Fennel

Entrepreneurship occurs when an individual launches a new business venture to address a problem in the hope of making a profit. The lesser-discussed <a href="https://mitsloan.mit.edu/ideas-made-to-matter/intrapreneurship-explained">intrapreneurship</a> occurs when employees of existing companies innovate new products and services from within their organization. Many great ideas came from intrapreneurship. For example, <a href="https://lemelson.mit.edu/resources/art-fry-spencer-silver">the Post-it note</a> was imagined by an inventor at 3M, <a href="https://www.referenceforbusiness.com/biography/F-L/Kutaragi-Ken-1950.html">the PlayStation</a> was invented by a Sony engineer after a deal with Nintendo fell apart, and <a href="https://www.cbsnews.com/news/great-intrapreneurs-in-business-history/">the Java programming language</a> spun out of technology company Sun Microsystems. Together, entre- and intrapreneurship drive innovation at multiple levels. However, big companies have a tendency to get bogged down in existing systems and processes that can limit the autonomy, creativity, and adaptivity that incubate innovation. Furthermore, as companies grow older, investors become more conservative, managers less risky, and overall inertia sets in alongside the comfort of steady, stable growth. Lastly, the two approaches to innovation have quite different considerations regarding risk and reward. Entrepreneurs use their own resources, bear the risk of an initiative’s failure and reap a lion’s share of the rewards. Intrapreneurs — seeking potential career promotions or demotions — leverage their companies’ resources to achieve financial rewards for the companies which bear all the risk. Older companies are beginning to <a href="https://www.forbes.com/sites/georgedeeb/2016/02/18/big-companies-must-embrace-intrapreneurship-to-survive/?sh=2b3cb88148ab">embrace the workplace culture of intrapreneurship</a> and <a href="https://www.interaction-design.org/literature/article/what-is-design-thinking-and-why-is-it-so-popular">design thinking</a> common among their startup counterparts. Unlike the top-down organizational change methods like transformational leadership or majority shareholder advocacy, intrapreneurship stems from the treasure trove of human capital embedded in companies’ own workforces. Employees often work more closely with the problems, consumers, and on-the-ground stakeholders than upper management, and they benefit from those lived experiences and insights. Google, for example, implemented the now-famous <a href="https://www.inc.com/bill-murphy-jr/google-says-it-still-uses-20-percent-rule-you-should-totally-copy-it.html">“20 Percent Rule”</a> allowing employees to pursue their own inventions and innovations for a portion of their workweek. The 20 Percent Rule has led to many of Google’s most popular products and services, <a href="https://time.com/43263/gmail-10th-anniversary/">including Gmail</a>. But workers and employees can push the needle even further, by becoming <a href="https://movingworlds.org/social-intrapreneurship">social intrapreneurs</a> to create new products and services that reap social, environmental, and economic benefits. Social intrapreneurs use iterative <a href="https://www.techtarget.com/whatis/definition/build-measure-learn-BML">build-measure-learn</a> processes to test their interventions at the nexus of profit, people, and the planet. <a href="https://link.springer.com/article/10.1007/s11365-018-0552-1">Career satisfaction</a> is positively associated with intrapreneurship, as employees feel dignified in the pursuits of their various passions, uncovering new meaning in their work. <a href="https://www.aspeninstitute.org/wp-content/uploads/2020/04/Unlocking-the-Potential-of-Corporate-Social-Intrapreneurship.pdf">Notable social intrapreneurs</a> include: - Kevin Thompson, drawing from his experience at the Peace Corps, convinced IBM in 2007 to launch a Corporate Service Corps, which promotes corporate citizenship via international leadership development and service opportunities. - Michelle Edkins, Global Head of Investment Stewardship at BlackRock, who in 2011 launched the first ESG initiative at the largest asset management firm in the world subsequently mainstreaming the sustainable investment movement. - Zia Zaman, who helped underserved families in Asia achieve greater access to their MetLife insurance by using blockchain to simplify enrollment and payout. You don’t have to quit your job to change the world. In fact, intrapreneurship can be an effective way of nurturing more world-changing ideas. Employees with great reputations and strong relationships at their companies can see an easier time pitching to upper management than untested entrepreneurs pitching jaded, hyper-critical venture capitalists or startup accelerators. Our ideas need ample mind-to-market channels so we can address humanity’s greatest problems — a rapidly deteriorating ecosystem, widespread inequality and injustices, and deep-seated ideological divisions tearing apart our communities. Social intrapreneurship is another tool that empowers employees to reverse these social and environmental ills, which may have been caused by the very companies they work for. Social intrapreneurship can be used to leverage the resources of these companies, as people strive to collectively reform capitalism for the better.   ∙ ∙ ∙ The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.

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Employees Use Intrapreneurship To Make Organizational Change and Create Impact

Intrapreneurs create innovation from within their company.

Sultan White

20 Oct, 2022

4 min read

There is a growing number of investors who aren’t satisfied with just financial returns, they want to know that their investments are creating a better world. This desire to make change is at the core of impact investing. <a href="https://fennel.com/blog/esg-vs-sri-what-do-all-the-terms-mean">Impact investing</a> refers to when investments are made with the intention of generating positive and measurable social or environmental impacts. Typically, an investor will have an idea of what impact they want to have, and then seek out investments to create that impact. This could mean investing in renewable energy companies to promote decarbonization, investing in minority-led companies to promote the work of underrepresented groups, and so on. But what does this look like in practice? Here are a handful of impact investing examples for interested investors   <h4>Example #1: Impact investing in diverse founders</h4> So many startups rely on venture capital funding in order to get up and running. But where that VC cash flows isn’t always equitable. One study found that <a href="https://www.forbes.com/sites/forbesbusinesscouncil/2022/05/26/diversity-the-holy-grail-of-venture-capital/?sh=5b51cec34178">77% of VC dollars</a> go to startups led by white founders. In 2021, a record year for VC funding, <a href="https://news.crunchbase.com/diversity/vc-funding-black-founded-startups/">only 1.3%</a> of all U.S. venture and growth equity financing went to companies led by Black founders. Harlem Capital hopes to close that funding gap. Harlem Capital started in 2015 as a syndicate of angel investors, and evolved over the years into a fully-fledged VC firm. The company debuted with <a href="https://techcrunch.com/2019/12/02/diversity-focused-vc-fund-harlem-capital-debuts-with-40m/">its inaugural $40 million fund</a> in 2019 and plans to invest in 1,000 diverse founders over the course of 20 years. After using that $40M fund to invest in 23 companies, Harlem Capital raised <a href="https://harlem.capital/harlem-capital-134-million-fund/">a $134 million fund</a> to invest in even more diverse founders. These diverse founders are building an array of diverse solutions, from <a href="https://harlem.capital/portfolio/curu">credit platforms that provide wider access to loans</a>, to a <a href="https://harlem.capital/portfolio/agape">relationship wellness app for couples</a>, <a href="https://harlem.capital/portfolio/jobble">gig marketplace for independent workers</a>, and more.  “We fundamentally believe we are a venture fund with impact, not an impact fund. The way we generate impact is to give women and minority entrepreneurs ownership,” Harlem Capital managing partner Henri Pierre-Jacques told TechCrunch.   <h4>Example #2: Impact investing in the oil industry</h4> In late 2020, a small activist hedge fund called Engine No. 1 <a href="https://hbr.org/2021/01/can-a-tiny-hedge-fund-push-exxonmobile-towards-sustainability">acquired a $40 million stake</a> in oil giant ExxonMobil, worth about 0.02% of the company’s shares. The hedge fund then wrote <a href="https://reenergizexom.com/materials/letter-to-the-board-of-directors/">an open letter</a> to Exxon’s board of directors to explain why. In that letter, Engine No. 1 pointed out the ways that Exxon had been struggling and failed to deliver shareholder returns. It also pointed out a four-part strategy for fixing this: 1) refresh the board of directors with people who has experience in the energy industry 2) become more disciplined in managing long-term capital allocation 3) implement a plan for the business to thrive in a world pushing away from fossil fuels, and 4) realign management incentives with creating shareholder value. Engine No. 1 then nominated four new directors for Exxon’s board, and campaigned for them during proxy season. After gaining the support of some of Exxon’s largest shareholders, three out of four of those directors won seats on the board. After that, Exxon started <a href="https://engine1.com/transforming/articles/exxon-mobil-one-year-later/">making measurable advancements</a> towards its new goals. For example, the company committed $15B towards investing in low-carbon solutions over a six year span, announced new scope 1 and scope 2 greenhouse gas targets for 2030, added a low-carbon solutions business unit and got the former head of General Motors’ Cruise to lead it.   <h4>Example #3: Impact investing in response to apartheid </h4> Word about the injustices committed in apartheid-era South Africa spread across the world. While many South African groups fought for their rights, international organizations also joined in to show support in their own way.  By the 1970s and 80s, students at American universities <a href="https://www.universityofcalifornia.edu/news/how-students-helped-end-apartheid">were protesting in solidarity</a> with South African students. Although these American students were thousands of miles away, they thought they could help by pressuring their universities <a href="https://nvdatabase.swarthmore.edu/content/columbia-university-students-win-divestment-apartheid-south-africa-united-states-1985">to divest</a> from companies that supported the apartheid regime. By 1988, <a href="https://www.investopedia.com/articles/economics/08/protest-divestment-south-africa.asp">155 colleges</a> across the US and Canada had divested from South Africa. And soon this movement spread beyond universities. By the end of 1989, 26 states, 22 counties, and over 90 cities <a href="http://richardknight.homestead.com/files/uscorporations.htm">had also created policies</a> against companies doing business in South Africa. This pressure caused many US businesses to pull out of South Africa. From 1985 to 1990, over 200 US companies collectively pulled out of South Africa, resulting in <a href="https://www.investopedia.com/articles/economics/08/protest-divestment-south-africa.asp">a loss of $1 billion</a> in direct investment dollars. Other countries put pressure on their companies to pull out of South Africa too, and by the early 1990s, the South African economy was <a href="http://richardknight.homestead.com/files/uscorporations.htm">feeling the effects of capital flight</a>.   <h4>Example #4: Impact investing in Chicago</h4> Sometimes impact investing is most felt at the local level. The Chicago Community Trust is a foundation that connects philanthropic donors, local organizations, and generous individuals who want to use their money to create a positive impact within the Chicago community. In 2020, the foundation <a href="https://www.cct.org/press-releases/the-chicago-community-trust-launches-impact-investing-platform/">launched</a> an impact investing platform to help facilitate impact-driven investments. The platform also helps investors measure the impact of their contributions by showing if they help low-income neighborhoods, go to businesses run by minority or women owners, help provide affordable housing, or if they provide capital to sustainable energy initiatives.   <h4>Example #5: Impact investing in agricultural development</h4> Lots of people talk about ending world hunger, what are some ways to actually do that? According to Root Capital, by investing in agricultural enterprises in the developing world. Since 1999, Root Capital has been investing in agriculture businesses in Latin America, sub-Saharan Africa, and Southeast Asia. Not only does the organization supply capital, it also provides training to help these companies grow. In addition to creating more steady sources of food, Root Capital also aims to use its investments to help alleviate local poverty, protect the planet, and advance gender inclusion. To date, the organization has <a href="https://rootcapital.org/about-us/">distributed</a> $1.6 billion to over 750 clients, representing 2.3 million farmers and $4.6 billion in economic activity. Risks: Employing ESG strategies may not result in favorable investment performance. The returns on a portfolio consisting primarily of Environmental, Social and Governance (“ESG”) aware, diversity equity and inclusion (DEI), impact investing, or faith-based investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria. ∙ ∙ ∙ The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member <a href="http://finra.org">FINRA</a> <a href="https://www.sipc.org/">SIPC</a>.

5 Impact Investing Examples: How Investors Push for Change

What does impact investing look like in practice?

Fennel

21 Dec, 2022

5 min read

In today’s tech-focused world, it seems like people’s actions are constantly scrutinized. With this level of self-awareness people often wonder, “Am I doing the right thing?” With existential threats like climate change and social inequality, there is pressure on the individual to contribute back to society, and to speak up for social issues. We eat less meat, take shorter showers, and turn up the thermostat to address our environmental impact. We also watch what we say on social media to address our social impact. Though sometimes we find ourselves (fairly) asking the following question — how do we even know our actions are helping the world around us? Is there any way to quantify the impact of our prudent practices? People aren’t the only ones asking themselves these questions. Many businesses and organizations strive to do the right thing, and look for the right tools to measure their impact. This is especially important because the scale of certain businesses can lead to much greater impacts than the actions taken by individuals. Before we get into the details of this, let’s first understand what “social impact” actually means. Social impact can be defined as the effect of an organization or individual’s actions that brings upon a value-adding change in a community, as a result of attempting to address a social challenge (things like systemic hunger, poverty, or inequality linked to certain demographics). However, it is important to note that pushing for positive change doesn’t always happen in a vacuum. For example, a government pushing to create more jobs for its people can end up causing adverse environmental impacts if it ends up giving grants to companies that do not carry out their business practices in a sustainable manner. As individuals, one way to make informed decisions that create social impact is by opting for products of companies that operate and manage their supply chain in a responsible manner. Many consumers already abide by this, as <a href="https://csis.upenn.edu/news/what-is-social-impact-anyways/">a recent survey</a> found that 90% of millennials are likely to buy products from brands with a “cause” when choosing between two brands of equal quality and price. This shows incentive for businesses to align themselves with such causes. It’s relatively easy for us as individuals to make “greener” shopping decisions in order to support sustainable brands. But individuals can take their support a level further through <a href="https://fennel.com/blog/esg-vs-sri-what-do-all-the-terms-mean">socially responsible investing</a>, which involves investing in companies that work to create positive social or environmental impacts. <a href="https://www.financemagnates.com/forex/what-do-retail-investors-really-think-about-esg-investing/">A survey of DIY traders and investors published by Capital.com</a> found that more than half of the respondents had never selected an investment based on <a href="https://fennel.com/fennel101/esg">environmental, social, and governance (ESG)</a> criteria, with only 7% citing social and environmental reasons as part of their investment strategy. This shows that socially responsible and ESG investing has yet to really take off, potentially showing opportunity for growth. People know that they want to do good, and mission-driven businesses mirror this desire. However, there is still much to be done. Luckily, there are steps that both groups can take in order to create a positive impact. And as long as people work towards these goals, they can hope to make a difference.   ∙ ∙ ∙ The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member <a href="http://finra.org/">FINRA</a> <a href="https://www.sipc.org/">SIPC</a>.

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ESG

How People and Businesses Strive to Create Social Impact

Social impact doesn't always happen in a vaccum.

Shivani Hemnani

02 Feb, 2023

3 min read

Corporate Social Responsibility (CSR) is more than a company doing a bake sale to raise money for charity. While bake sales for charity aren’t a bad thing, true Corporate Social Responsibility happens when a company embeds philanthropic, social, or ethical goals into its very business model. <a href="https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr">Corporate Social Responsibility</a> is an instrumental way through which a company achieves and balances its triple bottom line strategy (i.e. its economic, environmental, and social elements), beyond the occasional good deed. So, why would a company want to prioritize CSR? There are a handful of reasons. CSR can be helpful from a risk management perspective. Having sound corporate governance and striving to comply with regulatory requirements can help an organization cope with risks in the face of internal and external adversities. For example, it can help with keeping senior management accountable and having responsible financial reporting. On top of that, effective contingency and business continuity plans can potentially mitigate risks for an organization in case the company is affected by an economic downturn or faces audits or litigations. In turn, this may also protect stakeholders and help the company stay out of controversy, hence keeping away from negative publicity. CSR can also act as a motivational factor for company stakeholders. Many big organizations now encourage employees to take part in CSR initiatives by setting aside employee volunteer hours. This can help motivate employees by helping them participate in causes they care about. Employees do pay attention to the values of the companies they work for, research suggests that nine out of ten employees say they want to work for a responsible company (<a href="https://www.researchgate.net/publication/280546320_CSR_and_Employee_Motivation">Dawkins, 2004</a>). A study involving 2,500 employees conducted across Europe, America, and Australia found that almost one in four respondents who think their organization is environmentally aware have a higher sense of motivation towards making their company succeed, when compared to only eight percent of those who feel their company is not paying sufficient attention to these issues (<a href="https://www.researchgate.net/publication/280546320_CSR_and_Employee_Motivation">Mori, 2006</a>). Moreover, if employees genuinely believe that their company has a solid focus on CSR, there is an indirect added value to the firm’s brand image. That same study of 2,500 employees found that 74% of respondents would believe the word of an employee over a company’s marketing material regarding their contribution to the society and the environment. In recent years, there has been a growing trend in businesses <a href="https://www.sojitz.com/en/csr/supply/pdf/handbook_e.pdf">setting up CSR procurement policies</a> and showing preferential treatment to suppliers who source responsibly. This type of CSR policy helps companies find cost-effective ways to reduce waste or ensure certain quality standards. Additionally, adhering to fair trade and labor policies, can help companies avoid controversies and may help minimize risk exposure. When CSR is deeply rooted into a business’ practices, it can help with a variety of things, whether that’s engaging company stakeholders, managing risk, or something else. That’s in addition to the benefits for the environment and society that CSR strives to create. This is why many companies adopt CSR policies, to try to create value inside and outside of company walls.   Risk considerations: Responsible investing incorporates Environmental Social Governance (ESG) factors that may affect exposure to issuers, sectors, industries, limiting the type and number of investment opportunities available, which could result in excluding investments that perform well.   • • • The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member <a href="http://finra.org/">FINRA</a> <a href="https://www.sipc.org/">SIPC</a>.

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Corporate Social Responsibility — Is There More to It Than Making Companies Look Good?

Corporate Social Responsibility is a hot topic nowadays, but how does it actually benefit companies?

Shivani Hemnani

23 Mar, 2023

3 min read

Want to invest in bonds while having a positive impact on the world? It may be time to get familiar with green bonds, social impact bonds, and sustainability bonds. As a quick recap, <a href="https://www.investopedia.com/terms/b/bond.asp">bonds</a> are essentially loans or IOUs that provide the borrower (such as governments or corporations) with external funds to finance long-term goals. When a person invests in a bond, they’re basically loaning money to that borrower, who will pay back the principal amount plus interest over time. An example of this would be municipal bonds, which local governments issue to finance essential services such as infrastructure projects. Similar to how <a href="https://fennel.com/fennel101/esg">environmental, social, and governance (ESG)</a> has taken over the stock market, impact investors are looking for ways to promote environmental or social good with their investments into the debt market (i.e. bonds). This has led to new asset classes like green, social, and sustainability bonds. Let’s look into these three types of bonds.   Green Bonds A green bond is a type of financial instrument that lends money to finance projects that are meant to help the environment. <a href="https://www.eib.org/attachments/fi/eib-cab-sab-presentation.pdf">The first AAA-rated green bonds</a> were issued in 2007 by the European Investment Bank and World Bank. This capital funded both renewable energy and energy efficiency projects with the goal of climate change mitigation. Since market inception, the green-labeled bond market has ballooned to over $1 trillion cumulative issuance with an average <a href="https://www.climatebonds.net/market/explaining-green-bonds">annual growth rate of 95%</a>. Green bonds are wildly popular and robust, channeling funding towards things like electric transportation infrastructure, research & development of low-carbon technologies, water supply management, wastewater collection and treatment, pollution prevention and control, protection and restoration of biodiversity and ecosystems, and sustainable forest management. There’s even a subcategory of green bonds called “blue bonds” that focuses on clean water and ocean ecosystem preservation/restoration. In one of the first green bond issuances of 2023, <a href="https://www.reuters.com/markets/rates-bonds/hong-kong-raises-58-bln-green-bonds-term-sheets-2023-01-05/">Hong Kong</a> announced that it raised $5.8 billion in green bonds, which is intended to fund the sustainable economic development of the region. Not a bad start to the year.   Social Impact Bonds Social impact bonds are like green bonds, except instead of providing funding to environmental initiatives, they are meant to finance social services and drive positive social outcomes. Geoff Mulgan, then CEO of Young Foundation, is credited with coining the term “<a href="https://efinancemanagement.com/investment-decisions/social-impact-bonds">social impact bond</a>.” The<a href="https://www.oecd.org/cfe/leed/UnderstandingSIBsLux-WorkingPaper.pdf"> first social impact bond</a> launched in 2010 by United Kingdom-based Social Finance Ltd. with the goal of reducing recidivism (which is when someone who served prison time commits another crime). Since then, the market has <a href="https://www.pimco.com/en-us/resources/education/understanding-green-social-and-sustainability-bonds/">expanded the range of possibilities for social impact bonds</a>, addressing issues facing low-income people and the unemployed, migrants, women and/or marginalized genders, people with disabilities, displaced persons, and other communities in need. Social impact bonds finance actions such as improving food security and sustainable food systems, piloting programs around socioeconomic advancement, building affordable housing, increasing access to essential services, and building affordable basic infrastructure. While not as prevalent as green bonds, the market for social impact bonds is still rapidly growing. <a href="https://www.brookings.edu/wp-content/uploads/2020/09/Impact_Bonds-Brief_1-FINAL.pdf">Brookings reported</a> that as of July 2020, at least 194 social impact bonds have been contracted in 33 different countries, representing over $421 Million in upfront investment and over $460 Million in total outcome funding committed.   Sustainability Bonds You can think of sustainability bonds as a combination of green and social impact bonds. Sustainability bonds finance projects that have both positive environmental and social outcomes. The United Nations <a href="https://sdgs.un.org/goals%23history">17 Sustainable Development Goals</a>, adopted by member states in 2015, takes a systems-approach to conceptualizing the interlinking social and environmental themes we need to collectively address in order to achieve peace and prosperity for people and the planet. Sustainable bonds support projects in multiple SDG areas. From <a href="https://www.environmental-finance.com/content/the-green-bond-hub/the-2020s-the-decade-of-sustainable-bonds.html">2017 to 2023</a>, we saw a massive increase in sustainable bond issuance from $200 billion to nearly $1.5 trillion. The green, social, and sustainability bond markets are experiencing rapid growth, and thus have to deal with some growing pains, grappling with finding standardized policies and procedures around transparency, impact measurement, and reporting. But the growth of these bonds are exciting, as they potentially offer a new asset class for impact investors to look into.     Risk Considerations: There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the Portfolio will decline and that the value of Portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. Fixed income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes. ESG strategies that incorporate impact investing and/or Environmental, Social and Governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment performance.   ∙ ∙ ∙ The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member <a href="http://finra.org/">FINRA</a> <a href="https://www.sipc.org/">SIPC</a>.

Green, Social Impact, and Sustainability Bonds are Financing Public Benefit

Want to invest in bonds while having a positive impact on the world?

Sultan White

30 Mar, 2023

4 min read

Tax cuts are often <a href="https://abcnews.go.com/Business/tax-codes-rich-richer-tax-laws/story?id=78182056">criticized</a> for helping the rich more than the poor, and further increasing wealth and income inequality in America. The <a href="https://www.law.cornell.edu/wex/tax_cuts_and_jobs_act_of_2017_(tcja)">Tax Cuts and Jobs Act of 2017</a> (TCJA) faced these same criticisms. A <a href="https://www.policygenius.com/taxes/who-benefited-most-from-the-tax-cuts-and-jobs-act/">2021 study</a> found that needy families received the least savings as a proportion to their income, while wealthy families received the most. Corporations, on the other hand, were by far the biggest winners from these tax cuts, according to that study. An <a href="https://www.brookings.edu/policy2020/votervital/did-the-2017-tax-cut-the-tax-cuts-and-jobs-act-pay-for-itself/">analysis by the Brookings Institute</a> found that the TCJA also led to a budget shortfall for the federal government, which can hinder the government’s ability to provide important economic programs for millions of struggling Americans. When the TCJA passed, most of the media focused on these tax cuts, however, the new law also had one provision that flew under the radar: the creation of <a href="https://opportunityzones.hud.gov/">Opportunity Zones</a>. The “Qualified Opportunity Zone” designation is a label that local governors give to economically-distressed areas, in order to get investors to invest in that community. They incentivize investors to do this by giving them <a href="https://www.irs.gov/credits-deductions/businesses/opportunity-zones">the tax benefit</a> of deferring their capital gains taxes. Opportunity Zones could provide socially-conscious investors with a new avenue to create impact, and may prove to be a silver lining to what critics feel was an out-of-touch policy in TCJA. However, the true potential is yet to be seen. After TCJA passed, state and local governments were tasked with designating which low-income communities would become Opportunity Zones based on US Census data. Many local governments strategically selected their Opportunity Zones to overlap with other census-tract-based economic development programs like <a href="https://www.cdfifund.gov/programs-training/programs/new-markets-tax-credit">New Market Tax Credits</a>, a program which also attracts private capital to distressed communities.   <h4>How does one invest in an Opportunity Zone?</h4> Numerous <a href="https://www.nerdwallet.com/article/investing/qualified-opportunity-funds">Qualified Opportunity Funds</a> (QOF) were set up in order to help facilitate investments in small businesses and real estate developments located within these Opportunity Zones. (You check out a database of Qualified Opportunity Funds <a href="https://opportunitydb.com/funds/">here</a>). But these funds have a few rules. All investments in either small businesses or property developments must be equity-based. Real estate developments must include substantial rehabilitation — a Qualified Opportunity Fund cannot simply buy up distressed properties and leave them as such, they have to improve these areas. “Sin businesses,” such as liquor and tobacco stores are not eligible investments. These rules are partially why many Qualified Opportunity Funds <a href="https://www.costar.com/article/936063478/opportunity-zone-fundraising-seen-surging-to-record-10-billion-this-year">opt to invest in real estate</a> over small businesses, despite the fact that investing in small businesses <a href="https://eig.org/opportunity-zones/">has the potential</a> to create a larger impact in economically-distressed areas by providing services and jobs. Regardless, there is still an opportunity to drive impact. So how do investors get involved? Remember, the Opportunity Zone designation has tax benefits for capital gains, so an investor who wants to get those benefits can <a href="https://www.irs.gov/newsroom/opportunity-zones">transfer recent capital gains proceeds</a> into a Qualified Opportunity Fund. According to <a href="https://www.irs.gov/newsroom/opportunity-zones">the IRS</a>, this is the tax benefit of doing so: “If the investor holds the investment in the QOF for at least 10 years, the investor is eligible to elect to adjust the basis of the QOF investment to its fair market value on the date that the QOF investment is sold or exchanged.” That may be a little complicated to decipher, but it essentially means that investors who hold their Opportunity Fund Investment for at least 10 years don’t have to pay any capital gains produced through their investment. Of course, paying no capital gains tax is a big incentive for investors. Some research has shown that this <a href="https://www.bloomberg.com/news/articles/2020-06-25/opportunity-zones-don-t-work-can-they-be-fixed">has invited bad actors to exploit the benefit</a> for its tax purposes, without caring much about the impact of their investments. Qualified Opportunity Funds that focus too much on cutting costs and maximizing profits run the risk of leading to slumlords doing the legal bare-minimum to stay operational. Alternatively, some well-meaning funds may fail to involve community stakeholders, and inadvertently lead to gentrification or lead to families being priced out of their neighborhoods. Many argue for a <a href="https://www.americanprogress.org/article/new-research-adds-to-evidence-that-opportunity-zone-tax-breaks-are-costly-and-ineffective/">policy update</a> that puts up guardrails, increases transparency and accountability, and shifts the benefits of this policy, so it’s not only the wealthy investors who have something to gain. Still, there are a few Qualified Opportunity Funds that hold themselves to higher standards of triple bottom line impact. Efforts by<a href="https://www.businesswire.com/news/home/20220829005695/en/Arctaris-Releases-Annual-Impact-Report-Achieving-Record-Growth"> Arctaris Impact Investors,</a> Woodforest CEI-Boulos Opportunity Fund, <a href="https://www.revozcapital.com/news/2021/1/13/revoz-capital-announces-1b-social-impact-initiative-and-leadership-council">Revitate</a>,<a href="https://eig.org/eig-oz-webinar-series-evaluating-the-impact-of-opportunity-zones-investments/"> Catalyst Opportunity Fund, and JTC Americas</a> show that high-impact OZ strategies are feasible and profitable. Just like capitalism as a whole, there will always be some groups that look to maximize gain at all cost, while others act sustainably and responsibly — the same goes for Opportunity Funds. But for impact investors who are looking to benefit others, there are opportunities out there to use their wealth as a force for good.   Risk Disclosure: Investing in Qualified Opportunity Funds involves risks such as market loss, liquidity risk, and business risk, to name a few. Consult with a tax professional and attorney to determine if it aligns with your financial goals and risk tolerance before investing. Read the fund's documentation carefully and remember that tax benefits may not justify the potential risks.   ∙ ∙ ∙ The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.

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Opportunity Zones Incentivize Impact Investing Through Tax Benefits

The Tax Cuts and Jobs Act of 2017 helped create a new type of impact investing.

Sultan White

20 Apr, 2023

3 min read

MBA programs are a breeding ground for future business leaders, so analyzing the trends that pop up in business schools across the country can give us a window into the direction the corporate world is heading. So what’s one growing trend we see? Sustainability. As the demand for sustainable business practices continues to grow, business schools are increasingly incorporating sustainability into their curricula. Teaching sustainable business in higher education equips students with the skills to address environmental and social challenges in their future careers and drive the transition to a more sustainable economy. It is difficult to determine which business school was the first to offer courses in sustainability as many schools have been incorporating sustainability into their curricula for several decades. One of the earliest programs to offer courses in sustainability was the <a href="https://erb.umich.edu/about/">Erb Institute for Global Sustainable Enterprise at the University of Michigan</a>. The Erb Institute was founded in 1996 through a partnership between the School of Natural Resources and Environment and the Ross School of Business. The program offers a dual-degree MBA/MS in Natural Resources and Environment, with a focus on sustainable business practices. Another early program was the <a href="https://aces.kenaninstitute.unc.edu/about-us/">Center for Sustainable Enterprise at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill</a>. The center was established in 1999 and offers courses and programs that focus on sustainability, corporate social responsibility, and environmental management. <a href="https://www.presidio.edu/about/">Presidio Graduate School in San Francisco</a>  was also an early pioneer in sustainability education and today is recognized as one of the most prestigious institutions cultivating the next generation of changemakers. Presidio Graduate School was founded in the early 2000s and offers MBA programs with a focus on sustainability and social entrepreneurship. Since then, many other business schools have followed suit and incorporated sustainability into their curricula. And in recent years, business schools have seen <a href="https://www.nytimes.com/2021/11/13/business/dealbook/business-schools-esg.html">a growing interest in ESG</a> from students.   <h4 class="p1">Why teach sustainability in business schools?</h4> Today's consumers are increasingly aware of the environmental and social impacts of the products and services they buy, and they are demanding more sustainable options. So a business school degree that emphasizes sustainability can help companies appeal to these consumers. The <a href="https://www2.deloitte.com/content/dam/Deloitte/mk/Documents/about-deloitte/2021-deloitte-global-millennial-survey-report.pdf">2021 Deloitte Global Millennial and Gen Z Survey</a> found that over a quarter of respondents consider a company's environmental and social impact when making purchasing decisions and <a href="https://www.firstinsight.com/white-papers-posts/gen-z-shoppers-demand-sustainability">First Insight’s annual surveys</a> uncovered a rising trend that consumers across all generations—from Baby Boomers to Gen Z—are willing to pay more for sustainable products. Investors are also increasingly looking for companies that have strong environmental and social performance, as some believe that this can be an indicator of long-term financial success. The <a href="https://thegiin.org/research/publication/impinv-survey-2020/">Global Impact Investing Network's Annual Impact Investor Survey</a> found that assets under management in the impact investing industry grew to $715 billion in 2020. On top of that, regulators are tightening environmental and social regulations, which can create new opportunities and challenges for businesses. The <a href="https://www.greenbiz.com/report/2021-state-green-business-report">2021 State of Green Business report by GreenBiz</a> found that 58% of companies surveyed believed that regulation was a driver of their sustainability initiatives. By incorporating sustainability into the curriculum, business schools can prepare students to meet these regulatory demands and help businesses navigate this rapidly evolving landscape. Teaching sustainable business practices can also help business schools differentiate themselves from their peers and <a href="https://www.uab.edu/reporter/campus/sustainability/item/9853-faculty-student-interest-drives-expansion-of-sustainability-curriculum">attract students who are passionate about sustainability as well as faculty who are passionate about teaching it</a>. Additionally, employers are increasingly looking for candidates who have sustainability knowledge and skills, as this can be a competitive advantage in today's job market. In fact, green job postings have increased by <a href="https://www.fastcompany.com/90831379/green-jobs-are-up-237-in-the-last-5-years-here-are-4-ways-to-boost-your-skills-and-get-hired">237% in the last 5 years</a>. To effectively teach sustainable business practices, business schools must take a comprehensive approach that includes both core courses and electives. Core courses should cover the fundamental concepts and principles of sustainability, including environmental science, social and ethical issues, and sustainability frameworks. Electives should provide students with opportunities to explore sustainability in greater depth and develop skills in specific areas, such as sustainable operations, social entrepreneurship, or sustainability reporting. Often, business schools engage with external stakeholders, such as industry partners and community organizations, to build partnerships and collaborative initiatives such as internships and capstone projects. And sometimes those initiatives help partners develop sustainability goals. An example of a group that does this is the Global Engagement Committee of the <a href="https://bacademics.org/">Global B Corp Academic Community</a> (B Academics). This organization works to advance the state of academic study into business as a force for good. The committee recently released a <a href="https://bacademics.org/wp-content/uploads/2023/03/White-paper-B-Academics-2-1.pdf">white paper</a> which presents academic initiatives aimed at accelerating the transition to a new economy, specifically through promoting teaching and research on B Corporations and sustainable business. The aim of the white paper is to share how these efforts have emerged and evolved and their different models, challenges and learning processes. Global initiatives such as B Academics and the <a href="https://www.unprme.org/">United Nations’ Principles for Responsible Management Education</a> are standardizing and legitimizing the way we teach sustainable business in higher education across the world, indicating that business schools will continue to be catalysts for a new class of professionals.     ∙ ∙ ∙ The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.

Business Schools Are Ushering In a New Era of Sustainability

A growing number of future business leaders are learning about sustainability in their MBA programs.

Sultan White

08 Jun, 2023

5 min

You may have heard the terms Sustainable Development Goals (SDGs) and environmental, social, and governance (ESG) mentioned together by responsible businesses or socially-conscious investors, but what are they actually and how do they relate to each other? Besides ESG and SDG both being three-letter acronyms and both originating from the United Nations, the two terms relate to entirely different concepts. However, there are some parallels between the two. So let’s dive into the terms ESG and SDG, what they mean, and what they have in common.   <h4>What are the sustainable development goals (SDGs)?</h4> In 2015, the United Nations General Assembly put together the sustainable development goals (SDGs) as a list of objectives to aim to accomplish by 2030. The 17 SDGs represent aspirational goals that span a range of economic and societal issues, with the intention of providing a better future for all. Here are the 17 SDGs: 1. No Poverty: This goal seeks to end poverty in all forms across the world, providing help to the most vulnerable populations. 2. Zero Hunger: Seeks to end hunger and malnutrition, while promoting access to sustainable agriculture. 3. Good Health and Well-being: Seeks to address the prevalence of certain diseases, as well as provide better and more equitable healthcare. 4. Quality Education: Achieve equitable and quality education, including free primary and secondary schooling for children. 5. Gender Equality: End discrimination against women and girls, which also means increasing access to education, jobs, reproductive health, and more. Also encourages more women to be leaders. 6. Clean Water and Sanitation: Address water scarcity, relieve water stress, and provide safe and clean drinking water to people who lack access to it. 7. Affordable and Clean Energy: Provide access to affordable renewable energy sources, especially as developing nations industrialize. 8. Decent Work and Economic Growth: Promote economic growth, access to well-paying jobs, end forced labor, and decrease economic inequality. 9. Industry, Innovation, and Infrastructure: Build resilient infrastructure, promote sustainable industrialization, and foster innovation. 10. Reduced Inequalities: Reduce global income inequality. 11. Sustainable Cities and Communities: Make cities and urban communities more sustainable, through things like providing access to affordable housing, business opportunities, public transportation and green spaces, and so on. 12. Responsible Consumption and Production: Promote sustainable consumption and production through increasing efficiency and minimizing waste. 13. Climate Action: Take urgent action to combat climate change and its worst repercussions. 14. Life Below Water: Protect coastal and marine ecosystems from damaging human impacts like pollution and ocean acidification, while promoting conservation. 15. Life on Land: Protect terrestrial ecosystems and combat loss of biodiversity. 16. Peace, Justice, and Strong Institutions: Work with governments and communities to address cycles of conflict and violence, while aiming for peace and prosperity. 17. Partnerships for the Goals: Promote cooperation between all communities to achieve these sustainable development goals.   As you can see, the 17 SDGs are quite ambitious. Aiming to eradicate poverty across the world by 2030 won’t be an easy task. But the point of the sustainable development goals isn’t to complete all of these things 100% by a certain deadline. Instead, the SDGs act as guiding principles to work towards in order to improve the well-being of humanity and the planet. Anyone can take these SDGs and use them to inform their plans for the future — whether that’s a government looking to provide better access to jobs and healthcare, a business trying to monitor its impact on marine or terrestrial ecosystems, or an investor looking to promote the growth of renewable energy projects or access to educational resources. The SDGs are broad enough that they are applicable in many different scenarios.   <h4>What is ESG?</h4> <a href="https://fennel.com/fennel101/6">Environmental, social and governance (ESG)</a>, is a broad framework that is used to measure an organization’s environmental and social impacts, as well as its corporate governance structure. Measuring these things involves a lot of data, and under the broad umbrella of ESG there are many different ESG metrics that, when taken together, paint a picture of ESG performance. For example, metrics like carbon emissions released, e-waste recycled, renewable energy used, and so on can help provide an understanding of an organization’s environmental performance. Meanwhile, the amount of charitable donations, employee diversity, and gender pay gaps can tell you more about social performance. Although the metrics are attempts to quantify these impacts, it’s important to note that ESG performance isn’t always black or white. The large amount of things that affect E, S, or G mean that ESG performance will always involve gray areas. For example, a company can be really good about protecting the environment, but may mistreat its employees. ESG scores are often used to quantify or make comparisons, but it may be more useful to think of ESG as a lens to analyze companies and get extra context, more so than it is a ranking system. ESG has different uses. Companies may use ESG as a way to create policies to support their employees, create transparent corporate governance structures, or ensure a positive impact on the environment. Meanwhile, investors may use ESG to align their investments with their vision for the future, or to <a href="https://fennel.com/blog/how-does-esg-relate-to-risk-management">identify potential investment risks</a>.   <h4>What do ESG and SDGs have in common? How are they different?</h4> Coincidentally, both ESG and SDG have their origins tied to the UN. The term ESG was first coined in 2004 by <a href="https://www.unepfi.org/fileadmin/events/2004/stocks/who_cares_wins_global_compact_2004.pdf">a United Nations report</a> titled “Who Cares Wins.” The report states, “in a more globalised, interconnected and competitive world the way that environmental, social and corporate governance issues are managed is part of companies’ overall management quality needed to compete successfully. Companies that perform better with regard to these issues can increase shareholder value by, for example, properly managing risks, anticipating regulatory action or accessing new markets, while at the same time contributing to the sustainable development of the societies in which they operate.” This excerpt from the report shows you that the concept of ESG was created in order to give businesses the perspective they needed in order to position themselves for a globalized future, anticipate regulatory shifts, and work towards creating value for both company shareholders and the world as a whole. The quote above also mentions “contributing to the sustainable development of societies,” which is the exact same thing that the SDGs aim to achieve. This commonality may have to do with the fact that ESG and SDG both come from the UN, and one of the goals of the UN is to create a platform for nations, organizations, and groups to work together to solve humanity’s biggest challenges. However, SDGs and ESG are quite different. This has to do with the purpose of each. The SDGs are an ambitious set of goals that provide a northstar for groups to work together to solve specific problems. ESG is more of a measurement system that’s more specific to how a company impacts the world. Another way to think about it is that SDGs primarily focus on the end goal. Meanwhile, ESG focuses on quantifying where an organization currently stands. SDGs focus more on what an organization is trying to accomplish, while ESG focuses on how it’s performing. Still, businesses and other organizations can use both ESG and SDGs to figure out and measure how they want to impact the world. And investors can use ESG and SDGs to understand which organizations they want to support. If you care about working towards a sustainable future, both SDG and ESG can be useful. ∙ ∙ ∙ The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.

What Are the Sustainable Development Goals (SDGs) and What Do They Have in Common With ESG?

The 17 SDGs represent aspirational goals that span a range of economic and societal issues, with the intention of providing a better future for all.

Fennel

11 Sep, 2023

5 min

Hollywood's facade is decorated by picket lines and placards. The WGA (Writers Guild of America) and SAG-AFTRA (Screen Actors Guild - American Federation of Television and Radio Artists), are currently on strike for their 5th and 3rd respective months, demanding better compensation and working conditions. The implications of this standoff are critical for workers, studios, and shareholders alike.   <h4>The Costs of Meeting Demands</h4> The WGA asserts that fulfilling its demands alone would cost the studios a combined <a href="https://www.indiewire.com/news/business/wga-strike-costs-much-more-than-paying-writers-1234863866/">$343 million per year</a>, while Moody's estimates that meeting the demands of all three guilds (including the Directors Guild of America) would <a href="https://www.hollywoodreporter.com/business/business-news/hollywood-strike-wall-street-analysts-assess-losers-costs-1235535871/">cost the studios (combined) between $450-600 million annually</a>.  Though these costs might seem hefty, they pale in comparison to the studios' colossal revenues. When digging into the reported numbers, they amount to a fraction of a percent of their annual revenues.   <h4>The Costs of Not Meeting Demands</h4> A closer look at the balance sheets reveals that studios could very feasibly meet these demands without torpedoing profitability. Warner Bros. Discovery alone has reported that the ongoing strikes will <a href="https://thehill.com/business/4188233-warner-bros-discovery-says-hollywood-strikes-will-cause-up-to-500m-hit-to-2023-earnings/">dent its 2023 earnings by $300-500 million</a> — 6 to 10 times the estimated cost of $47 million to meet the writers’ demands (equivalent to 0.1% of its estimated $42.4 billion in revenue for 2023). If one studio is already facing such losses, the aggregate hit to the industry could be staggering. Meanwhile, Disney's estimated 2023 revenue is $89.1 billion. It would cost Disney an estimated $75 million to meet WGA’s demands, which accounts for less than 0.1% of that revenue.   <h4>Long-term Implications</h4> While the demands may seem burdensome to certain stakeholders, the cost of ongoing strikes may also manifest in the erosion of brand value and investor confidence, along with a blow to future revenues. The effects to content pipelines may cause subscriber numbers to falter, affecting revenue streams and investor returns. Meanwhile, The SAG-AFTRA and WGA are not just fighting for more money; they're fighting for fair pay, humane treatment, and the <a href="https://www.scribd.com/document/659818807/SAG-AFTRA-Negotiations">survival of their profession</a> amid record inflation and the advent of artificial intelligence in the industry.   <h4>Bottom Line</h4> In the end, a fractional increase in operational costs to meet worker demands could very well be a prudent investment to sustain profitability and secure long-term investor returns for film and tv studios.  The financial impacts, however, shouldn’t overshadow that workers are <a href="https://www.wgacontract2023.org/the-campaign/pattern-of-demands">merely protecting their dignity and livelihood</a>. The numbers show that by meeting these demands, studios would be both showing support for their workers and potentially saving money in the short and long term. In this scenario, workers and shareholders may find that their interests are not mutually exclusive, but actually aligned.   <h4>Questions for Retail Investors to Ponder</h4> - How might the ongoing strikes impact studios' valuations? - What is the long-term cost of not addressing worker demands for studios you're invested in? - Do you consider ethical labor practices as part of your investment criteria? - If a <a href="https://fennel.com/fennel101/shareholder-voting">shareholder vote</a> arises next year on meeting the guilds' demands, how would you vote?   ∙ ∙ ∙ The companies shown in inset infographics are included because of their relevance to the Hollywood strikes. The purpose of these infographics is to demonstrate the information provided in the Fennel app for a $4.99/mo. subscription, along with how this information relates to current events. The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.

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The Financial Stakes of Hollywood's Strikes

Does it make more financial sense for studios to meet the writers’ and actors’ demands, or not?

Fennel

14 Sep, 2023

2 min

The United Auto Workers (UAW) strike against the Big Three car companies—Ford, GM, and Stellantis—has extended into its third week. As of this writing, over 25,000 of the 146,000 UAW members at these companies are involved.  The UAW has been steadfast with <a href="https://uaw.org/uaw-auto-bargaining/">its demands</a>, which include:  ∙ Restoring COLA (Cost of Living Adjustments) ∙ Defined benefit pension for all workers ∙ Re-establishing retiree medical benefits ∙ Ending abuse of temp workers  The demands also include a 36% wage increase over a four-year contract. So far, companies have yet to fully meet the UAW demands, only offering about <a href="https://www.reuters.com/business/autos-transportation/strikes-could-idle-more-detroit-three-auto-plants-friday-2023-09-29/">20% in wage increases</a>. Fair pay is one the main issues of the strike, due to the fact that CEO pay at the Big Three has <a href="https://www.reuters.com/business/autos-transportation/uaw-strikes-automakers-highlight-skyrocketing-us-ceo-pay-2023-09-20/">increased 40%</a> over the last four years. Over the past 20 years, auto <a href="https://www.npr.org/2023/09/13/1199168485/uaw-points-to-disparity-between-ceo-and-worker-pay-as-a-reason-for-wage-hike-dem#:~:text=Autoworkers%20are%20fed%20up%20that,decades%20when%20adjusted%20for%20inflation.">workers’ real wages have actually decreased by 20%</a> when factoring inflation. Both Ford and GM’s CEOs have publicly criticized the UAW’s handling of the strike. GM’s CEO Mary Barra <a href="https://www.freep.com/story/money/cars/general-motors/2023/09/29/gm-ceo-mary-barra-lashes-out-at-the-uaw-in-a-strongly-worded-statement/71008244007/">claimed</a>, "It’s clear that there is no real intent to get to an agreement.” However, auto companies’ profits continuously reach record levels, increasing <a href="https://www.epi.org/blog/uaw-automakers-negotiations/">92% over the past 10 years</a> — in that time, nearly $66 billion was paid out in shareholder dividends and stock buybacks. The UAW has adopted a targeted walkout strategy, initiating strikes at select plants and escalating from there. Stellantis facilities were spared in the latest round of strikes because of <a href="https://www.detroitnews.com/story/business/autos/2023/10/01/uaw-strike-day-17-talks-continue-in-wake-of-additional-walkouts/71025220007/">progress made in negotiations</a>, including cost-of-living adjustments and an outsourcing moratorium — showing the labor union’s willingness to cooperate when demands are met. The protracted negotiations signify an industry at a crossroads, facing rapid technological changes and global competition. If a full strike occurs, it may cost an estimated <a href="https://www.reuters.com/business/autos-transportation/uaw-expands-strike-against-gm-ford-week-3-spares-stellantis-2023-09-29/">$400-500 million in weekly revenue losses</a> for each company. The current standoff between the UAW and the Big Three contributes to a pivotal moment for labor relations in the US. At the same time, writers in Hollywood recently wrapped up their strike while actors continue to picket, and airline workers prepare for a <a href="https://www.reuters.com/business/aerospace-defense/american-airlines-flight-attendants-vote-authorize-strike-union-2023-08-30/">potential strike of their own</a>.   Read more: <a href="https://fennel.com/blog/the-financial-stakes-of-hollywoods-strikes">The Financial Stakes of Hollywood’s Strikes</a>   <h4>Questions for Retail Investors to Consider:</h4> ∙ How will striking workers affect the bottom line of these companies? ∙ What industries do you think are most susceptible to worker strikes? ∙ Will companies that got by on cheap labor in the past have to pay for it in the future as more workers strike?    ∙ ∙ ∙ The companies shown in inset infographics are included because of their relevance to ongoing strikes. The purpose of these infographics is to demonstrate the information provided in the Fennel app for a $4.99/mo. subscription, along with how this information relates to current events. The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member <a href="http://finra.org/">FINRA</a> <a href="https://www.sipc.org/">SIPC</a>.

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UAW Strikes Prolong Amid Tensions with Big Three Automakers

Fair pay is one the main issues of the strike, as CEO pay has increased in recent decades while workers’ adjusted wages have decreased.

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