Author: MBC Strategic

Businesses identify sustainability as key growth driver, survey finds

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More than two thirds of business executives are associating sustainability with their company’s financial performance, according to a new survey. Sustainability performance reporting is also rising up business agendas, the survey finds, with most firms allocating resources to enable more comprehensive and accurate analysis. The most commonly reported sustainability data will be carbon emissions (99%), energy (98%), and social responsibility (93%). A large majority will report on waste (77%), water (77%) and other greenhouse emissions (77%).

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5 Alternative Asset Classes to Consider

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Fox Business presents 5 alternative asset classes, that according to the article “could give your investing an edge.” The article goes on to list Impact Investing as a viable option for those who are trying to save the world and also have some money to invest. It then expands on the options for non-accredited investors.

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More Companies Bow to Investors With a Social Cause

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Shareholders are driving changes in corporate policies and disclosures unthinkable a decade ago, on issues ranging from protecting rain forests to human rights. So far this year, environmental and social issues have accounted for 56% of shareholder proposals, representing a majority for the first time, according to accounting firm Ernst & Young LLP. That is up from about 40% in the previous two years, and means shareholders are increasingly voting on things like greenhouse-gas emissions, political spending and labor rights. 53% of companies in the S&P 500 index now publish sustainability reports, according to the Governance and Accountability Institute, addressing such matters as their energy efficiency and labor standards.

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TriLinc Global Supports High Water Women’s Initiative to Empower Women through Impact Investing

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On April 7th, Joan Trant, TriLinc Global Director of Marketing & Impact, joined a group of senior women from the hedge fund and impact investing industries to assess the impact investing landscape and determine how High Water Women, a New York-based nonprofit dedicated to promoting the social and economic empowerment of women and youth, can increase women’s awareness and participation in impact investing. Women hold a significant amount of wealth globally, and according to Kristan Wojner and Chuck Meek in Women’s Views of Wealth and the Planning Process: It’s Values That Matter, Not Just Value, women are estimated to inherit 70% of the $41 trillion in intergenerational wealth transfer expected over the next 40 years.

Following on its highly acclaimed Investing for Impact Symposium held October 3, 2013, High Water Women is building a strategic process and tools to support women seeking to invest in the impact space. “In addition to speaking at the Symposium, TriLinc Global is delighted to be part of this visionary and dynamic group convened by High Water Women,” said Ms. Trant. “TriLinc Global helps investors recognize the power they have through their investment decisions. Collaborating with High Water Women is an exciting opportunity to support women investors aiming to prove that investments with socioeconomic and environmental benefits also have the potential to achieve competitive returns for their portfolios.”

TriLinc Global CEO Judges for Morgan Stanley Sustainable Investment Challenge

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On April 4th, TriLinc Global CEO Gloria Nelund had the honor of judging the business plans of five exceptional MBA student-teams from various universities around the world at the Morgan Stanley Sustainable Investment Challenge in the firm’s global headquarters in Manhattan. A total of 75 business school teams entered the competition, which filtered down to 10 teams pitching their sustainable finance proposals on Friday morning. The presentations were split between two groups of judges, who after first-round selections together selected the top four teams to present in the finals.

Proposals ranged from financing for solar irrigation projects in India to a fund for LED street-lighting in the United States. The grand prize of $10,000 was awarded to the four-student team from the Kellogg School of Management at Northwestern University, who proposed an investment vehicle to remediate brownfields using popular trees.

The Gender Gap

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According to the IFC Job Study, women comprise 49.6 percent of the world’s population, but make up only 40.8 percent of the formal global labor market.  While globally inequality between men and women in education has been shrinking, women are still less likely to be educated.   These gender imbalances, primarily represented by education and employment, have been coined as “the Gender Gap”.  Before one can address this unfortunate social issue, the magnitude of potential positive change and the barriers to eliminate the issue must be understood.

A research report conducted by Goldman Sachs indicated that if Australia were to reconcile its Gender Gap (hire as many women as men), its GDP could increase by 11 percent.  Conducting the same analysis for other major nations suggests that US GDP could be boosted by as much as 10 percent, Eurozone GDP by 14 percent and Japanese GDP by 21 percent.  These projections are based on women’s contributions as more efficient laborers, as well as a simple increase in laborers.

Empirical evidence indicates that female employment has a positive impact on a company’s productivity and society’s well-being. In a recent case study, Oderbrecht’s, a Brazilian engineering, construction and chemicals group, newly acquired female-led team performed tasks 35 percent faster than teams with a majority of male workers.  Additionally, employed women are more inclined to help their families and communities out of poverty.  According to the IFC Jobs Study, women-headed households were found to reinvest up to 90 percent of their income into their families, compared to 30-40 percent contributed by men.  By investing in their children, women are helping to create a more productive future generation.

The barriers that stand in the way of progress toward reconciling the Gender Gap can be categorized as legislative, cultural and financial.

 

  • Government Difficulties:  In many developing nations, government instability makes implementing new policies and adapting old policies very difficult. Further in 102 of 141 economies, there already exists at least one legal difference between men and women that could hinder women’s economic opportunities – IFC Job Study.
  • Cultural Norms:  Much of the world still holds traditional views when it comes to women’s roles. Some cultures require permission from a husband to work; others don’t allow women to work outside of the home at all – IFC Job Study.
  • Financial Constraints:  Women are more likely to lack access to finance. A study of 34 countries from Western Europe to East Asia showed that women were 5 percent less likely to receive a loan – IFC Job Study.

These barriers provide a clear direction for effectively addressing the seemingly perpetual Gender Gap.  Over time, these barriers will diminish, especially where progress is intentionally encouraged. By supporting organizations and companies that implement gender-diversity hiring practices, as well as increasing awareness of the Gender Gap, we can help to eliminate it.

The Missing Middle

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     Big business often dominates the financial headlines every day, as journalists, investors and politicians seemingly track every single movement of the stock and bond markets. Yet when it comes to the U.S. economy, big business is only part of the story. One infrequently hears about businesses with less than 500 employees, yet in the U.S. they represent 99.7 percent of employer firms, have created over 65 percent of net new jobs from 1994 to 2009, and account for over half of nonfarm private GDP. These smaller businesses are often considered the lifeblood of the American economy, accounting for a good portion of innovation and often helping to give rise to the next generation of industry leaders. They have been a major driver of the economic growth of the U.S., as well as almost every major developed economy.

     In developing economies, the story is somewhat different. Historically, a lack of investment capital and poor economic policies have generally suppressed the growth of these small and medium enterprises (“SMEs”). Their business owners are just like business owners in the United States – willing to work hard to expand their businesses, create real value for their economies, accept accountability for results and ultimately help contribute toward a better future for their families and communities. Unfortunately, they have historically had a number of obstacles hindering their growth, the most common of which is a lack of access to financing.

     SMEs are the backbone of most economies, and have come to be known by many names in financial markets. “Small business,” “small-cap,” “middle market,” are some of the terms used to describe those firms that typically are profitable enough to have grown past the start-up phase, but yet not big enough to finance themselves in the debt capital markets. The definition of what qualifies as an SME can vary greatly from country to country, depending on the relative size of the economy and the sector under consideration. In the United States, the Small Business Administration (SBA) defines small business broadly as those businesses with 5 to 500 employees, a definition adopted for TriLinc Global.

     The “missing middle” is a term generally used by economists to describe the lack of financing available to this vital portion of the global economy. It describes the typical situation in developing economies: the largest businesses typically dominate bank financing. Microbusinesses are primarily funded by microfinance institutions, which have helped this business segment grow over the last 20 years. Unfortunately, those small and medium-sized businesses in the middle often have a harder time accessing finance, with five out of six SMEs worldwide claiming a lack of access to sufficient capital, thus making up the “missing middle” of finance.

 

What is the Difference Between Impact Investing and Socially Responsible Investing?

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When many investors first become aware of impact investing, they wonder if it is the same as Socially Responsible Investing. It is not. In this blog post, we seek to uncover the difference between impact investing and socially responsible investing.

So what is the difference between impact investing and socially responsible investing? Impact investing is distinctly different from socially responsible investing in that socially responsible investing typically applies a set of negative or positive screens to a group of publicly listed securities – for example, a mutual fund that avoids investments in tobacco, alcohol and firearms. Impact investing goes beyond a passive screen by actively seeking to invest in companies or projects that have the potential to create positive economic, social and/or environmental. Where socially responsible investing fund managers are generally passive and adopt a “do no harm” approach, impact investing funds typically not only seek to create positive impact, but measure and report their impact in a transparent way.

Beyond the impact investing objective, impact investing also typically targets progress on environmental, social and governance (ESG) matters relevant to a company’s strategy and operations. In impact investing the ESG analysis, which takes into account the effect that a company’s operations has on its market, community and environment, has become more mainstream in recent years, as analyses have determined that it can both drive long-term value and reduce brand and reputational risks. The UN Principles for Responsible Investment (like impact investing), which detail best practices in ESG investing, have been signed by nearly 700 investment managers and over 250 asset owners around the world, including Blackrock, Fidelity, KKR and CALPERS.

It is not enough for impact investing managers to merely intend to make a positive difference – managers and investors must track their social and environmental performance (the impact). In 2009, a group of impact investing stakeholders including investment managers, the Rockefeller Foundation, and the U.S. government, began to create a common set of social and environmental impact metrics that would increase the transparency and credibility of impact reporting. This led to the creation of the IRIS framework, which applies across sectors and geographies to give investors a standardized measure of the non-financial impact of their investments, ranging from average employee wages to metric tons of greenhouse gas offset. With leading impact investing funds and investors utilizing IRIS metrics to track and report their social and environmental results, investors will increasingly be able to compare and benchmark non-financial performance across managers and strategies.


What is Impact Investing?

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First things first: what is impact investing? Impact Investing is generally defined as investing with the specific objective of achieving both a financial return and a positive economic, social and/or environmental impact. Impact investing has been called “investing with purpose,” since it actively pursues positive social change, but not through philanthropy. Rather, impact investing is about making profit-seeking investments, using traditional debt and equity instruments, which support companies that have the power to change their communities and the world for the better.

Although it has only recently been growing in recognition, impact investing has been in existence in various forms for a long time. Since the 1960s, government-funded development finance institutions such as the World Bank’s private investment arm the International Finance Corporation (IFC), and U.S. Overseas Private Investment Corporation (OPIC), have engaged in a form of impact investing by making primarily private equity and debt investments in developing economies. The IFC, which coined the term “emerging markets” in the early 1980s, has proven that generating impact investing (investing with impact) does not necessarily require sacrificing return, achieving an annual internal rate of return of 18.3% on its investment funds portfolio between 2000 and 2011.

Within the field of impact investing, there is a wide range of investors seeking out different opportunities based on various types of desired impact and financial goals. Impact investing is commonly categorized as either “financial first” or “impact first,” which simply refers to the primary goal of the investment. Impact investing that puts “Impact first” is first and foremost trying to solve a particular economic, social or environmental problem, and are willing to sacrifice some level of financial return to achieve that primary objective.

Other impact investing managers engage in “financial first” impact investing, with the primary goal of delivering competitive financial returns while creating as much impact as possible. While most financial first impact investing focuses on solving a particular economic, social or environmental problem, their investment strategy is likely more traditional with a disciplined, primary focus of generating financial returns. This group of investors, which includes TriLinc Global, tends towards the long-term view that generating returns that are competitive to those of traditional asset classes will likely attract more capital to impact investing, and thus have the scalability to generate a larger, positive impact on society in the long term.

Many reports and articles predict a bright future for the impact investing industry, as investors seek to create something greater than a financial return from their invested assets. Hope Consulting has predicted that there is approximately $120 billion in current demand for such investments, and found that this demand is likely to grow as investors become more comfortable with the emerging asset class. As impact investing develops, an even greater variety of funds targeting the different risk, return and impact profiles of individual investors will likely appear. Over time those most successful at achieving their primary objective will likely emerge as industry leaders and market makers. Other burgeoning efforts, such as those to establish independent ratings systems and standardized metrics, will further standardize measurement and enable comparison across a multitude of factors, all of which will help individual and institutional investors to make decisions that align their money and their desired impact. For the businesses that they fund, and the communities and environments that those businesses improve, the growth of impact investing is a very welcome trend.

Read more: What is ESG? >

Weekly Impact Investment Market Update: December 8, 2017

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Impact Investing & ESG
 

The State of Impact Measurement and Management Practice

This report presents findings from the GIIN’s first comprehensive survey of the state of impact measurement and management (IMM) in the impact investing industry.

Can Index Funds Be a Force for Sustainable Capitalism?

There is growing demand from both retail and institutional investors to align their capital with better environmental and social outcomes, and more resources going into index fund or quasi-indexing products.

From Bezos to Walton, Big Investors Back Fund for ‘Flyover’ Start-Ups

On Tuesday, the fund, called Rise of the Rest, will disclose its investors, which has turned into a Who’s Who of American business.

Why Wall Street’s Finally Pushing to Add Women on Boards

The big money on Wall Street is finally throwing its weight behind boardroom diversity.

ESG Funds Boosted by Women and Millennial Investors

Women and millennials are responsible for the doubling of ESG assets to $8.1 trillion worldwide since 2014 — and you can expect that trend to continue.

In the Middle East and North Africa, the 2030 Global Goals are a $600 Billion Opportunity

Businesses focusing on resilient cities, sustainable agriculture and new energy could propel -more than $637 billion in new business activity and 12.4 million jobs in the region by 2030.

 

United States & Europe
 

Europe Should Have its Own Economy and Finance Minister, says EC

European commission presents proposals aimed at improving Eurozone democracy and resilience to economic shocks.

France is Now the Testing Ground for Europe’s Labor Policies

Many believe that France’s existing labor market code — some 3,000 pages long — has restrained business in the country.

U.S. Payrolls Rise 228,000 While Wages Gain Less Than Forecast

The U.S. labor market has moved past a couple months of hurricane disruptions and returned to its regularly scheduled programming: solid hiring but tepid wage gains that suggest things aren’t as tight as the unemployment rate suggests.

 

Developing Economies
 

What Emerging Market Debt Bubble? Galloway’s Shor Sees No Signs

Galloway Capital Management founder Nathan Shor isn’t seeing signs of a bubble percolating in emerging-market credit.

Where is Latin America Headed?

The recent presidential vote in Chile, along with the Nov. 26 contest in Honduras, signals the beginning of a yearlong electoral cycle in Latin America. By the end of 2018, Colombia, Mexico, Brazil, Costa Rica, Paraguay and perhaps Venezuela will have elected new leaders.

Asia to Stay World’s Fastest Growing Region Through 2030

Asia should remain the world’s economic heavyweight for another 10 years.

Indonesia Economy to Level at 5.1% in 2018

Consumption may recover as other financing sources are explored for its infrastructure projects.

A Borderless Africa? Some Countries Open Doors, Raise Hopes

For years African leaders have toyed with the idea of free movement by citizens across the continent, even raising the possibility of a single African passport.