Filters: Commentary

TriLinc Global Honors International Women’s Day

Posted on by trilinc_admin17

TriLinc is pleased to honor and celebrate International Women’s Day today March 8th, and every day, through its fund-level and borrower company-level activities. We are proud to be a female-founded, female-led, and 51% Female owned firm.

According to a McKinsey study, if women play an identical role in labor markets to men’s, as much as $28 trillion could be added to global annual GDP in 2025 – a 26 percent increase. To raise awareness for gender equality, TriLinc tracks at the borrower level its portfolio companies’ female employment numbers and their policies and practices related to fair recruiting, maternal leave, and equality and empowerment.

At TriLinc we believe that better data on women business owners and employees will help governments establish more enabling policies, and assist the private sector in meeting women’s unique financing needs and workplace objectives. That’s why we focus on the UN Sustainability and Development Goals (SDG) number 5, Gender Equality, and SDG number 8, Decent Work and Economic Growth. We believe tracking borrower company data related to female ownership and employees, as well as policies such as Fair Hiring& Recruitment, Fair Career Advancement, Fair Compensation, Maternity and Paternity Leave, Child Care Support and Anti-Sexual Harassment, TriLinc seeks positive, measurable impact alongside market-rate financial returns to foster a more equitable society.

TriLinc’s mission promotes job creation through financing small and medium enterprises (SMEs), which are a proven engine for employment and GDP growth in select developing economies where access to capital is significantly limited. To raise awareness for gender equality, TriLinc tracks at the borrower level its portfolio companies’ female employment numbers and their policies and practices related to fair recruiting, maternal leave, and equality and empowerment.

Help us spread awareness for female-led and female-focused investments with #InvestWithHer on LinkedIn and Twitter.

Lean how TriLinc aligns with the UN SDGs, go to: https://www.trilincglobal.com/sustainable-development-goals-commentary/

For information on International Women’s Day, go to: https://www.internationalwomensday.com/

What is ESG?

Posted on by MBC Strategic

ESG is a growing trend in the investment world, but only 1% of assets under management use ESG as a primary factor in investment considerations. What exactly does ESG mean and how are companies integrating this practice?

The acronym itself stands for Environmental, Social and Governance. Companies use ESG as a risk assessment strategy incorporated into both their investment decision-making and risk management processes. These factors are often clear indicators of a responsible, well-governed company. Examples of ESG are:

 

ENVIRONMENTAL

Company Activity:

  • Manage resources and prevent pollution
  • Reduce emissions and climate impact
  • Execute environmental reporting/disclosure

Positive Outcomes:

  • Avoid or minimize environmental liabilities
  • Lower costs and increase profitability through energy and other efficiencies
  • Reduce regulatory, litigation and reputational risk

 

SOCIAL

Company Activity:

  • Promote health and safety
  • Encourage labor-management relations
  • Protect human rights
  • Focus on product integrity

Positive Outcomes:

  • Increase productivity and morale
  • Reduce turnover and absenteeism
  • Improve brand loyalty

 

CORPORATE GOVERNANCE

Company Activity:

  • Increase diversity and accountability of the Board
  • Protect shareholders their rights
  • Report and disclose information

Positive Outcomes:

  • Align interests of shareowners and management
  • Avoid unpleasant financial surprises or “blow-ups”

 

 

ESG standards are becoming a larger part of the alternative investment world, including the impact investment space.  ESG issues are not only central to measuring the sustainability and non-financial impacts of an investment, but can have a material impact on the long-term risk and return profile of investment portfolios.

According to oekom’s Sustainability Financial Performance Research Study, investors receive a “double dividend” in the form of a better rate of return with lower risk. The study found that companies that incorporate ESG standards prove to be more conscientious, less risky and therefore more likely to succeed in the long run. Socially responsible investors use ESG screens as a tool to confirm that investments are in compliance with local laws, as well as committed to sustainable and ethical business practices.

Firms like Blackrock and Vanguard have not only incorporated ESG into their compliance and legal risk-mitigation strategies, but also into their investment strategies. Traditional investments like public equity, however, are not the only investments being screened with ESG factor. Investors in alternatives, and alternatives fund managers, are likewise using the ESG framework for assessing risk in the investment decision-making process.

The board of Wellington Management, an investment management firm based in Boston, explained their motivation for using ESG, “ ESG integration is simple: to increase financial returns while upholding the fiduciary duty to incorporate any known risks into the investment process.”

ESG standards provide another level of due diligence, which is in the best interest of shareholders. When the UN launched UNPRI in 2006 and watchdogs like Bloomberg and MSCI started tracking ESG, it became abundantly clear that this was not a short lived fad.

ESG weeds out unsustainable companies with outdated practices and harmful side effects, while also minimizing risk for investors as they invest in more responsible companies with a greater likelihood of succeeding in the long run.

 

Millennials and Impact Investing Go Hand in Hand

Posted on by MBC Strategic

The Millennial generation is set to receive the reins as the US undertakes the greatest generation-to-generation wealth transfer to date. The Millennial generation? those born between the early 1980s and the early 2000s? has a different take on the primary role of business compared to previous generations. As presented in the WEF report From the Margins to the Mainstream, “in a recent study of 5,000 Millennials across 18 countries, respondents ranked ‘to improve society’ as the number one priority of business [36% of survey respondents]. This does not imply that the next generation of investors will not seek market returns [35% of survey respondents]. However, the emerging generation of investors is likely to seek achievement of social objectives in addition to financial returns.”

The Millennial generation also has a larger propensity to donate time, money and work than previous generations. Here are some figures from the Millennial Impact Report conducted by Achieve:

  • 52% of Millennials would be interested in monthly giving.
  • 72% of Millennials are interested in participating in a nonprofit young professional group.
  • 83% of Millennial respondents made a financial gift to an organization in 2012.

The research is clear: Millennials are generous but also very conscientious of whom and where their money is going. Millennials are understandably skeptical of the investments they make. In “Leading Generation Y,” Lieutenant Colonel Jill M. Newman of the United States Army argues, “The [Millennials] have witnessed more scamming, cheating lying and exploiting than ever before from major figures especially in finance in recent years.” The skeptical nature of this generation requires greater transparency on the part of financial sector organizations to attract this demographic.

The Deloitte report Catalysts for Change states that the 75 million Millennials are positioned to become the wealthiest generation ever, surpassing the 80 million Baby Boomers. “From the Margins to the Mainstreams” projects “over the next 40 years, an estimated US$ 41 trillion will be transferred” from Baby Boomers to their heirs, resulting in a powerful Millennial generation. The Millennials’ beliefs and values will be the drivers behind the world’s political, social, environmental and economic changes.

Impact Investing is turning out to be an appealing investment approach for Millennials due to its differing outcomes and operations than those of traditional investing. Impact Investing provides a new way of tackling the world’s most pressing issues while still providing an acceptable financial return. It also enables investors to place their money according to their values without having to forgo financial opportunities. While impact investments may currently represent a small portion of many adults’ portfolios, JP Morgan forecasts a drastic increase in these types of investments as money changes hands on a generational scale. They estimate that impact investing may expand from about $9 billion today to $1 trillion by 2020.

Many companies have sought out to democratize impact investing, in anticipation of the growing popularity. No longer are accredited investors the only investors offered a slice of the impact investing pie. With the introduction of new retail offerings, non-accredited investors, like many Millennials, have been given the opportunity to invest in corporations and businesses that share their values through impact investing.

This generous, yet monetarily wise generation will find ways to advocate for social and environmental missions, while still maintaining financial responsibility. Of course it’s only speculation, but it would seem that impact investing is an investment approach that is in line with Millennials. Demand creates supply. With this evidence the future for impact investing looks promising. Impact investing and Millennials go hand in hand.

TriLinc’s Joan Trant Shared ESG Practices at ANDE SGB Orientation Training

Posted on by MBC Strategic

Joan Trant, Managing Partner at TriLinc Global, LLC, led a session during the Aspen Network of Development Entrepreneurs (ANDE) Orientation Training event which took place on June 13, 2017 in New York City. Joan is a member of TriLinc’s Executive Management team, serves on the company’s Investment Committee and Sustainability and Impact Committee, and is a thought leader, keynote speaker, and long-time practitioner in the impact investing industry. TriLinc Global is an impact fund sponsor whose mission is to demonstrate the role that the capital markets can play in helping solve some of the world’s pressing economic, social and environmental challenges, and it has developed a robust methodology for measuring the social, environmental, and financial performance of portfolio companies in the funds it sponsors.

ANDE’s annual Orientation provides an overview of and an introduction to investing in the small and growing business (SGB) sector to new hires in ANDE member organizations, as well as others joining the industry. TriLinc is committed to helping develop talent for the impact investing industry, and believes that collaboration with associations, academia, and peers is vital for developing talent in this rapidly developing sector. Joan’s session walked the group through TriLinc’s environmental, social, and governance (ESG) and impact evaluation process, coupled with a case study review. Specifically, Joan presented TriLinc’s approach in evaluating potential investments, beginning with its Initial Sustainability and Impact Review (ISIR) of prospective portfolio companies. Conducted simultaneously with financial analysis, the ISIR takes into account the country, industry, and company factors relating to the project under due diligence. In an ISIR, TriLinc identifies pros and cons for the project vis-à-vis the socioeconomic context of the country/region where the company is operating, and the risks and opportunities from an ESG stance. TriLinc identifies the organizations that act as watchdogs and standard setters for the industry being evaluated, and then assesses the company and its proposed business project to ensure that it meets TriLinc’s ESG as well as its financial criteria. In addition, portfolio companies in TriLinc sponsored funds must self-identify an impact metric, and TriLinc gathers baseline data and reports on the metric as well.

For the ANDE case study, session participants prepared their own analysis of ESG and impact data for a potential portfolio company, identifying the top social and environmental issues, positive and negative, that they believe the proposed project raises and/or addresses, alongside any additional information required to complete their ESG and Impact due diligence. Additionally, the participants determined what supporting materials/research they would want to review, permits/assessments they would request from the company, and any other inputs they would seek in order to obtain more clarity to fully assess the company’s ESG/impact policies, activities, opportunities, and risks. The session’s final exercise was to present findings and determine whether, based on the information provided, the participants would approve or decline financing.

ANDE was officially launched in March 2009. ANDE is a non-profit, member-driven global network of organizations that invest money and expertise to propel entrepreneurship in emerging markets. ANDE’s headquarters are in Washington D.C., and with additional full-time regional coordinators based in Brazil, Central America and Mexico, East Africa, India, and South Africa. ANDE members are located in over 150 countries around the world, with additional member-led chapters in West Africa and East and Southeast Asia.

TriLinc has been a member of ANDE since 2010 and has backed in the organization’s efforts to produce metrics which measure impact in social and environmental terms by participating in working groups, supporting research efforts, and helping disseminate findings (for example, visit our blog post, Measuring the “Impact” in Impact Investing, for commentary on ANDE’s “State of Measurement: Practice in the SGB Sector”).

Today’s session was a compelling example of how ANDE seeks to foster the growth and sustainability of SGBs across the globe – and how TriLinc and other members contribute to this effort.  As Danielle Riley from Roots and Wings noted, “The ANDE training was really educational. TriLinc’s session was especially helpful because it began with the big picture of socioeconomic and environmental challenges and investment opportunities, and then it brought the discussion to how we can address them through investments on the ground that target both returns and impact.”

To learn more about ANDE, visit their website here; to view their upcoming events, click here.

Unleashing the power of endowments: The next great challenge for philanthropy

Posted on by MBC Strategic

For the better part of two decades, the world of philanthropy has been engaged in an important, sometimes contested, conversation about “impact”—both how we measure it and how we deliver it. More recently, this discussion—in the Ford Foundation’s halls and throughout our sector—has focused on how to create impact through the capital market, specifically through impact investing.

Click here to continue reading on the Ford Foundation website.

Increased Investment as well as Diversification across Impact Themes

Posted on by MBC Strategic

As we start off the New Year, TriLinc Global will be discussing notable trends from 2015 that we see as relevant to the development and growth of the impact investing sector in 2016 and beyond. This is the final post in a four-part series.

In line with better ESG scoring and standardization, research on asset allocation in impact investing highlights a trend among asset owners and investment managers to both increase the investment volume and broaden the thematic focus of their portfolios. In Eyes on the Horizon: The Impact Investor Survey, co-produced in 2015 by JPMorgan Chase and the Global Impact Investing Network, 67 percent of survey participants indicated that they expected to increase their allocations to impact investments in 2015, totaling $12.2 billion in collective assets. Similarly, respondents projected an increase in sector diversification in their portfolio across the 13 sectors identified for impact investment. In terms of key sector projections, 26 percent of institutional investor survey participants said they expected to increase their exposure to energy, food and agriculture, while roughly 24 percent of respondents planned to increase their investments in healthcare and education. This projected asset allocation shift parallels a reduction in the growth rate of the microfinance and housing sectors, an indication that as the impact investing industry continues to mature, investors have more options and are expanding beyond the impact sectors that were the first to offer market-based investment opportunities.

Further research supports the view that impact fund managers are diversifying impact themes across their portfolios. An analysis of data from ImpactAssets’ IA 50, an annual directory of 50 impact investment funds, shows that in 2011, 13 fund managers were solely focused on providing funding to microfinance and financial services, decreasing to only one fund manager exclusively targeting this sector in 2015. On average, in 2015 fund managers had 3.5 different investment focuses, a 60 percent increase from 2011.

In summarizing key impact investing trends and their implications for 2016 and beyond, we believe that an enabling regulatory environment, more investment product choices and better ESG and impact integration are well-aligned to support the sector’s growth. We expect that these factors will incent foundations, pension funds and retail investors to make increasing allocations to impact.  Furthermore, we believe that asset owners and investment managers, with the support of industry thought leaders and ESG service providers, will continue to refine ESG and impact measurement, monitoring and reporting given the increasing body of evidence that these practices contribute to improved investment performance.

We also note that many challenges to mainstreaming impact investing remain, and that overcoming them will require a concerted effort of industry leaders, associations and practitioners. On our own and in collaboration, we must continue creating scalable investment products, working toward uniform ESG integration methodologies, generating risk-adjusted returns, improving liquidity/exits, and educating financial advisors on the market-based, non-concessionary nature of impact investing. TriLinc is committed to its leadership role in helping build a robust, transparent and effective impact industry so that investors can achieve their goals for competitive returns and a better future for our world.

– This post is the final in the four-part series, “Impact Investing: What’s to Come in 2016,” written by Melissa Tickle, TriLinc Global Impact & ESG Analyst.

The Increasing Demand for ESG Scoring and the Benefits of Standardization

Posted on by MBC Strategic

As we start off the New Year, TriLinc Global will be discussing notable trends from 2015 that we see as relevant to the development and growth of the impact investing sector in 2016 and beyond. This is the third post in a four-part series.

Coinciding with the rise of entrants in the impact investing space is a similarly mounting demand for increased rigor and standardization around ESG reporting. According to US SIF Foundation’s biennial survey, “Unlocking ESG Integration,” the inclusion of ESG factors into portfolio management grew at a rapid pace between 2012 and 2014, reaching almost $5 trillion in US-domiciled assets. However, a key challenge for asset owners and investment managers has been the lack of an effective, uniform and all-inclusive way to measure ESG factors and impact goals.

Ernst & Young’s 2015 global survey, “Tomorrow’s Investment Rules 2.0,” reported that although 71 percent of institutional investor respondents considered integrated reports – which include both financial and ESG information – essential to making investment decisions, over 25 percent said that nonfinancial information had not affected their investment decisions over the past year.  The reason for this was primarily due to the difficulty of verifying and comparing ESG and impact data across firms.

In response, industry players are making strides to develop ESG assessment tools and services, so that investors can use ESG data to more effectively drive investment decisions and portfolio monitoring practices. As of 2014, Bloomberg, one of the largest information gathering and dissemination models in the investment management industry, had gathered and reported ESG data to 17,000 ESG data service subscribers on over 11,000 companies spanning 65 countries.  By adding “non-financial” ESG data to its product offering, Bloomberg has been an active change agent in the sector.

Another new player in the field is Morningstar, which is partnering with Sustainalytics to bring ESG scoring into the mainstream by assigning ratings to global mutual and exchange-traded funds (ETFs).  Resulting from heightened investor demand for more transparent information about ESG practices, Morningstar will test how companies and investment managers effectively gather, report and incorporate ESG information into the analysis and risk profile of their investments.  The new Morningstar ESG ratings will guide institutional firms that create and manage mutual funds and ETFs for the retail market, and will empower “main street” investors to make investment decisions that are both value-based and values-based.

Another industry partnership seeks to offer institutional investors insights into ESG risks, including those not reported through public companies’ mandatory public disclosures. In September 2015, Institutional Shareholder Services (ISS), which provides corporate governance and proxy voting services, began offering its clients ESG screening, analysis and stewardship tools using analytics and metrics provided by RepRisk.  This partnership helps ISS clients – asset owners, investment managers, hedge funds, broker-dealers and custodian banks – manage compliance, reputational and investment risks related to their portfolio companies’ ESG activities.

The burgeoning development of analytical frameworks underscores the demand for the integration of ESG variables into investment management practices.  However, the industry has not yet established a universally accepted approach to ESG methodology, measurement, benchmarking and reporting, as it has for other investment performance metrics.  A growing but still nascent trend, ESG integration will achieve mainstream proportions as sector players assess the various options and coalesce around broadly accepted approaches. Such standardization is crucial to better investment decision-making practices, and will lead to improved risk management and an enhanced understanding of ESG across a portfolio’s performance.

– This post is the third in the four-part series, “Impact Investing: What’s to Come in 2016,” written by Melissa Tickle, TriLinc Global Impact & ESG Analyst.

Retail Investors: Rising Interest and Opportunity in Impact Investing

Posted on by MBC Strategic

As we start off the New Year, TriLinc Global will be discussing notable trends from 2015 that we see as relevant to the development and growth of the impact investing sector in 2016 and beyond. This is the second post in a four-part series.

As TriLinc looks toward 2016, it is clear that the evolving regulatory landscape is creating a more enabling environment for a myriad of investors to align their capital with their values in pursuit of economic, environmental and social goals.

This environment has facilitated the expansion of impact products available in the market – from social impact bonds, to mutual funds and exchange-traded funds – and has transcended traditional product offerings to more closely meet investors’ specific ESG and impact interests. Until recently, however, few products were specially tailored to retail investors, compared to institutional and high net worth investors. With the arrival of retail, market-rate impact products in the past few years, retail investors at last are receiving due recognition as essential participants in the impact investment space.

Recent studies validate the retail channel’s importance to the sector. A report by the Global Impact Investing Network (GIIN) dated April 2015, “ImpactBase Snapshot: An Analysis of 300+ Impact Investing Funds,” found that 17 percent of market-rate impact funds targeted retail investors. Given the relative size of the retail investing market – roughly 91 million investors according to BNY Mellon – the retail channel represents a significant market opportunity for the impact investing community.

Financial advisors are in agreement. A recent survey by SRI examining financial professionals’ views on impact investing found that over half of surveyed financial advisors either currently offer, or have offered, SRI and/or ESG investment strategies to their retail clients. Perhaps even more revealing is that 73 percent said impact investing would become a “somewhat bigger” or “much bigger” part of their practice over the next five years.

This is in large part because retail investors are driving the demand for impact and ESG products across their portfolio allocations. A study conducted by Morgan Stanley showed that 71 percent of individual investors are interested in sustainable investing.  According to SRI, 58 percent of advisors claimed the foremost reason they offered impact investing to their clients was in response to demand. Millennials, women, and college-educated investors were among the top three investor profiles requesting impact strategies from their advisors, followed by high net worth individuals, baby boomers and senior investors.

With demand for impact investing in the retail space being driven from the bottom up, the development of tailored impact product offerings for retail investors will continue to be of vital importance. As retail investors continue to increase their knowledge and appetite for impact, and gain access to more market-based investment options, they will exponentially increase the flow of capital dedicated to solving challenges facing our society.

– This post is the second in the four-part series, “Impact Investing: What’s to Come in 2016,” written by Melissa Tickle, TriLinc Global Impact & ESG Analyst.

More Impact Investors Are Going "All In"

Posted on by MBC Strategic

If you want to keep up with the latest buzzwords in impact investing, here’s an important one starting to hit its stride:  “all in.”  It means placing your whole portfolio into assets with a positive social and/or environmental impact. Putting your money–all of it–where your mouth is.

Recently technology executive, entrepreneur and investor Charly  Kleissner started a network of  super high net worth individuals  aiming to do just that, called the 100%IMPACT Network.

For Kleissner and his wife Lisa—she is president of the KL Felicitas Foundation, a 14-year-old family foundation based in San Francisco supporting social entrepreneurs the two formed—it started back around 2004 when they  began  to get serious about completely aligning all their investments with their values. It was easier said than done. “There weren’t that many products in different asset classes,” says Kleissner. That led to the founding of Toniic, a global group of impact investors  aggregating  their capital and investing in early stage social enterprises. Then more recently they got the idea to start a network for compatriots who were similarly interested in going all in.

They wouldn’t pool their investments, but they would compare investments, results, and, perhaps most important, impact measurements. Also they would serve as a model for other investors. According to Kleissner, there are now 35 participants with $3 million to $650 million in assets and a total of $3.5 billion in commitments.  That includes 25 family offices and about six foundations. Over the next three years, Kleissner says he’s hoping to prove that the bigger the portfolio, the better the return. So a triple digit portfolio could have triple digit profits, and so on. Further, Kleissner says that there are at least 10 million Americans with $1 million or more in investable assets–“if we show over the next couple of years you can build million dollar portfolios that are all in–it could release a movement.”

Click here to read more.

Majority of HNWIs Rate Social Impact Investing as ‘Extremely Important’

Posted on by MBC Strategic

More than 60% of global high net worth individuals (HNWIs) see driving social impact with their investments as “extremely or very important”, with Asian HNWIs valuing it higher than any other region in the world. According to research by RBC Wealth Management, HNWIs in India put the highest emphasis on social impact in the Asia-Pacific region, with over 90% citing it as a key concern, followed closely by China and Indonesia at 89% and Hong Kong at 82%. RBC said its research also showed that HNWIs want more support from their wealth managers in achieving their social impact goals, suggesting socially responsible investing, impact investing and donations as potential solutions. In addition, wealth management firms that invest time in understanding the importance clients place on driving social impact, and work to identify “appropriate mechanisms” to fulfil these goals, have a better chance at creating “deeper” HNWI relationships over time. Age is also a huge factor in socially responsible investment, with three quarters of HNWIs aged under 40 citing it as an important factor compared with just 45% of those over 60, siting that the most popular way they invest in such global causes is by making investment choices with a “clearly defined objective to create positive social impact.”

Click here to read more.