All Things Impact.

private capital & the public good

All Things Impact 2016.10: nonprofit solvency, whether $40 trillion will go to impact, climate change deniers, and Obama on tribalism

Brian WalshComment

Hi friends,

Here are four links worth your time (plus job opportunities):
1. Effective Philanthropy: 10% of NYC nonprofits are technically insolvent
SeaChange Capital Partners, a merchant bank that focuses on the nonprofit sector, and Oliver Wyman, a global management consulting firm, recently analyzed the financial capacity of nonprofit organizations in New York City. The results should give all nonprofits and their board members pause:

  • More than 10% of the nonprofits are technically insolvent (i.e., their liabilities exceed their assets)
  • Roughly, 40% of the organizations have virtually no margin for error, with cash and operating reserves of less than two months
  • At best, 20-40% of organizations appear to be financially strong, defined as having more than six months of unrestricted net assets.

As the authors explain: 

“Distressed nonprofits have very limited ways to recover, so trustees must do all they can to reduce the risk that their organization becomes distressed in the first place. And they must take prompt, decisive action if it does.  Practices such as scenario planning, benchmarking and self-rating, and setting explicit financial stability targets, can improve risk management…

Trustees must strive to maximize the good that their organization does while managing its risks. Balancing these can be challenging because of the passion they feel for the organization and its mission. Nonprofits lack the indicators of organizational health that reach the directors of for-profit businesses, such as stock prices or credit spreads. They also lack outside parties like activist investors, rating agencies, stock market analysts, and short-sellers to encourage them to step back and take an objective view of the situation. In this context, nonprofit trustees in leadership positions must ensure that well thought through risk management processes are in place. In a challenging operating environment, the status quo is no longer acceptable.”

2. Impact Investing: will the $40 trillion transfer of wealth go towards impact?
The always insightful Fran Seagull is chief investment officer at non-profit financial services company ImpactAssets (which, in full disclosure, manages Liquidnet’s donor advised fund).
She recently spoke to Bloomberg Sustainable Finance:

“We define impact investing as investing for social or environmental impact as well as for social returns. The impact must be intentional, measured, and reported…

I think about the growth [in impact investing] being at the intersection of supply of capital and demand for capital. On the demand for capital side, we have huge population growth. There will be 9 billion plus people on this planet by 2050 and it always floors me to think about 80 percent of people who live on less than $10 a day. We have to increase food supply by 70 percent in order to feed this growing population, and there’s also a lack of access to food, jobs, and education in both developed and developing markets. There are also worries about how climate change and droughts will change this.

On the supply of capital side, there’s a $40 trillion wealth transfer to women and millennials that is just starting. This wealth transfer could be an extraordinary shift in how folks invest. In these two cohorts of women and millennials, there’s absolutely a debate about passive versus active investing. You are starting to see index funds focused on environmental issues. We see the advent of robo-advisers that enable people to dice and slice based on their values. We’re seeing innovation in this space to try and meet the demand of constituencies that have these values. Millennials really care about the values of where they work and as this money transfers, intermediaries, investment banks, and asset managers will take the lead from the bottom up. It’s a sea change. Wealth management has previously been a very top-down affair. I think something very interesting is going to happen around this bottom-up input from investors.”

3. Responsible Investing: is your mutual fund a climate change denier?
The way tens of millions of people invest in the capital markets is through mutual funds, either directly or indirectly through their retirement funds or pension plans. These mutual funds generally then invest in hundreds or thousands of publicly-listed companies. As shareholders in these public companies, mutual fund managers have the opportunity to vote in shareholder resolutions – annual “proxy voting” – about issues of corporate governance and management. The nonprofit organization Ceres works with investors focused on sustainability, and tracks relevant shareholder resolutions filed by their investor network, “focusing on climate change, energy, water scarcity, and sustainability reporting."

As they reported on the site EcoWatch, Rob Berridge and Jackie Cook analyzed the proxy voting records of 42 large mutual funds. They found that 9 of them “failed to support a single climate-related shareholder resolution in 2015…

“The resolutions filed by investors request that companies take such actions as: set greenhouse gas (GHG) reduction goals; disclose the risk of assets such as fossil fuel reserves and coal plants being unusable—“stranded” in Wall Street parlance—due to weakening global demand for fossil fuel products; disclose political lobbying expenditures related to climate change; and issue sustainability reports describing material business risks from climate change.” Some of those who failed to support these resolutions are members of the UN’s Principles for Responsible Investment (PRI), “meaning that they have publicly committed to six principles, including: Principle 2 “active ownership,” which entails actions such as supporting resolutions on environmental, social and governance (ESG) issues; and Principle 3 to “seek appropriate disclosure on issues by the entities in which we invest.”

4. Wildcard: Obama on Tribalism
In The Atlantic, Jeffrey Goldberg has a tour de force profile of President Obama and his "Obama Doctrine" foreign policy. Set aside at least an hour if you plan on reading the whole thing, as I did last weekend. Here’s a passage I found particularly interesting:

“One of the most destructive forces in the Middle East, Obama believes, is tribalism—a force no president can neutralize. Tribalism, made manifest in the reversion to sect, creed, clan, and village by the desperate citizens of failing states, is the source of much of the Muslim Middle East’s problems, and it is another source of his fatalism. Obama has deep respect for the destructive resilience of tribalism—part of his memoir, Dreams From My Father, concerns the way in which tribalism in post-colonial Kenya helped ruin his father’s life—which goes some distance in explaining why he is so fastidious about avoiding entanglements in tribal conflicts.

“It is literally in my DNA to be suspicious of tribalism,” he told me. “I understand the tribal impulse, and acknowledge the power of tribal division. I’ve been navigating tribal divisions my whole life. In the end, it’s the source of a lot of destructive acts…

“Look, I am not of the view that human beings are inherently evil,” he said. “I believe that there’s more good than bad in humanity. And if you look at the trajectory of history, I am optimistic.

“I believe that overall, humanity has become less violent, more tolerant, healthier, better fed, more empathetic, more able to manage difference. But it’s hugely uneven. And what has been clear throughout the 20th and 21st centuries is that the progress we make in social order and taming our baser impulses and steadying our fears can be reversed very quickly. Social order starts breaking down if people are under profound stress. Then the default position is tribe—us/them, a hostility toward the unfamiliar or the unknown.”

5. Job Opportunities
Here are some impact related job opportunities that have come across my desk. Please feel free to send relevant openings, which I am happy to pass along.

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 compelling links you discover in your own journeys across the web (even things like this baboon’s adorable reaction to a magic trick).

Until next time, thanks for reading!

Brian Walsh
Head of Impact at LiquidnetFull Bio.