All Things Impact.

exploring how we finance social good

2016.3: sunshine laws for foundations, uncorrelated conservation finance, meta-analysis case for ESG, map of the world, and an impact investing job posting

Brian WalshComment

Hi friends,

Welcome to All Things Impact, a newsletter of interesting things I've seen from across the spectrum of impact: effective philanthropy, impact investing (in the private markets), responsible investing (in the public markets) and a wildcard topic. 

Here are four links worth your time (plus a job announcement!):

1. Effective Philanthropy: should foundations be subject to sunshine laws?
In Nonprofit Chronicles, Marc Gunther asks "How open are foundations? And, as tax-exempt institutions, operating with little oversight, should they be subject to their own sunshine laws?" Marc notes that transparency can mean different things to different people: "Transparency is an amorphous term. It could refer to strategies, lists of grants, contact information for program officers, blog posts explaining how and why foundations do their work, memos, internal emails, etc."

Marc writes: 

"...it’s easy to envision a legislative demand for transparency coming from a coalition of the left (which has become increasingly suspicious of big foundations and the wealthy, as the reaction to Chan-Zuckerberg made clear) and the right (which worries that foundations foment social change). Tax benefits to foundations, nonprofits and donors cost the U.S. Treasury about $100 billion a year in foregone revenue, congressional researchers have estimated. Citizens arguably have a right to know more about how that money is being spent.
...The absence of transparency is a problem for reasons that should be obvious. It erodes trust. It gets in the way of learning. It makes collaboration harder. It’s an obstacle for the nonprofits that foundations rely upon to carry out their work."

Marc then quotes from a 2015 Grantmakers for Effective Organizations (GEO) report:

"It is clear that grantmakers still view evaluation as something they do internally…A majority of grantmakers are struggling to make evaluation and learning meaningful to anyone outside their organizations.
When we stay in our offices and boardrooms and try to learn in isolation, we miss out on crucial information and perspectives of others, including the expertise of those closest to the issues. And when we hold onto the knowledge we gain through our learning activities instead of sharing it with the outside world, we deprive grantees, fellow grantmakers, community members and other partners of information that could be useful as everyone works to get better results on the issues we all care about."

(Disclosure: Marc writes in this piece about the Fund for Shared Insight, of which Liquidnet is a member.)

2. Impact Investing: Does conservation finance offer investment returns non-correlated to the stock market?
The start to 2016 has seen stock market declines due to everthing from concerns about Chinese economic growth to the declining price of oil. Could impact investing offer an alternative approach? David Bank writes in ImpactAlpha about a new report from Credit Suisse and McKinsey & Co. on the growth in conservation finance, predicting "private investment opportunity for conservation finance products of $200 billion to $400 billion over the next five years. That’s a huge ramp from today’s annual private investment of $10 billion or so." Why the growth? "Because natural resources, such as forests or fresh water, are generally independent from macroeconomic factors, the reports suggests, conservation assets are a way to diversify from stocks and bonds."

“In the current environment, investors are looking for an edge to drive excess returns – and many investors are increasingly seeing conservation impact investing as a way to achieve substantial environmental and social impact alongside market-rate financial returns,” Credit Suisse’s CEO, Tidjane Thiam, writes in the introduction to the report.
Last year’s flat market performance, combined with the new year’s stock swoon has only accelerated the search for low-risk, diversified assets. “For institutional investors, the risk-return profile of a product outweighs any other characteristics,” according to the report. “Low correlation with other asset classes helps ensure a diversification effect. The conservation impact of a product is generally of little importance.”

(Disclosure: Liquidnet is an investor in ImpactAlpha through the Liquidnet Impact Fund, a donor advised fund at ImpactAssets.)

3. Responsible Investing: Do environmental, social and governance (ESG) criteria affect corporate financial performance (CFP)? Yes.
Since the early 1970s, around 2,250 academic studies have been published on the link between ESG and CFP - 70% of which have been published during the last 15 years. This fact alone highlights the growing interest and assets under management (AUM) being deployed through an ESG lens. This December 2015 report from Deutsche Asset & Wealth Management and the University of Hamburg - considered " the most extensive review of academic literature as it relates to ESG and CFP ever undertaken" - reveals that only 10% of the studies display a negative ESG-CFP relationship; 62.6% in meta-studies yield positive findings. That is overwhelming. 

As the analysis makes clear: "the business case for ESG investing is empirically well founded such that investing in ESG pays off financially and appears stable over time."

The report goes on to conclude:

"The materiality of sustainability is undisputed. However, the challenge is to integrate environmental, social and governance criteria into the investment process to harvest the full potential of value-enhancing ESG factors...
ESG opportunities exist in many areas of the market. In particular this holds true for North America and Emerging Markets and also in nonequity classes such as bonds and real estate. The orientation toward long-term responsible investing should therefore be important for all kinds of investors in order to fulfill their fiduciary duties and better align investors’ interests with the broader objectives of society."

4. Wild Card: A Map of the World Based on Market Size
BusinessInsider points to this map (from a larger fascinating report from Bank of America Merrill Lynch) that shows the countries of the world scaled to the size of their stock markets:

"The US, with a market cap of $19.8 trillion, is the biggest and represents 52% of the world's market cap. Japan is in second place at $3 trillion, followed by the UK at $2.7 trillion, and then France at $1.3 trillion.
Notably, Hong Kong's market cap is nearly the same size of China (both of which are significantly smaller than countries like the US and Japan). 
Meanwhile, Russia, which has a bigger surface area than Pluto, is about the same size as Finland in terms of market cap."

5. Job Announcement: I'm hiring an Impact Investing Research Fellow.
This is a paid position and I'm looking for a dynamic grad student who can work with me in NYC 12-20 hours a week this semester (and possibly full time this summer). Here's the posting; please share with anyone great! (Candidates can send a cover email and resume to forgood@liquidnet.com.)

That’s it for this week. Help me spread the word about #Allthingsimpact to your friends and colleagues. People can sign up to receive this newsletter at All Things Impact. Please also send me any compelling links you discover in your own journeys across the web (even things like this dog overtaking a man's sled for his own use). 

Until next time, thanks for reading!
Brian