Impact Investing - Recap

First off, a big thank you to our panelists for coming! Elizabeth Glenshaw and Shuaib Siddiqui for sharing your insight and experience in the field. And a huge thanks to Professor Vogel for moderating the panel.

The discussion kicked off with an overview of the investing continuum. Professor Vogel discussed the segmentation of philanthropic investing – ranging from grants and program related investing to impact investing and diversified market rate investing. So what is impact investing? As described by our panelists, it’s social and environmental change through moderate finance return with measurable social impact. But we learned within impact investing itself, there’s a broad range of definitions. For example, the New Hampshire Charitable Foundation works to improve the standard of living in New Hampshire and is considered underneath the impact investing umbrella. At the same time, you can consider investing in GE stock – a firm that promotes clean tech and environmental sustainability as a level of impact investing as well.

Our panelist, Elizabeth Glenshaw, is involved with Clean Yield Asset Management, a firm that allows clients to dictate socially responsible investing. Her belief is that “social responsible investing is about reasoned returns.” Elizabeth discussed one of her client’s desires to double their assets in impact investments form 5% to 10% in the next year. The current portfolio consists of Vermont smoke and cure, organic valley farming cooperatives, Vermont natural coatings, etc. These investments might not be the most profitable, and in fact, might generate negative returns, but there’s no doubt that the firms themselves are making a social impact.

Shuaib Siddiqui, joining us from the Acumen Fund, is focused on non-profit social venture capital investments which provide critical goods and services to growing and impoverished economies. In recent years, they have focused on health, housing, renewable energy, and education efforts. The fund itself holds an expectation of getting 1 x return on their portfolio investments. As described by Shuaib, it’s “patient capital” – eventually, you will earn back your invested capital but this takes a back seat to social impact and innovation of the investments themselves. As an example, Shuaib described one of its recent projects in India – investing in a company that is able to take the “wasted” rice husks and generate energy. Acumen is one of the first base of capital for these entrepreneurial endeavors. This project has grown from 1 to 50 plants over the past few years, but the financial return is minimal compared to the social impact. But that raises the question - how do you measure the impact?

One of the key challenges facing this sector is its ability to quantify social impact. How do the clients know that your investment is benefiting others and on what scale? And how should you reward fund managers in this sector? It’s a strong believe that fund managers should be rewarded based on the overall social impact on their portfolio of investments. But the sector itself is still struggling on how to monetize social value. For example, Acumen Fund invests in a company that creates solar lanterns to replace kerosene in sub Saharan Africa. Can you measure social value from the savings from 3-5 year period that the households save on replacing kerosene with solar lanterns? Or, can you measure the decrease in air pollutants in homes and how the labor market is becoming more productive with reduced pollutants? What are the metrics to measure financial value?

Also, how do you ensure that companies you invest in will stay true to the social impact that they were originally founded on? For Clean Yield Asset Management, there are periodic audits on the company as the company holds them. For Acumen, they mitigate this risk by evaluation the values of the entrepreneurs and making sure they are aligned with Acumen funds shared values.

Great discussion and dialogue in this panel! After today’s panel, we hope many of you will consider a career in impact investing!

Debrief on the Healthcare Panel

This morning's health care panel was a huge success. It was a dynamic, engaging, and lively debate between moderator President Jim Kim and our four expert panelists - Dr. Derek Yach of PepsiCo (also the Conference's keynote speaker), Dr. Vas Narasimhan (Novartis Vaccines and Diagnostics), Dr. Jaime Bayona (Dartmouth Center for Health Care Delivery Science), and Dr. Paul Chew (Sanofi).

President Kim, known for his tremendous public speaking abilities, was especially impressive today as he arrived to host the panel after enduring a morning of last-minute oral surgery to repair a chipped tooth. He admitted right away that as a University President, he is used to delivering many speeches, but "giving a speech with a mouth full of novocaine is just about the most maacho thing we do."

Despite the dental work, President Kim was an active and highly engaged moderator, pressing the panelists on tough issues. How can big drug companies get interested in investing millions of dollars to develop new malaria and tuberculosis therapies for patient populations in developing countries when these markets are notoriously unprofitable? If companies choose to bring drugs into these markets, how can they ensure that local physicians and nurses are trained to help procure and deliver the drugs to patients? How do companies manage the complexities of these health care ecosystems, where infrastructure is poor and patients think mosquito nets that should be used to prevent transmission of malaria are better suited for fishing and clothing?

The panelists offered facsinating anecdotes from their highly diverse backgrounds. Derek Yach told the story of his recent meeting with the CEO of PepsiCo and the head of the World Health Organization (WHO), Margaret Chan. At the conclusion of the meeting, Dr. Yach showed his CEO a beloved statue that sits in front of the WHO building - a statue of a child leading a blind man. According to Dr. Yach, this statue epitomizes the mission of one of Merck's programs to eradicate river blindness around the world. Dr. Yach turned to his CEO and asked "What's our equivalent?" What strategies does PepsiCo have to tackle major public health challenges? Dr. Yach conveyed his passion for public-private partnerships and articulated the need for corporations to build new business models that allow companies to meet the health needs of customers and be profitable. "We have to focus on the 'and."

Vas Narasimham leads the vaccine division of Novartis, where "working with public health agencies is most of what we do." He described three distinct phases in the history of the vaccine industry. From the 1980s to 1990s, the industry relied upon donations, and poor nations had to wait because of severe technological deficiencies and a lack of infrastructure. The era of the 2000s was defined by new global frameworks and international organizations like UNICEF that began to enable counries to introduce vaccines at lower cost via novel "pull mechanisms." Today, in the most recent decade, economies have slowed, and markets of enormous potential such as Africa, India, and China represent the new frontier for many major companies. Access to vaccines and clinical therapies has improved enormously, but now the question is, how do we ensure equality in access?

Dr. Jaime Bayona told the fascinating story of his time in Haiti and Peru, where he worked tirelessly to build an infrastructure on the ground to deliver treatment for multi-drug-resistant tuberculosis (MDR-TB). Dr. Bayona's primary observation is that infrastructure and systems are the problem. Drugs can be developed, but how to procure and distribute the drugs, and how to ensure that patients have access continue to be major hurdles in underprivileged nations. The governments of Peru and Ecuador engaged with international aids organizations such as Partners in Health (PIH) to put MDR-TB treatments in the hands of local doctors. Dr. Bayona, as part of PIH, led national training sessions on procurement and quality control to lay the groundwork for a sustainable health care delivery system in these two countries. "It is about creating a large partnership together in a setting where everyone's input is value." Starting at the top with a cohesive training program was the most effective way of ensuring that comparable processes trickled down to the local level.

Finally, Paul Chew spoke of the R&D strategy at Sanofi of "no profit, no loss." Sanofi has developed a successful method for bringing new drugs to underprivileged markets without substantial financial loss. Manufacturing is done close to the intended source of distribution, providing a boost to the local jobs economy and giving the Sanofi team an opportunity to observe the health care market first-hand during the course of development. Creative and cost-effective solutions are devised when the company encounters resource-based hurdles. For instance, in Africa, many communities do not have scales, so Sanofi created a conversion table to distribute to local physicians to get around the inability to do weight-based dosing.

All the panelists agreed that the most significant pressure on the industry comes from financial analysts. Analysts stress the need for major profits and massive cost-cutting. Pharmaceutical companies - and in particular the R&D teams - want to fight for important projects but if these projects threaten the profitability of the company, they become difficult to justify to shareholders.

President Kim left the audience with the thought that "the plural of anecdotes is not evidence." Thus far, the pharmaceutical industry has made huge strides in improving access to clinical therapies, but we have so far to go before comprehensive systems for health care delivery are in place. Global health experts, physicians, and other researchers have many individual anecdotes, but these stories, when combined, do not yet tell a complete story of success. As business school students, we can bring to the industry a strategic mindfulness and an ability to communicate across stakeholders. Pharmaceutical companies as well as government organizations and foundations will need the fresh perspective of recent graduates, who can bridge the gaps and recognize opportunities to build new systems and business models.

Driving Change in the Energy Sector Recap!

Sorry for the late post, the cocktail reception and after party got in way of my blogging time. Anyhow, wow, that was an amazing session! Our moderator, Armond from the Clean Air Task Force provocatively kicked off the panel discussion. He challenged the panelist with the gleam outlook of the clean energy sector. He pointed out that:

• Renewable energy is growing but overall size is tiny compare to conventional sources. Why are we focusing on renewables?

• Carbon dioxide emissions continue to grow even after Kyoto Protocol. What’s wrong?

• China has built a ton of renewable generation capacity, but even more coal plants. Is that green?

• Clean energy investment dropped significantly recently. Is it still wise to invest in this industry?

• Renewable levelized cost of electricity is not competitive with conventional generations like coal, combined cycle gas or nuclear. What is the business justification for renewables?

With that stage set, the panelists discussed their views of the outlook and their short-term and long-term strategies given the industry situation.

The panelists all agreed that technology cost is definitely one of the biggest challenges in renewable energy space. But there has been significant cost reduction recently and the progress will continue to make renewable more and more competitive.

Seth Dunn from GE indicated that his firm has been investing heavily in increasing efficiencies in areas such as wind/gas turbine, solar module, production process, and construction cost. Reliable project cost will minimize development over-run and deliver immediate results to GE’s clients. Technology investments are long-term plays to make renewable more competitive. In addition, GE is also looking into innovating business models to adapt to the diverse regulatory and economic environments internationally. Lastly, given the uncertainties in terms of which market will grow the fastest (residential vs. commercial; US vs. international) and which technology (Solar: Cad-Tel, Cry-Si, or CIGS) will eventually succeed, it is important to taken a “portfolio approach” to include investments not only in renewables, but also in nuclear, oil & gas, etc.

Daniel Hullah from RockPort Capital offered a very optimistic view of the renewable / clean tech industry. He said that despite the complications and challenges in the industry, the size of energy market is gigantic and problems are huge; therefore, it creates opportunities. But he is less optimistic about renewables being the resolution for climate change, mainly because renewables are only a small fraction of the overall pie and likely to continue to stay in the same order of magnitude in near-future.

Given the nature of a VC, RockPort is looking at shorter investment-return time horizon. With that said, RockPort understands the implication of the industry subsidies very well and seeks to invest in firms that can be successful even if stand-alone. RockPort is also cognizant of the industry’s cyclical nature and make investment accordingly – not only in renewable generation (supply), but also innovations in agriculture, water, material science, transportation, demand-side management (efficiency), and oil & gas. Lastly, VC’s look for disruptive innovations that can shift the cost curve downward. There are plenty of pockets of area where solar can provide very competitive if not cheaper electricity than conventional sources.

Sienna Rogers from PG&E indicated that regulations play a significant role in California, where PG&E operates. The 33% renewable portfolio standard (RPS) by 2020 poises a tremendous challenge. Given the price of natural gas in the near-future, combined cycle plant seems to be the natural fit to replace coal generation as they go offline. But, PG&E is constantly seeking to procure renewable generation that can be competitive. Currently, many purchasers’ decisions of renewables procurement are mandated by regulation, renewables needs to become competitive on its own in order to incentivize organic growth.

Overall, the panelists and Armond, agreed that energy R&D investment is significantly lower than other industries. Not only additional R&D investment is needed, transfer of knowledge from healthcare, aviation, material science is also needed to enhance innovation. They also agreed that current regulations for this industry are mainly set at the state-level –a coordinated decision making effort is needed at the national level to guide US towards the right direction. Furthermore, energy efficiency needs to be re-examined and perhaps be looked at as a "source” of energy.

Lastly, career advices! The panelists and moderator advised that we should follow our passion! Paraphrasing a few things they said:

• Don’t just focus on pure-play companies. A lot of companies are just dipping their toes in the water right now and may go into renewables in the future – Seth from GE

• Do entrepreneurial things, whether it is in a small company or a big company. Make friends with engineers – Daniel from RockPort

• This is an industry that takes a long-term approach to tackle complex, challenging problems. It is a balance of innovation and affordability. Join a utility if you want a stable career! – Sienna from PG&E

• Work in the private sector first before joining a NGO or government. You need to build technical understanding and know the economic realities – Armond from CATF

Alright, that’s enough writing. Thanks for coming!

-The Energy Panel Organizers

The Time Value of Trading Off: Derek Yach's Opening Keynote

Dr. Derek Yach, SVP of Global Health and Agriculture Policy at PepsiCo, gave a riveting keynote address to open up the conference. A key question he asked was “How do we trade off today’s tangible pleasures and profits against tomorrow’s possibly greater but uncertain rewards?” How do we weigh 15 more minutes in our warm bed against the potential health benefits from a crisp jog in February? Maybe it’s all the discounting analyses we’ve been doing in Corporate Finance, but I’ve been thinking a lot lately about the social psychology of time and the opposition companies and individuals and governments face when they make decisions that leads to a little pain right now in exchange for uncertain outcomes in the future. Dr. Yach pointed out that the
real challenge lies in not allowing the urgent to crowd out the important. Culprits include today’s digital information overload, increasing pressures for constant growth, and a lack of executive accountability thanks to short tenures. Dr. Yach was able to draw a lot of provocative analogies from his experience in public health: how do hospitals and our healthcare system, with limited
financial resources, weigh the value of today’s “curative load” with preventative health measures? How does a clinic team in Africa weigh the treatment of one car wreck victim with vaccinating a village of children? These translate so clearly into climate change – how do we, as individuals, forego the convenience of bottled water and plastic bags when we have no idea what benefit will come to us from carrying a Sigg or reusable bags around? As an executive, how do you make the choice to take a hit on this quarter’s profit – on which your compensation depends – when it is unclear that your efforts to reduce your company’s carbon footprint will make an impact?

The Holy Grail, if you will, is to be innovative and find the solutions that allow you to increase profits now while having a positive social or environmental impact that allows those profits to remain sustainable. PepsiCo’s “Performance with Purpose” seeks to do just that. In Ethiopia, PepsiCo works with local chickpea farmers to improve their yield and productivity of their land. The increased chickpea yield goes toward ready-to-use local food supplements that is used nourish children during food emergencies, and Sabra brand hummus! Just think – when you snack on Sabra from Byrne, you’re eating chickpeas that are from the same farms as those that feed hungry children all the way across the world in Africa. PepsiCo benefits from a steady agricultural source for their products while the community benefits from improved farming and childhood nutrition … and of course I, the consumer, benefit from delicious, delicious Sabra.

There will be instances, however, when we aren’t always able to attain that Shangri-La of the triple bottom line, and tradeoffs will be necessary. I believe our experience at Tuck empowers us to make conscious, responsible decisions in these circumstances. At Tuck we are well accustomed to trading off present pleasures in exchange for the potential for greater future rewards. Just think of all the time you spend on corporate recruiting – unsure of whether you’ll land that job at Goldman or McKinsey – when there’s always a birthday to be celebrated at Murphy’s, or a goal to be scored in hockey. Remember in your future corporate life that there is value in foregoing quick, easy profits in exchange for the good it may do for your world, or your childrens’ world, or even your childrens’ childrens’ world and always keep an eye out for the idea that doesn’t force you to make that tradeoff.

Sarah Stern T'13

The BSC Begins!

Welcome to the 10th annual Business and Society Conference at Tuck!

First things first: many, many thanks to our fearless co-chairs Rosanne Palatucci and Brian Meyers – none of this would have been possible without them!

A key focus of Dean Danos’s welcoming address was the tradeoffs businesses are facing given the global economic crisis. Although he optimistically sees crises as drivers of important change in industry, he recognizes that the tradeoffs that business are facing in light of the global economic crisis are real. Now more than ever, however, businesses have a duty to take this opportunity to grow and build and incorporate social and environmental considerations into their core activities. He closed by noting that a great business school has to be responsive to great movements in business: CSR and sustainability will become just as important a topic as other sources of change – such as the information technological revolution and globalization. I hope you’re all as excited as I am to be a part of this movement at Tuck, and to bring lasting change into your future careers!

Sarah Stern T'13

Design Thinking Workshop Update!

I’ve had the pleasure of spending the last few months working with a bright and energetic group of Tuckies to organize the Business and Society Conference and, more specifically, the Design Thinking workshop.

I was asked to join the team based partly on my undergrad experience in Industrial Engineering and Design and, as the meetings began and I learned more, I realized two things: How interesting this concept of Design Thinking is and how little my prior experience was applicable.
As an aspiring management/strategy consultant, I was pleased to see how prevalent Design Thinking was in the consulting world, from companies like IDEO and Innosight up to and including "The Big Three".

For those interviewing for or entering consulting, this will be a great workshop and should be immediately applicable. Clients are now expecting (if not demanding) that these concepts be present in final recommendations. It will also be really fun. This year’s workshop features a
case that Merritt Patridge* (Townsend) and I wrote about the Upper Valley Haven. Andrew Waldeck, a partner at Innosight, will be facilitating the case along with some of our wonderful Tuck professors (including our back-flipping classmate’s favorite), Renee Weeks from the UVH and two students from Dartmouth’s Design for America team. It was a really cool experience to help write a case from scratch as opposed to reading one and hoping not to get cold called.

Anyway, come enjoy free breakfast and lunch and experience a really cool workshop that should pay dividends no matter what you will be doing this summer or fall (unless you are sponsored and will be working at the Bridge Program - then you should just come for the free food).

Matt Zepernick T’13

*When I say “Merritt and I” I mean Merritt did almost everything. Thanks Merritt! She worked incredibly hard and did a fantastic job on this case. If you enjoy it, please thank her as well.

Investing with Impact Update!

Whether you call it ‘profit with purpose’ or ‘happy
returns’, impact investing has received quite some press recently as an
emerging new asset class. J.P.Morgan in late 2010 published a report in which
the firm was very bullish about impact investing, predicting that by 2020
between $400 billion and $1 trillion would be invested this way. But what
really is impact investing? As The Economist put it in a recent article: “Five
years ago anyone wanting explicitly to combine financial returns with virtue
was limited to investing in social housing for poorer people in rich countries,
microcredit and a handful of ethical mutual funds that shun sinful shares such
as tobacco and defense companies.” Today, not only the number, but also the
range of impact investors has grown and so has the variety of investments they
make.

Our panel will not only consider how we can define and
better understand this trend, but also address the opportunities and practical
challenges around impact investing today. Elizabeth Glenshaw, portfolio manager
and managing director of Clean Yield Asset Management, and Shuaib Siddiqui,
portfolio manager at the Acumen Fund, together with our moderator Professor
John Vogel, bring diverse experiences and perspectives to the topic. A key
challenge is how to develop better metrics to measure performance, and we will
hear first-hand examples at how firms like the Acumen Fund try to measure and
‘monetize’ social impact. And we will ask some thought-provoking questions such
as whether traditional venture capital structures and mandates need to change
for us to really start making an impact.

It’s great to see so much interest in linking investment
choices with better social and environmental outcomes, but is it really
possible to move away from the profit imperative we hear so much about at
business school? With impact investing becoming such a hot topic, this panel is
a must-attend for any Tuck student interested in finance, investing, banking or
private equity.

We look forward to seeing you on Thursday at 3:30pm in
Frantz II!

For in-depth background reading, see the 2010 J.P.Morgan
report on impact investment here.

For a quick update on recent developments, see this
Economist article here.

Submit your questions here.

Social Impact as Strategy Update! - Walmart example

What does it mean to talk about social impact “as strategy”? Social responsibility is often considered a corporate communications function, not a strategic function. Some would claim that social impact is strategic only for brands with a social image, such as Patagonia or Whole Foods. Our response is that social impact and shared value can be a critical part of strategy for any company, and I thought I’d illustrate it with an example from an infamously profit-focused, hard-nosed company: Walmart.

Not strategic: Philanthropy
Corporate social responsibility often includes philanthropy, such as Walmart giving $20K to a local Florida anti-hunger organization. These efforts have some return to Walmart in the form of improved reputation, but the fundamental goal is good community citizenship – not value creation and profit maximization.

Not strategic: Simple cost reductions
Often, when talking about social impact, people think of environmental sustainability.
Using fewer resources is of course ecologically responsible and it does improve the bottom line. For example, Walmart designed a new store prototype that uses 30% less energy, helping the planet and the bottom line at the same time. However, these types of easy wins are easily
replicable, aren’t core to Walmart’s strategy, nor do they involve the kind of hard choices that we’re trying to examine at the conference this year.

Strategic social impact and shared value:
So what counts as strategic? Porter’s framework points us at decisions that have societal benefits, but are also key to providing competitive advantage to the firm or ensuring a positive industry environment. For example, in 2009 Walmart lobbied for laws mandating employer-provided health insurance. In an environment where every retailer provides health insurance, Walmart’s employees and customers are better off (social impact), but Walmart is also better able to bear the increased cost, increasing its competitive advantage. As another example, in
2006 Walmart began a process of requiring all its seafood to be sustainably sourced, thus helping to ensure fish remain relatively abundant and thus available and affordable for its customers. In another case, Walmart worked with its vendors to recycle plastic and cardboard waste from stores into an exclusive line of pet products, thereby cutting disposal costs and creating unique, lower-cost products.

Learn about other ways companies can strategically share value at our panel at 2 PM this Thursday!
- Kaia Dekker, for the Social Impact as Strategy Panel

Driving Change in the Energy Sector Update!

Hi all!

Today I wanted to increase your awareness of the energy panel within the Business & Society Conference, titled Driving Change in the Energy Sector.

The energy community at Tuck gets bigger and bigger each year, and we are excited to see companies as PG&E, General Electric, Enernoc, Siemens, FirstWind, Eaton, O-Power or SunEdison looking for Tuckies. As a consequence, we wanted to have a panel in the conference that dealt with the latest happenings in the energy world and its perspectives.

We thought that the best way to have a real perspective of these happenings would be to bring together all the players in the industry: equipment manufacturers, investors, utilities and nonprofit. And I have to say that the caliber of the professionals that are going to be present in the conference is astonishing. Seth Dunn, the renewables policy leader at GE Energy, will provide the perspective of one of the biggest manufacturers of wind turbines and solar panels in the world. Daniel Hullah, from RockPort Capital, will provide first hand insights about investing in new technologies. Sienna Rogers, from Pacific Gas & Electricity, will bring to the table what
a large utility thinks about investing in renewables and what are the challenges they face at the time of doing so. Finally, Armond Cohen, from Clean Air Task Force, a nonprofit devoted to increase air quality , will moderate the table with the freedom needed to get insightful answers from the panel.

The panel will discuss issues as relevant as the role of distributed generation in the future of renewables, the impact of shale gas on its price competitiveness, its subsidy dependency, the role of China in its development, or what are the next technologies in the R&D pipeline.

I hope to see you all there!
Remember to register at http://tuck2012bsc.eventbrite.com/

Energy Panel

Healthcare Panel Update

I hope everyone is getting excited for the Business & Society’s Healthcare panel! Dartmouth’s
President Kim has even cleared his calendar to come moderate this panel which is full of industry experts representing a wide range of backgrounds and opinions. Panelists will include Dr. Jaime Bayona who helps run Dartmouth’s Center for Health Care Delivery Science, Dr. Paul Chew the current Chief Medical Officer at Sanofi U.S., Dr. Vas Narasimhan who was recently promoted to
run Novartis’s global vaccine development, and Dr. Derek Yach the conference’s Keynote speaker and Senior Vice President of Global Health and Agriculture Policy at PepsiCo.

What really strikes me as I look at the panelists are their in-depth experiences at different places in the health care system. Dr. Bayona fought to get medicine to multi-drug resistant tuberculosis patients in Peru while he headed up Partners in Health, Peru. At the same time, Dr. Narasimhan was busy getting Menveo, a vaccine for meningitis, approved by the FDA and into doctors’ offices. If we are going to learn anything about how to make health care equitable and how to effectively deliver care to those who need it most, this is the group to teach us!

Following the panel, there will also be an opportunity to meet more personally in small groups with many of the panelists as well as Dr. Srishti Gupta, one of McKinsey & Company’s Global Health experts. It will be a great chance to get to know some of the people who have dedicated their lives to improving health care and are making a difference every day.

Mark your calendar for 10:00AM on Friday February 10th, I am looking forward to seeing you there.