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