the Pay for Success model introduces a new way for governments to finance social services and target limited dollars to achieve a positive, measurable outcome. This likelihood opens up opportunities for impact investing to thrive, meeting SDG goals even beyond just ESG

In the public markets, organizations have a framework for understanding how to use our philanthropic dollars in more innovative ways. That is what’s truly exciting about the future of impact investing.

What advice do you have for students entering the impact investing space? 

I think the key thing is that it’s such a nascent space, most firms have the philosophy that even if you don’t have a finance background, it’s an area that can be learned. The terminology is hard, but a growth mindset is important to push through the uncomfortable to learn about finance and impact. 

So, I would say don’t shy away if you are interested in the space but not a finance person. But if you are a finance person, I want you to think about the space and consider the importance of impact in your work. In terms of skills, I believe that critical thinking and independent thinking are important – whether or not you question your own thinking.

 

DISCLAIMER: the opinions expressed in interview responses do not necessarily reflect the views of the interviewer, Scholars of Finance, or Purposeful Finance by Scholars of Finance. 

December 8, 2022 – Newsletter – What is COP27?

By Future of Finance, Green Investing No Comments

In this edition of the Purposeful Finance Newsletter:

  • Summer Internships: Impact Investing, ESG, and Sustainable Finance 
  • Topic Breakdown: COP27
  • World: Tour De Headlines
  • Market Updates: Deal Flow

Internships

Atento Capital is looking for a 2023 Summer Intern

Kiva is looking for a Climate Smart Finance Intern and an Impact Intern

Opportunity Finance Network is looking for an Impacting Investing Intern

CIBC (Canadian Imperial Bank of Commerce) is looking for a 2023 Summer Intern – ESG Investment

Thomson Reuters is looking for an ESG/Sustainability Intern for their global Social Impact Institute Team

Greystar Real Estate Partners is looking for a Sustainability Intern

UNICEF is looking for a Finance Intern for their Education Cannot Wait (ECW) Fund

 

Topic Breakdown: COP27

 

What is COP27? Is it the same as the UN Climate Change Convention or Conference?

  • Yes, they are all the same. COP27 stands for the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC). The Conference is an annual meeting where countries negotiate global goals for tackling climate change and present their individual countries’ plans and progress for contributing to those goals.
  • COP essentially refers to the supreme decision-making body of the Convention (think the Board of a company). COP is represented by all States that are Parties to the Convention, and the COP can adopt legal instruments to implement the climate goals set.

I’ve heard of the Paris Climate Agreement and Kyoto Protocol, are they related? 

  • The landmark Paris Climate Agreement was actually adopted in COP21. It was the first legally binding global treaty on climate change, committing 196 parties to keep global warming under 1.5 degrees Celsius above pre-industrial levels.
  • The other famous Kyoto Protocol was adopted in COP3; it operationalized the UNFCCC by committing industrialized countries to limit greenhouse gas (GHG) emissions in accordance with agreed individual targets.

So what is this year’s theme? 

  • Follow through! Last year’s meeting (named COP26, in case you couldn’t guess) produced the Glasgow Pact and some ambitious new goals. Now countries will plan out how to accomplish the goals. The major questions are who will pay and how will they pay for climate actions, which is is where finance comes in.

So who will pay? And what is ‘Loss and Damage’ or ‘Climate Reparations’?

  • Climate-driven disasters are disproportionately harming low- and middle-income countries that have contributed far fewer of the greenhouse gas emissions that cause climate change. 
  • The UN has proposed that wealthier countries should pay “loss and damage” funds to compensate developing countries. Developed countries promised at COP21 to provide developing countries with $100 billion (€90 billion) a year for climate mitigation and adaptation by 2020 – a target they are unlikely to reach until 2023 at the earliest.
  • Before COP27, only Denmark had formally committed any funds. United States President Joe Biden has pledged 11 billion dollars in international climate aid, which may inspire other countries to join in, making for one of the largest investments in aid flowing from developed to developing markets.

 What were the key wins this year other than the US rejoining COP after a 4 year hiatus? 

  •  A breakthrough agreement known as Sharm el-Sheikh Implementation Plan has highlighted that a global transformation to a low-carbon economy will require investments of at least USD 4-6 trillion a year. Delivering such funding will require a swift and comprehensive transformation of the financial system. 
  • COP27 saw the launch of a new five-year work program at COP27 to promote climate technology solutions in developing countries.
  • Countries launched a package of 25 new collaborative actions in five key areas: power, road transport, steel, hydrogen and agriculture.

 

World: Tour De Headlines

  • The Green Climate Fund (GCF) Board concluded its 34th meeting. 
    • This year, they approved nine new climate projects worth USD 544.1 million in GCF funding and USD 1.7 billion with co-financing. 
    •  GCF’s portfolio now comprises 209 projects worth USD 42.4 billion with co-financing.  (GCF)
  • World Bank Group Announces International Low-Carbon Hydrogen Partnership,  a new global initiative to boost the deployment of low-carbon hydrogen in developing countries. (World Bank)
  • The World Bank’s International Finance Corporation (IFC) will consider a $2 billion support fund for Ukraine that will focus on rebuilding the country’s private sector. (Reuters)

United States of America

  • California Boosts Electric Car Charging Investment by $1 Billion.(ESGNews)

Europe

  • EIB (European Investment Bank) Approves EUR 11 Billion for Climate Action, Clean Energy and Sustainable Transport Investment (ESGNews)
  • EIB and Development Bank of Southern Africa Launch €400 Million South Africa Renewable Energy Investment Initiative (ESGNews)
  • France, Spain Latest to Pledge Halt to Gasoline-Driven Vehicle Sales (ESGNews)
  • Vitol to Acquire Vortex and Deploy $1 Billion to the Development of Renewables in Poland (ESGNews)

Asia

  • U.S. Unveils Investments in Indonesia Led by $698 Million Climate-Conscious Compact (ESGNews)
  • Australia Proposes to Require Cleaner Gasoline by 2025 (ESGNews)
  • Indonesia to Set Up $2 Billion EV Fund with China’s CATL, CMB International (ESGNews)
  • India Publishes Long Term Emissions Strategy to Reach Net Zero in 2070 (ESGNews)

 

Market Updates: Deal Flow

Launches

  • Closed Loop launches a new recycling company, Circular Services, with $700M investment, which it says will be the largest privately owned recycling company in North America. Circular Services will be a consolidation of 12 facilities from portfolio companies across seven states. The U.S. recycling industry hasn’t seen a large company focused on residential and commercial recycling, without also owning landfill assets, and Circular Services will be the first to do that.  (Wastedive)
  • RBC Expands Sustainable Finance Product Suite for Businesses (ESGNews)
  • World Bank Group Announces International Low-Carbon Hydrogen Partnership (ESGNews)
  • Hunter Point Capital and ADQ agreed to buy a minority stake in social change-focused investment firm Vistria Group (BBG)

Funds Raised

  • Carlyle Launches Renewable Energy Development Platform Telis Energy in Europe. with a focus on solar, in the UK, France, Spain, and Germany, with a view to expand to other markets in Europe. (PV-Tech)
  • Stripe, the payments giant, announced a $925M fund for advanced market commitments for carbon removals from DAC & other high tech carbon removal and storage companies. That’s way more money than has been spent on carbon removals previously. The entire carbon offset market, of which removals are a small subset, crossed the $1B mark just late last year. (KEEP COOL)

Sustainability VC

  • Anode Labs , raised a $4.2M round led by Lerer Hippeau and Lattice. They aim to build The React Network: The First Community-Owned, Web3 Green Energy Grid that offers tokenized incentives for individuals and SMBs to connect their energy storage assets. (BW)
  • RoadRunner, a startup providing sustainable waste management solutions, raised a $20M Series D extension led by Fifth Wall. Nearly 40% of global carbon dioxide emissions come from the real estate sector, RoadRunner has been able to seamlessly increase a property’s recycling rates by 10x, and in turn, reduce the associated carbon footprint. (PRN)

Govtech

  • Beam, a startup helping citizens access government financial aid, raised a $6.4M Series A led by Potencia Ventures. Beam simplifies program administration and helps deliver funds more efficiently across a wide array of programs, like emergency cash assistance, rental relief and public utility benefits. (TC)

Healthcare VC

  • Maven, a pioneering the next generation of care for women and families, raised a $90M Series E at a $1.35B valuation led by General Catalyst. (TC)
  • Carlyle is in talks to offer to buy US urgent care group Heritage Care Network at an $8-$10B valuation. (RT
    • “Consolidation in the primary and urgent care sector…is on the rise, as healthcare operators race to provide alternatives of scale to hospital systems and capitalize on the backlog in treatments caused by the COVID-19 pandemic.” 

Affordable Housing

  • CVS Health Invests $14.3 Million in Affordable Housing in Seattle. An interesting investment that shows us how preventive health and social equity intersect. 
    • “When people have access to high-quality affordable housing, it allows them to focus on taking care of their mental and physical health,” said Dr. Rafael Gonzalez-Amezcua, chief medical officer of Aetna Better Health of California at Aetna, a CVS Health Company. (ESGNews)
  • The California Housing Accelerator program and Community Development Banking at JPMorgan Chase are working together to fund 57 projects to accelerate the construction of affordable housing in California to combat the housing crisis. 

What is ESG? Explaining the Basics of Environmental, Social, and Governance

By Green Investing, Purpose of Finance, Stewardship No Comments

What is ESG? Explaining the Basics of Environmental, Social, and Governance

ESG, an acronym for Environmental, Social, and Governance, is a framework for a holistic measurement of the impact a corporation generates beyond its materialistic goals to maximize profits. Each of the three categories covers various issues related to impact.

Environmental

A company’s interaction with the natural world through resource and energy consumption and waste discharge.
Examples: climate change, greenhouse gas emission, deforestation

Social

A company’s relationships with people and institutions, particularly with employees.
Examples: DEI, labor standards, health & safety

Governance

A company’s internal system of practices, policies, leadership, and other governing systems.
Examples: bribery, corruption, board practices, accounting practices

History of ESG

Where did ESG come from? In 1992, the UN Framework Convention on Climate Change convened in Rio De Janeiro, where 154 countries signed an international environmental treaty, which was operationalized as the Kyoto Protocol. 

Then in 1997, the Global Reporting Initiative (GRI) was founded in response to the protocol to provide organizations with a common language to understand their impact. 

And in 2000, the UN Global Compact was launched to call companies to align to principles of Universal human rights, labor and environmental conservation. These international milestones helped to lay the groundwork for ESG. 

ESG issues were first mentioned in the 2006 United Nations Principles for Responsible Investment (PRI) report, with a focus on developing sustainable investments. Since then, ESG has been used with the intention to understand the external, non-business risks of a company that can affect future profitability. 

ESG Performance Measurement

At a first glance, the measurement of ESG may be difficult to conceptualize. It involves the conversion of subjective ESG concepts into objective metrics. Many standards and frameworks are available, with each providing distinct guidelines for companies.

Companies choose standards based on their industry, company strategy and requirements, and intended audience. Many companies use multiple standards and frameworks to portray their ESG statements in suitable ways. A few of popular standards include:

United Nations Global Compact
A framework consisting of 10 principles for companies to uphold sustainability and social responsibility

Global Reporting Initiative (GRI) Standards
An independent, international organization that aims to help companies understand and report their impacts on the economy, environment, and people. GRI Standard is a
modular system comprising universal, sector, and topic-specific standards that allows companies to report relevant and most significant information. It is the world’s most used standard, especially among large corporations including over 70% of G250 companies.

Sustainability Accounting Standards Board (SASB) Standards 
Managed under the global non-profit organization, Value Reporting Foundation (VRF), SASB focuses on industry-specific and financially-material sustainability information that is cost-effective for companies and decisions useful for investors. It is widely used with over half of S&P Global 1200 companies using SASB standards.

OECD Guidelines for Multinational Enterprises
Recommendations for multinational enterprises of OECD member countries on their business conducts to ensure they act in accordance with the policies and expectations of these countries.

Task Force on Climate-Related Financial Disclosures (TCFD) 
Framework aimed to provide efficient climate-related financial disclosures. TCFD recommendations, themed around governance, strategy, risk management, and metrics, guide companies to provide decision-useful, forward-looking information.

Climate Disclosure Standards Board (CDSB) framework
Aimed to help companies report environmental and social information in mainstream reports. With an effort to standardize different standards and frameworks, CDSB framework aligns with TCFD and builds on popular standards, such as GRI.

 

Because many organizations have developed standards and frameworks to disclose financially material information on relevant ESG topics, ESG reporting is not standardized.

Despite the CDSB framework coalescing many standards and frameworks, many companies still mix and match different ESG frameworks. This tends to reflect their individual industry needs. Inconsistencies could hinder long-term progress and confuse or alienate investors. The lack of standardization in ESG reporting continues to be a major criticism of the movement. 

ESG Ratings

Unlike ESG frameworks that offer guidance on what and how financial information should be disclosed, ESG Rating is a metric given to companies based on the evaluation of their performance by independent third-parties.

These rating platforms include the Institutional Shareholder Service (ISS), Carbon Disclosure Project (CDP) and Morgan Stanley Capital International (MSCI). Similar to a credit rating, it is a measure of a company’s exposure to long-term environmental, social, and governance risks. Higher ratings indicate efficiency in managing these risks. 

However, ESG ratings may not always be reliable and consistent. Scores differ based on the third-party provider. Due to different methodologies, metrics, and weightings, the comparison of ratings might not tell the full story about the real performance of the company.

 

5 Perspectives on ESG from Leaders in Finance, Business, and Government


1.    Allison Herron Lee, SEC Commissioner

“Increasingly, boards of directors are called upon to navigate the challenges presented by climate change, racial injustice, economic inequality, and numerous other issues that are fundamental to the success and sustainability of companies, financial markets, and our economy. This call, welcomed by some and eschewed by others, is attributable in part to the large and growing influence that corporations hold over the social and economic well-being of people and communities everywhere. A study from 2018, for example, showed that 71 of the top 100 revenue generators globally were corporations while only 29 were countries. In other words, corporations – in many cases U.S. corporations – often operate on a level or higher economic footing than some of the largest governments in the world. That is a dynamic worthy of reflection – and one that drives home the weighty consequences and obligations associated with some corporate decisions.”

– Allison Herron Lee, SEC Commissioner, in her 2021 Keynote Address to the Society for Corporate Governance 


2.   Sandra Horbach, Managing Director at The Carlyle Group

“ESG [environmental, social, and governance] is climate change, worker conditions, diversity; it’s everything. There’s so much that sponsors can do to help these companies do better. We don’t have a dedicated impact or ESG platform; we’re bringing ESG in and trying to embed it across all our portfolio companies.”

– Sandra Horbach, Managing Director at The Carlyle Group, on how ESG is transforming the investment industry in a new interview, as quoted by McKinsey


3.    Martin Whittaker, CEO of JUST Capital

“The ultimate goal is to build a more just marketplace that works for all Americans, one that deals with people’s economic insecurities and heals fear and division. The fault lines of capitalism cause widening inequality and social conflict, and undermine our ability to mount sustained, collective efforts to tackle our most pressing challenges: education, health, local and global environmental well-being, community vitality, upward mobility, and more.”

– Martin Whittaker, CEO of JUST Capital, on his organization’s approach to ESG investing and advocacy, as quoted by Motley Fool


4.    Kenneth P. Pucker and Andrew King, Harvard Business Review

“Despite a historic surge in popularity, ESG (environmental, social, and governance) investing will not tackle our generation’s urgent environmental and social challenges. Consider the battle against climate change: Estimates are that humanity will need to invest an average of $3.5 trillion annually over the next 30 years. Unfortunately, these trillions are not the same trillions that are presently invested in assets managed according to many forms of ESG investing — those are dedicated to assuring returns for shareholders, not delivering positive planetary impact. The separation of profit and planet is by design. ESG ratings which underlie ESG fund selection are based on “single materiality” — the impact of the changing world on a company’s profits and losses, not the reverse.”

– Kenneth P. Pucker and Andrew King, ESG Investing Isn’t Designed to Save the Planet in Harvard Business Review on the difference between ESG and Impact Investing.


5.   Larry Fink, CEO of BlackRock

“Stakeholder capitalism is all about delivering long-term, durable returns for shareholders. And transparency around your company’s planning for a net zero world is an important element of that. But it’s just one of many disclosures we and other investors ask companies to make. As stewards of our clients’ capital, we ask businesses to demonstrate how they’re going to deliver on their responsibility to shareholders, including through sound environmental, social, and governance practices and policies…our conviction at BlackRock is that companies perform better when they are deliberate about their role in society and act in the interests of their employees, customers, communities, and their shareholders.”

– Larry Fink, CEO of BlackRock, in his Annual 2022 Letter to CEOs entitled The Power of Capitalism

Summary

ESG has been around for more than two decades. It has entered the mainstream of finance, thanks to support from retail investors and attention from luminaries like Larry Fink.

Looking forward, ESG investing is a fast growing sector of finance. According to Bloomberg Intelligence, global ESG assets are likely to surpass $41 trillion in 2022 and $50 trillion by 2025.

Still, there are many challenges ahead for ESG. Controversies around greenwashing, the lack of data, and the lack of comprehensive standards across industries pose barriers. The SEC is now proposing two rules to combat greenwashing, offering signs that challenges may be closer to resolution.

RELATED: Read Sophia Radionova’s (SOF NYU) commentary on the intersection of Ethics & ESG in her career exploration.

A Brief History of Impact Investing in The United States

By Finance, Green Investing, Purpose of Finance, Stewardship One Comment

Impact investing has a much longer history than what many of us expect.

The concept of impact investing is not new; the term was coined in the early 2000s, but the practice has been around for centuries. The central idea of impact investing is to use capital to create positive social or environmental change, while also generating attractive financial returns. 

This article explores Impact investing in the United States and how it has evolved, especially over the course of the last few decades.

What’s The Origin of Impact Investing? 

The 1800s: Religious Beginnings

In the United States, socially-conscious investing emerged in the 19th century. A group of historically-connected Protestant Christian denominations, known as Methodists, abhorred the slave trade, illegal immigration, and excessive consumerism. They decided to divest from companies involved in industries in these sectors. Methodists also opposed investing in businesses that produced alcohol, grew tobacco, or promoted gambling.

Another Protestant movement, the Quakers, played a part in shaping impact investing. Quakers forbade investments in the slave trade and slavery-related industries. They also avoided industries related to war, such as weapons manufacturing. They established the Pioneer Fund in 1928 in Boston, which invested only in sectors they deemed moral. 

These diverse groups’ early investment strategies aimed to get rid of the so-called “sin” industries. Today, sin stock industries typically include those involved in alcohol, tobacco, gambling, sex-related businesses, and weapons production.

These early tenets of socially-conscious investing evolved to stand for an investment philosophy aligned with investors’ social concerns and goals for social change. 

 

Modern Impact Investing

How Did Government Policy Shape Impact Investing? The 1950s – 2000

By the second half of the 20th century, policymakers and firms had implemented impact investing principles into the financial services industry. 

One landmark piece of legislation was The Community Reinvestment Act (CRA), passed by Congress in 1977, which outlawed discriminatory lending practices in low-income areas.

Additionally, the U.S. Sustainable Investment Forum (US SIF) was established in 1984 in response to climate and environmental concerns driven by tragedies like the Chernobyl disaster in the 1980s.

In addition to the government, firms and their executives took strides to incorporate impact investing principles into their business practices. The 1990s, for instance, brought the first screens for mutual funds aimed at avoiding investments in companies with poor records on social and environmental issues. Key among them was the Domini Social Index, which launched in 1990 and consisted of 400 large-capitalization US companies that were selected based on social and environmental criteria. 

In 1996, a group of business leaders, academics, and philanthropists launched the Social Investment Forum Foundation (SIFF) to promote best practices in sustainable and responsible investing (SRI). The decade also saw the launch of the Global Reporting Initiative (GRI), which provided guidelines for companies to voluntarily disclose their environmental and social performance; GRI is now a major governing body in the environmental, social, and governance (ESG) space.

How Did Impact Investing Go Global? The Early 2000s

The 2000s were a time of significant growth for sustainable and socially responsible investing (SRI). The Rockefeller Foundation laid much of the groundwork, coining “Impact Investing” as an umbrella term in an attempt to unite the fragmented industry into a collective network. 

The Rockefeller Foundation also launched the Global Impact Investing Network (GIIN), assembling impact investors to build a coalition focused on exchanging and organizing ideas. The GIIN has since grown into one of the largest international governing bodies for impact investors. 

Then in 2007, the United Nations Principles for Responsible Investment (UN PRI) were published with the aim of inspiring more investors to incorporate environmental, social, and governance (ESG) considerations into their asset allocation strategies. The UN PRI now includes over 2,000 signatories representing more than $70 trillion in assets under management (AUM).

The financial crisis of 2008-2009 led to a renewed focus on the role of finance in society and the need for sustainable investing. IRIS, a system for measuring, managing, and optimizing impact, was created in 2008 by the Rockefeller Foundation.  Since its inception, IRIS has given social entrepreneurs tools to measure and monitor process improvements and to better track business results. 

Other impact-related organizations arose such as Acumen Fund, and B-Lab, who drew on lessons learned in microfinance and other social and environmental sectors.


What is Impact Investing? Looking at The Present

2010s – Present

The Global Impact Investing Ratings System is the second system created to evaluate social and environmental impact (GIIRS). It was designed to offer guidelines and a rating system for businesses, investors, and intermediaries to make more data-driven decisions. 

In 2009, President Barack Obama created the Interagency Working Group on Social Impact Investing to explore how the government could use impact investing to achieve social objectives. The following year, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which included provisions for impact investing by banks and other financial institutions.

In 2014, the White House convened the first-ever Social Impact Investing Task Force, composed of over 30 leaders from the public and private sectors, to develop recommendations on how the federal government could best support the growth of impact investing. The task force called for a number of actions to support the industry, including better data and measurement, greater coordination among governmental agencies, and the establishment of an Impact Investment Working Group within the National Economic Council.

Looking Forward

Impact investing has come a long way in a relatively short period of time. What started as a niche movement focused on avoiding “sinful” investments has grown into a global industry with trillions of dollars in AUM.

As of 2022, the GIIN estimates the size of the worldwide impact investing market to be USD 1.1 trillion, the first time it has crossed the trillion dollar mark. Growth has been strong with total investments tripling from 2017 to 2019 and growing at double-digit rates since. However, challenges remain, as the UN in 2018 estimated a funding gap of USD 2.5 trillion to achieve 2030 Sustainable Development Goals. 

But there is cause for optimism. Collaborative international efforts to accelerate impact investments have proliferated, and with strong governmental support, we can expect impact investments to further enter the mainstream of finance going forward.

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