Let’s Make an Impact Investing Deal Monday, October 16, 2017 Monday, October 16, 2017 9:30 a.m. 9:30 a.m. – 11:45 a.m. 11:45 a.m. exp exponentphilanthrop ntphilanthropy.org y.org 1 #exponent17 #exponent17
Overview exp exponentphilanthrop ntphilanthropy.org y.org 2 #exponent17 #exponent17
Impacting the Headlines “Philanthropy’s New Tools for Innovation and Impact” —Susan Desmond-Hellmann, Stanford SOCIAL INNOVATION Review “Why Measuring Social Impact Matters to Investors” —Josh Cohen, Entrepreneur.com “5 Ways to Boost Impact Investing in Family Offices” —Bernice Napach, ThinkAdvisor.com “Making a case for impact investing” —James Lumberg, InvestmentNews “Impact Investing: What Will It Take to Get to Scale?” —Fran Seegull, Conscious Company “Impact Investors Plan to Deploy $17.7 bil. in 2016” —Chris Cumming, The Wall Street Journal | Responsible Investment at AB 3
Impact Assets Continue to Grow Global ESG AUM $22,890 bil. 101% increase in AUM globally, Canada $1,086 bil. from 2012–2016 Europe $12,040 bil. Japan $474 bil. 91% of the market AUM is in Asia $52 bil Europe and the US US Aus/NZ $8.723 bil. Japan and Australia/New Zealand $516 bil. had largest regional growth Africa* Exclusions and integration dominate Growth of Strategies 2014–2016 Source: Global Sustainable Investment Review 2014 *New data not available for 2014, and excluded from report | Responsible Investment at AB 4
Responsible Investing Spectrum Investors Have a Range of Options Traditional ESG Screening Sustainability Impact Philanthropy Investing Integration Absence of ESG Risk ESG Maximum-Impact ESG Management Opportunities Strategies Explicit Emphasis on Some inclusion of Emphasis on Social and/or profit consideration ESG risks and Investment in social or environmental of ESG risk opportunities companies environmental needs and/or into linked to needs, often outweigh any Generally, personal traditional long term results in consideration ESG factors values to financial sustainable financial for financial are not screen out analysis and themes tradeoffs return considered investments. investment decisions Source: Impact Engine, The Forum for Sustainable and Responsible Investment (USSIF) | Responsible Investment at AB 5
Making an Impact While Driving Your Mission Setting Goals DEFINE What kind of impact do you want to make? What specific issues align with your organization’s mission? ASSESS Risk/Return assessment and trade-offs Direct / Indirect IMPLEMENT Identify investment opportunities Ongoing reporting and measurement Source: AB; and Essentials of Impact Investing, Produced by Arabella Advisors, Exponent Philanthropy, Mission Investors Exchange. | Responsible Investment at AB 6
Direct Investing exp exponentphilanthrop ntphilanthropy.org y.org 7 #exponent17 #exponent17
Early-Stage Impact Investments Boston Heart Diagnostics • Saving lives through cardiovascular disease and diabetes prevention • Empowerment of women entrepreneurs • Quality job creation Impact Investing Happens Here 8
Early-Stage Impact Investments Wash Cycle Laundry • Carbon emissions reduction • Meaningful employment and upward mobility for the formerly incarcerated and other vulnerable populations Impact Investing Happens Here 9
Traditional Venture Investment Portfolio Theory The Rule of 10’s Aim for 10x return Alternative assets Diversify in 10+ on each deal, expect should make up to investments 1‐2 homeruns in 5‐7 10% of assets years 10
Early-Stage Impact Investments Boston Heart Diagnostics • Traditional equity angel investment • Grew quickly and raised additional rounds led by Bain Capital • Grew from $120K to $97MM in revenue • Acquired by Eurofins for up to $200MM Impact Investing Happens Here 11
Traditional Venture Investment Portfolio Theory The business has to look like it can end up here 12
Traditional Venture Investment Portfolio Theory Average Portfolio Return = 2.3x Home Run ‐10x (1 per 10 investments) Doubles/Triples 5x (2 per 10 investments) Singles 1x (3 per 10 investments) Strike out ‐ 0x (4 per 10 investments) 13
Alternative Portfolio Strategies • Must we expect the “traditional” exit? • Can we achieve reasonable returns with less risk and/or more liquidity? • Can we better align with entrepreneurs to achieve our impact objectives? 14
Early-Stage Impact Investment Wash Cycle Laundry • Foundation member made seed-stage grant •Angel investors made equity investments to grow into second market • Foundation member made impact-driven debt investment •On track to expand to Boston Impact Investing Happens Here 15
Getting Started: Impact What is impact to you? • Inherent or intentional? • “Baked in” or “icing on the cake?” • Product/ se rvice and/or workforce/supply chain? • Innovation or accessibility? What do you care about? • Specific industry (example: education) • Specific outcome (example: more low income students enrolling in college) Impact Investing Happens Here 16
Getting Started: Investments How will you build your portfolio? • Resources to invest • Active investing (and return) timeline • Time and interest in engaging with companies What are your investment objectives? • What is your return expectation? • What type of risk are you willing to take? • What are your liquidity needs? • How do your impact goals influence your risk, return, and time to liquidity expectations? Impact Investing Happens Here 17
Getting Started: Finding Deals • Find incubators and accelerators that focus on the industries, geographies, and impact areas you care about • Attend pitch events and conferences that highlight early-stage investment opportunities • Join groups with like-minded capital providers who share investments opportunities and work together on due diligence, investment, and portfolio management Impact Investing Happens Here 18
Getting Started: Measuring Impact Work with entrepreneurs to track key metrics: • Boston Heart Diagnostics • Number of patients served • Number of diagnoses made • Wash Cycle Laundry • Amount of laundry processed • Number of jobs created and promotions given HEALTH ENVIRONMENT Lives Saved Tons ‐ CO 2 Reduced 1.5M 26,000 Impact Investing Happens Here 19
Equity & Fixed Income exp exponentphilanthrop ntphilanthropy.org y.org 20 #exponent17 #exponent17
U.N. Sustainable Development Goals A Powerful Framework for Sustainable Theme Selection The UN Sustainable Development Goals (UNSDG’s) represent an aspirational view of what the world could look like by 2030 The 17 UNSDG’s address: Economic prosperity Environmental sustainability Social inclusion 193 nations collectively created and committed to achieving the goals, signaling broad political consensus The estimated costs to achieve the UNSDG’s are massive, at roughly $6 trillion annually Business alignment with the SDG’s can enhance long-term growth potential and reduce risk We invest exclusively in themes derived from the UNSDG’s Source: United Nations Conference on Trade and Development – World Investment Report 2014 | 21 Sustainable Global Thematic
Sustainable Investment Themes Themes Are Derived from the UN Sustainable Development Goals Low Carbon Generation Medical Innovation Energy Efficiency Access to Affordable Clean Transportation Care Water Healthy Lifestyles Sanitation & Recycling Food Security Sustainable Production Physical Safety Climate Health Empowerment Exclusions* Weapons Coal, Nuclear Power Financial Inclusion Alcohol, Tobacco Gender Equality Pornography Economic Infrastructure Gambling Enabling Technologies GMO’s Conduct-Based Violations *Our portfolio holdings must fit within themes that are directly aligned with one or more UNSDG's. We believe that such alignment implicitly excludes several product categories from ownership consideration including those listed here. We also monitor companies for conduct-based violations, as generally defined by the UN Global Compact. | Responsible Investment at AB 22
Research Example: Indonesia Yuli is a 26-year- old single shopkeeper in Surabaya | Responsible Investment at AB 23
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