All Things Impact.

private capital & the public good

All Things Impact for October 7: gender gap, environmental impact bonds, glass pockets, and drifting in the direction of knowledge

Brian WalshComment

Hi friends,

Welcome to All Things Impact, a newsletter of interesting things I've seen from across the spectrum of impact: responsible investing (in the public markets),  impact investing (in the private markets), effective philanthropy, and a wildcard topic. For previous posts, to subscribe, and for more information, please visit All Things Impact.

Here are four links worth your time (plus items of note, job postings, and a calendar of upcoming events):

1. Responsible Investing: combatting the gender gap as a strategy to outperform
The “G” in “ESG Investing” stands for “governance” – a look at the people and processes put in place to provide oversight for company management, including the composition of the board of directors. Leslie Picker writes in The New York Times about Dianne McKeever, CEO of Ides Capital, which is believed to be the first “activist” hedge fund led by a woman. “Like any other hedge fund, Ides seeks to generate returns from its investments and sees diversifying small and midsize corporate boardrooms as a way to help improve stock prices. ‘Weak governance practices, including a lack of diversity, coincides frequently with poor valuations,’ Ms. McKeever said in an interview.”
The article provides helpful context for the lack of gender diversity in corporate boardrooms:

"About 60 percent of corporate boards have no female directors, according to a recent study by the Peterson Institute for International Economics, a think tank, which surveyed nearly 22,000 companies worldwide.

Some countries, like Norway and Germany, have passed laws that require a minimum percentage of women on each corporate board. In the United States, where there are no such requirements, shareholders have taken it upon themselves to change board composition. More than 250 proposals have been made since 1997, according to data compiled by Carol Marquardt, a professor at Baruch College, and Christine Wiedman, a professor at the University of Waterloo.

But the growing class of shareholder activists, many of whom promote themselves as the stalwarts of corporate governance, have a paltry record when it comes to women.

In addition to nominating fewer women as directors, they appear to disproportionately target female chief executives...

There is also an implicit bias to nominate someone who is demographically similar, said Ms. Shropshire, who has been interviewing female directors at publicly traded firms.

“Their anecdotes about determining the slate of potential board candidates reflect a hesitation among men to change the status quo of boardroom dynamics by bringing in female members, especially more than one,” she said. “Women may be more likely to pose tough questions or engage in more intensive monitoring efforts, though interestingly, I would expect those behaviors could also make them more valued and potential allies for activists themselves.”

2. Impact Investing: launch of first-ever "Environmental Impact Bond" (with payments tied to outcomes) 
"Pay for success" is a concept that has been gaining traction and attention in recent years, with the advance of "Social Impact Bonds" and "Development Impact Bonds." Now we have what is believed to be the first-ever "Environmental Impact Bond" (EIB), whereby a government utility will pay private investors if certain environmental outcomes are reached.The $25 million tax-exempt bond will fund the early stages of a green infrastructure project in Washington, DC., and is a partnership of DC Water, Goldman Sachs, and the Calvert Foundation.

From the press release:

The EIB allows DC Water to attract investment in green infrastructure through an innovative financing technique whereby the costs of installing the green infrastructure are paid for by DC Water, but the performance risk of the green infrastructure in managing stormwater runoff is shared amongst DC Water and the investors. As a result, payments on the EIB may vary based on the proven success of the environmental intervention as measured by a rigorous evaluation. By financing this project through the EIB, DC Water seeks to create a model funding mechanism that other municipalities can leverage to advance the use of green infrastructure to address stormwater management in their communities.
Mark Kim, DC Water’s Chief Financial Officer, said “This environmental impact bond represents the first time that DC Water has explicitly tied financial payments to environmental outcomes, in this case reducing stormwater runoff to improve the District’s waterways.”

3. Effective Philanthropy:  Building a Philanthropic World of Data and ‘Glass Pockets’
Foundation Center CEO Brad Smith spoke with Denver Frederick on the Business of Giving podcast about foundations, knowledge, and transparency.  Brad explains that there are approximately 88,000 foundations in the US, which manage assets surpassing $800 billion. Yet only 7% of foundations have websites, and even of the largest ones – the approximately  1,000 foundations with assets over $100 million – at least 30% do not have a website. Here are some excerpts from the interview:

“Foundations have a really important role in American history and American society. Basically, our government has created a kind of social pact in which wealthy individuals are given a tax incentive for creating a charitable foundation. They make a donation of a portion of their assets to the foundation. They no longer control those assets. They can’t take them back for personal use. They get a tax exemption in exchange for creating a stream of charitable giving in the future. ... Today there are well over 80,000 foundations…about 87,000 to 88,000. And the assets they manage–their investments–surpassed $800 Billion. And it’s the earnings on those investments which are tax-free, that are used to actually fund grants and fulfill their charitable purpose…
When it comes to knowledge and information, foundations are like black holes, and they need to become supernovas.
So what do I mean by that? The average foundation receives hundreds, if not thousands of proposals from nonprofit organizations–different kinds of social sector organizations filled with ideas about how to make the neighborhood, the community, the city, and the world a better place. Some portion of those get approved. As part of the process, the groups that get the grants provide written reports periodically– progress reports–full of information also. Then there’s also the foundation staff themselves. When you’re sitting in a foundation, let’s say you’re working on early childhood issues. On any given day, you probably talk to four or five different people who are the best in their field… who have fantastic ideas about how to solve all the issues around early childhood learning. And you accumulate all that knowledge; that knowledge is in your head; it’s in your notes; it’s on your hard drive. All these documentations areflowing in the foundations. If we weren’t philanthropy– if we were Google or we were Facebook–we would have data scientists crawling all over that stuff!
…this is a tremendous source of potential knowledge about how we can make this world a far better place. And I think the next frontier for philanthropy is going tobe managing information, and producing and sharing knowledge…

4. Wildcard topic: investing by drifting in the direction of knowledge
There’s an old quip that Harvard is a $36 billion hedge fund with a university attached. Well last year that hedge fund lost $2 billion, and now a new manager has been brought in to run it (who had previously managed Columbia University’s endowment).
Matt Levine uses the opportunity to wax philosophical about the nature of investing in a world with a fundamentally unknowable future:

“It seems to me that there are two basic models of how investing could work over time. One is sort of a random walk: Some stuff makes money sometimes, other stuff makes money other times, it's always hard to know which is which, and the trick is to find a good manager who knows. This is sort of the default model that everyone has in the back of their minds, the model that those Harvard kids are using. Just figure out how to buy the stuff that will go up, and buy it. Or: Figure out who will figure it out, and give them your money.
The other model is sort of a random walk with drift: Some stuff makes money, some stuff doesn't, but over time we as a society learn to identify which is which. We learn to index, to look at value and momentum factors, not to invest in tulip bubbles, whatever. The learning is imperfect, and there are setbacks -- sometimes we invest in mortgage bubbles -- but over time the drift is in the direction of knowledge. This would seem to make the investing business harder over time. If asset returns are widely dispersed and hard to know, then there will always be a mystique around someone who knows them, and that person can always charge 2 and 20. If markets become more efficient over time, and asset returns approach their correct risk-adjusted level, and this gets easier for everyone to figure out, then the opportunities to make outsize returns -- and charge for them -- will keep shrinking. And people who thought they were exceptional -- hedge fund managers, Harvard -- will revert to the mean, and feel disappointed and adrift.

5. Items of Note

6. Job Postings

  • Echoing Green is seeking a Vice President of Finance and Administration (NYC)
  • Medtronic is hiring a Sr Philanthropy Portfolio Lead - Social Business/Impact Investing (Minneapolis)
  • The Hewlett Foundation is seeking an Organizational Learning Officer for their Effective Philanthropy Group (Menlo Park, CA)
  • ClearBridge Investments is hiring an ESG equity research analyst (NYC)
  • Rockefeller Foundation is hiring a Program Associate in their Innovative Finance team (NYC)

7. Upcoming Events
Oct 10-12 SXSW Eco (Austin, TX) Impact Investing
Oct 9-14 Opportunity Collaboration  (Cancun Yucatan) Impact Investing
Oct 17-18 African Philanthropy Forum (Rabat, Morocco) Philanthropy
Oct 18  High Water Women (NYC) Impact Investing
Oct 18-19 Commit! Forum (NYC) Responsible Investing
Oct 18-20 Conscious Capitalism CEO Summit (Austin, TX) Responsible Investing
Oct 20-22 PopTech: Culture Clash (Camden, Maine)
Oct 24-26 Impact Convergence (Atlanta, GA) Impact Investing, Philanthropy
Oct 27-28 Feedback Labs 2nd Annual Feedback Summit (DC) Effective Philanthropy
Nov 3-5  Net Impact (Philadelphia) Various
Nov 9-11  Sustainable, Responsible, Impact Investing (Denver) Responsible Investing
Nov 16-18 Independent Sector (DC) Philanthropy
Dec 7-8  Global Impact Investing Network (Amsterdam) Impact Investing
April 7, 2017 Wharton Social Impact Conference (Philadelphia) Impact Investing

That’s it for this week. Help me spread the word about #AllThingsImpact to your friends and colleagues, who can sign up to receive this newsletter at All Things Impact. Please also send me any job postings, items of note, upcoming events, or compelling links you discover in your own journeys across the web (even things like like this sugar glider jumping in slow motion). 

Until next time, thanks for reading!

Brian Walsh
Head of Impact at LiquidnetFull Bio.