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.

Social

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

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>.

Social

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.

Social

Investing

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

On April 5, 2012 President Barack Obama signed the <a href="https://www.sec.gov/spotlight/jobs-act">Jumpstart Our Business Startups (JOBS) Act</a> into law. Among loosening oversight and regulations on small businesses, the JOBS Act legalized equity crowdfunding to help drive technological innovation and high-growth enterprises in the United States. Equity crowdfunding provides both a new method for raising capital for privately-owned businesses, and a new asset class for investors. It involves business owners selling a number of company shares to a pool of investors through regulated online crowdfunding platforms. This type of crowdfunding is different from donation crowdfunding (like <a href="https://www.gofundme.com/">GoFundMe</a>) and loan crowdfunding (like<a href="https://www.kiva.org/"> Kiva</a>). With equity crowdfunding, startups looking to fundraise have new opportunities to tap into sources of capital, while non-accredited investors can finally break into a small-scale form of angel investing. Similar to the venture capital field, equity crowdfunding investors buy small shares of early-stage startups to hold for a long time horizon. This is generally due to the fact that crowdfunding investors only see returns in the event of an Initial Public Offering, acquisition by a larger company, reverse buyout, or some other qualifying event. However, this form of investing closely resembles venture capital investing, and chases the same goal of investing in the next high-growth tech company. Of course, there is always the risk of not seeing returns for many years, or investments losing value. It’s important to keep this in mind. Equity crowdfunding effectively democratized the venture capital and angel investing spaces, once reserved for high-net worth individuals based primarily in Silicon Valley, New York City, and other select cities. Paired with the widespread use of social media platforms such as Facebook, Instagram, LinkedIn, Reddit, and Twitter, equity crowdfunding <a href="https://www.grandviewresearch.com/industry-analysis/crowdfunding-market-report">has introduced a new generation</a> of digitally-literate Millennials and Zoomers to the world of startup investing. In 2018, <a href="https://www.forbes.com/sites/forbesagencycouncil/2021/12/20/the-meteoric-rise-of-equity-crowdfunding/?sh=60fa778c4d41">equity crowdfunding drove</a> $74M in startup capital to companies, with an additional $100M raised the very next year. Then, while a portion of the financial sector struggled through the pandemic, equity crowdfunding accelerated, channeling a staggering $211M in 2020. Now more people can participate in this new asset class for relatively small amounts (like $100 investment minimums) depending on the platform used. We have yet to see how much equity crowdfunding will influence inter-generational wealth creation in working and middle class families, nonetheless it is refreshing that access and opportunities in startup investing has increased for a wider array of investors from diverse socioeconomic backgrounds. If you’re looking to try investing through equity crowdfunding, it’s important to know that each of the platforms have their own rules, investment minimums, and selection of startup companies. If you’re a startup founder looking to raise equity crowdfunding, be sure to review the deal terms. There are several equity crowdfunding platforms out there, including <a href="https://www.startengine.com/">StartEngine</a>, <a href="https://www.seedinvest.com/">SeedInvest</a>, <a href="https://microventures.com/">MicroVentures</a>, <a href="https://wefunder.com/">Wefunder</a> and <a href="https://republic.com/">Republic</a>. While the equity crowdfunding space is still in its infancy, its meteoric rise indicates that it’s worth keeping an eye on. On top of this, there are many startups that have benefited from the new model. For example, startup company <a href="https://techcrunch.com/sponsor/seedinvest/the-next-era-of-equity-crowdfunding-is-here-and-its-not-just-for-seed-stage-deals-anymore/">NowRx used an equity crowdfunding strategy</a> to raise capital for both its official launch and an aggressive scale-up during the height of the COVID-19 pandemic. It raised a $750K seed round in 2017, then a $7M series A, and then an impressive $20M series B — primarily on the StartEngine platform. Equity crowdfunding is expected to grow, with experts <a href="https://www.prnewswire.com/news-releases/crowdfunding-market-to-grow-by-usd-196-36-billion-during-2021-2025--13-86-year-over-year-growth-in-2021--technavio-301249041.html">predicting almost $200B growth</a> in market share from 2021 to 2025. Whether you’re a CEO looking to raise money or an investor trying to break into the private market, equity crowdfunding has proven itself as a viable alternative to traditional channels, some of which have been <a href="https://medium.com/democratizing-finance/equity-crowdfunding-is-creating-opportunity-for-minority-women-owned-startup-founders-3cfba591374c">marred by gatekeeping and institutionalized bias</a>. Similarly, equity crowdfunding may serve as a boon for diverse founders. Despite the rhetoric from the VC industry claiming to support minority groups, <a href="https://www.cnbc.com/2020/10/07/black-and-latinx-founders-have-received-just-2point6percent-of-vc-funding-in-2020-so-far.html">a measly 2.6% of VC funding</a> went to Black and latinx founders from 2015 to 2020. Meanwhile, <a href="https://www.bloomberg.com/news/articles/2022-01-11/women-founders-raised-just-2-of-venture-capital-money-last-year">only 2% of VC money</a> in 2021 went to female founders. And on the investor side, <a href="https://www.theinformation.com/articles/the-most-and-least-diverse-venture-capital-firms">white men represent 53% of all VC investors</a> and control a whopping 93% of all VC dollars. In comparison, <a href="https://www.startengine.com/blog/venture-capital-vs-equity-crowdfunding/">33% of startups on StartEngine</a> have a BIPOC founder and <a href="https://twitter.com/joinrepublic/status/971828497667842049">44% of all funds raised on Republic</a> went to female founders. The “old boys club” may have historically controlled access to VC money but along came equity crowdfunding — both a technological and legislative innovation that has started to disrupt the system. Equity crowdfunding has the potential to knock down barriers, and provide both access to capital and investment opportunities to a wider variety of people, connecting diverse founders with diverse investors.   Crowdfunding also has significant risks to consider such as liquidity risk, risk of loss, fees and expenses, limited information and more. Crowdfunding offers are speculative and investors should be able to afford and be prepared to lose their entire investment. For more information, view <a href="https://www.sec.gov/oiea/investor-alerts-bulletins/ib-crowdfunding">Investor Bulletin: Regulation Crowdfunding for Investors.</a> ∙ ∙ ∙ 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. This 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>.

Social

Investing

Equity Crowdfunding: The Democratization of Startup Investing

Equity crowdfunding allows more people to participate in early stage startup investing.

Sultan White

27 Apr, 2023

3 min

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

How many times have we followed a trend just to fit in with the “cool kids” even if meant being untrue to ourselves? The reality is, many of us have fallen prey to peer pressure at some point. But individuals aren’t the only ones who conform to a trend to stay relevant. Businesses do too, and because ESG (Environmental, Social, and Governance) and sustainability are the hot topics of today, many companies partake in something called “greenwashing.”    <h4>Why greenwash?</h4> <a href="https://earth.org/what-is-greenwashing/">Greenwashing</a> is defined as the process of making misleading statements, in order to market a company or its products as being environmentally sustainable. <a href="https://corporatefinanceinstitute.com/resources/knowledge/other/greenwashing/">Some examples of greenwashing are</a>:  <ul> <li aria-level="1">Making vague or false environmental claims that are not backed up by hard evidence or third-party certifications </li> <li aria-level="1">Placing emphasis on irrelevant issues (for example, saying a phone is “CFC-free” when CFCs are already banned by law) </li> <li aria-level="1">Hiding “trade-offs” — essentially, highlighting small environmental victories in order to mask a larger, potentially more concerning issue (for example, banks advertising their issuing of sustainable bonds while financing companies that harm the environment) </li> </ul> Greenwashing is <a href="https://www.nasdaq.com/articles/are-companies-as-green-as-theyd-have-you-believe-2021-06-21">on the rise</a> as companies that boast of high ESG scores and sustainable practices are gaining traction in both financial and non-financial aspects. We’ve seen the S&P 500 ESG Index beat the S&P 500 Index <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">since the first market slump in early 2020</a>, <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">record issuance</a> of sustainable bonds in the year 2021, <a href="https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx">studies</a> that show ESG factors drive consumer preference, and customers <a href="https://www.forbes.com/sites/gregpetro/2022/03/11/consumers-demand-sustainable-products-and-shopping-formats/">willing to pay a premium to go green</a>. As a result, many companies may try to emulate this success by exaggerating how environmentally sustainable they really are. Some companies resort to greenwashing as they come under pressure to comply with environmental industry standards or regulatory requirements. One such example is when <a href="https://www.bbc.com/news/business-34324772">Volkswagen admitted to cheating</a> government-required emissions tests by fitting various vehicles with “defeat devices.”   <h4>The rewards of being truly sustainable are sustainable</h4> What companies sometimes forget is that greenwashing is not sustainable (pun unintended). Those who greenwash risk getting exposed by an informed consumer or a gatekeeping group, which can backfire on the company’s reputation. A recent example would be when <a href="https://www.dezeen.com/2019/08/02/hm-norway-greenwashing-conscious-fashion-collection-news/">H&M launched its “green” clothing line called Conscious</a>. In this instance, the retailer claimed to use organic cotton and recycled polyester, but didn’t provide enough evidence to back up its marketing. The company then faced criticism for misleading claims In the case that the truth behind an organization’s greenwashing claims goes uncovered, it is still at a loss as it only enjoys the superficial benefits of being a “responsible” business. It doesn’t reap the added value that actual sustainable business can receive — like <a href="https://www.bain.com/insights/sustainability-your-brands-next-cost-saving-weapon/">lower operational costs</a>, <a href="https://www.globenewswire.com/news-release/2019/01/10/1686144/0/en/CGS-Survey-Reveals-Sustainability-Is-Driving-Demand-and-Customer-Loyalty.html">loyal customers</a>, or <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">positive shareholder returns</a>.   <h4>Greenwashing faces legal implications in the future</h4> Most importantly, responsible ESG practices minimize regulatory and legal interventions, which in turn means less negative publicity and fines. This is exemplified in Volkswagen’s case, wherein the car manufacturer was fined $125 million for its emissions scandal, and saw further losses as a result of having to recall close to 12 million of its cars worldwide. The spiral translated into <a href="https://fortune.com/2020/10/06/volkswagen-vw-emissions-scandal-damages/">business losses</a> and <a href="https://fortune.com/2015/09/23/volkswagen-stock-drop/">negative shareholder returns</a>. The greenwashing crackdown will continue with new environmental laws being written. The <a href="https://research.hktdc.com/en/article/MTAzNDU1OTc0Nw">EU has decided to amend its new consumer rules</a> to address greenwashing concerns, requiring producers to provide greater transparency on product information to avoid misleading claims. The UK is also targeting greenwashing with the Competition and Markets Authority’s <a href="https://www.whitecase.com/publications/alert/uk-clampdown-greenwashing">Green Claims Code</a>. Organizations are driven towards greenwashing because of peer, consumer, or legal pressures. However, by doing so these businesses miss out on the true benefits of being sustainable.They also might expose themselves to the threat of legal action as more legislation is being drafted against greenwashing. As a result, these companies risk reputational damage, financial losses, and negative returns for stakeholders. Until regulators catch up to all the companies engaging in greenwashing, it’s up to us to be on the lookout for common greenwashing tactics, and stay fully informed about the purchases and investments we make.   ∙ ∙ ∙ 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="https://www.finra.org/">FINRA</a> <a href="https://www.sipc.org/">SIPC</a>.

ESG

Environmental

What Is Greenwashing?

Greenwashing is a superficial and sometimes misleading way companies claim sustainability.

Shivani Hemnani

15 Aug, 2022

3 min read

With financial markets around the world still reeling from muddled efforts to curb a global pandemic, one financial notion seems to be gaining fresh support: ESG. However, much about ESG remains unexplored. Are ESG and risk management practices related? How can ESG be used to benefit organizations and investors from a risk standpoint? Does one of the three ESG pillars play a bigger role in terms of generating financial returns, utility, and risk management?   Some investors have a hypothesis that ESG investments generate stronger, more sustainable returns over the long term, and this has been exemplified in the past couple of years. ESG investments, indices, and companies that keep considerations of the three factors at the forefront of their culture have bounced back higher than unbothered counterparts; for example, the S&P 500 ESG Index has beat the S&P 500 Index <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">since the first market slump in early 2020</a>, sustainable bonds have seen <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">record issuance in the year 2021</a>, and organizations with good ESG ratings <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">have displayed strong financial resilience</a> since the economic downturn. How can this phenomenon be explained? The answer lies in the fact that <a href="https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html">ESG can work as a risk management strategy</a>; not just in financial terms, but also in view of management conditions and meeting regulatory requirements. A <a href="https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx">report published by McKinsey</a> tells us that good ESG practices could potentially lead to positive cash flows, as well as hedge financial and reputational risks due to the following reasons: <ul> <li>ESG drives consumer preference as some customers are <a href="https://www.forbes.com/sites/gregpetro/2022/03/11/consumers-demand-sustainable-products-and-shopping-formats/">willing to pay a premium to go green</a>. McKinsey also found that companies that use sustainable practices in their supply chain are able to cut costs.</li> <li>Responsible reporting minimizes regulatory and legal interventions, which generates less negative publicity for an organization.</li> <li>Having generous social policies in place helps motivate and retain staff, as well as increase employee productivity, which has been found to <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869">positively correlate with shareholder returns.</a></li> <li>ESG practices help optimize investments and capital expenditures. One way to get ahead of the curve is to consider making investments into assets that take advantage of sustainability tailwinds. For example, China’s efforts to curb air pollution is estimated to create <a href="http://www.chinadaily.com.cn/a/201804/18/WS5ad69dc6a3105cdcf6518f2c.html">over $3 trillion in investment opportunities across various industries</a> through 2030.</li> </ul>   <h4>Integrating ESG in business practices doubles as good risk management, which goes on to generate brand equity for companies and attract investors.</h4> Research has <a href="https://www.mdpi.com/2071-1050/12/1/254">found a positive relationship</a> between ESG scores and brand equity value of S&P 500 companies. Good ESG incorporation mitigates reputational risks for an organization, and that is where investor confidence is built. In turn, investors manage financial risks by keeping exposures to ESG investments in their portfolios, which also helps them derive utility as they are inclined to feel that their investment decisions are part of a bigger movement to do better for the world.   <h4>It's the Social and Governance factors that actually push away the risks.</h4> We constantly hear a lot of buzz surrounding the Environmental aspect which dominates sustainable investment allocations, but the value of the Social and Governance aspects which have a determining impact on sustainable practices, and as a result, risk management within an organization, are rarely ever given recognition. Taking a deep-dive into how the “S” and “G” areas are equally at play as the “E” in contributing to sound risk management within a company and yielding positive returns for investors, we delve into some research on how the three factors impact financial performance on an absolute basis. A <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwi9kr_i48b3AhWTQc0KHfB2DUAQFnoECAYQAQ&url=https%3A%2F%2Fjournals.vgtu.lt%2Findex.php%2FJBEM%2Farticle%2Fdownload%2F12725%2F9980&usg=AOvVaw1dAd8rRWX31GFeB0IY3x9v">recent study</a> examined the overall and individual influences of corporate E, S, and G conduct on economic performance of S&P 500 firms. A breakdown of the scores for each aspect across companies from different industries and their correlation with the respective companies’ economic performances were looked at. The results may be surprising at first look: Corporate “E” conduct does not have any significant effect on firm economic performance, while conduct for “S” and “G” significantly influences firm economic performance. The Social and Governance components are key to the general practices of risk management; aiming to do justice to these elements in the day-to-day course of running a business ensures responsible and skilled management structures, risk ownership, and compliance with regulatory requirements. Here we covered reasons to explain these occurrences in the market — that ESG is an exceptional risk management tool for organizations internally, and also for investors in financial terms. More importantly, we saw that “S” and “G” are crucial to building optimal risk practices within a firm, which when combined with “E”, enhance the attractiveness of businesses and generate solid returns over the long term for investors.   References Ajour, E. et al. (2020). The Role of Sustainability in Brand Equity Value in the Financial Sector. MDPI. Retrieved April 29, 2022, from <a href="https://www.mdpi.com/2071-1050/12/1/254">https://www.mdpi.com/2071-1050/12/1/254</a> BNP Paribas SA Group (2021). BNP Paribas recognized by EcoVadis and FTSE4Good extra-financial ratings. BNP Paribas. Retrieved May 06, 2022, from https://group.bnpparibas/en/news/bnp-paribas-recognized-by-ecovadis-and-ftse4good-extra-financial-ratings Cek, K. & Eyupoglu, S. (2020). Does environmental, social and governance performance influence economic performance? Scopus. Retrieved April 29, 2022, from <a href="https://www.scopus.com/record/display.uri?eid=2-s2.0-85087457813&origin=inward&txGid=4864f78cdc725470874f18fec147c309&featureToggles=FEATURE_NEW_DOC_DETAILS_EXPORT:1">https://www.scopus.com/record/display.uri?eid=2-s2.0-85087457813&origin=inward&txGid=4864f78cdc725470874f18fec147c309&featureToggles=FEATURE_NEW_DOC_DETAILS_EXPORT:1</a> Cheasty, G. (2019). Asset Management: Integrating ESG Risk into a Risk Management Framework. Deloitte. Retrieved April 22, 2022, from <a href="https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html">https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html</a> Dorobantu, S., Henisz, W. & Nartey, L. (2022). Spinning gold: The financial returns to stakeholder engagement. Wiley Online Library. Retrieved May 09, 2022, from <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2180">https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2180</a> Edmans, A. (2011). Does the stock market fully value intangibles? Employee satisfaction and equity prices. ScienceDirect. Retrieved May 09, 2022, from <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869">https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869</a> Henisz, W., Koller, T., and Nuttall, R. (2019). Five ways that ESG creates value. McKinsey Quarterly. Retrieved May 09, 2022, from https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx Lawrence, E., & Zlatkova, S. (2020). Managing risk with ESG investing - CFA society chicago. Northern Trust Asset Management. Retrieved April 26, 2022, from <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf</a> Murugaboopathy, P., & Dogra, G. (2021). Global sustainable bonds see record issuance in Jan-Sept 2021. Reuters. Retrieved April 26, 2022, from <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/</a> S&P Global. (2022). S&P 500 ESG Index. S&P Dow Jones Indices. Retrieved April 22, 2022, from <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview</a>   ∙ ∙ ∙ 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="https://www.finra.org/">FINRA</a> <a href="https://www.sipc.org/">SIPC</a>.

ESG

Investing

How Does ESG Relate to Risk Management?

Some investors have a hypothesis that ESG investments generate stronger, more sustainable returns over the long term.

Shivani Hemnani

25 Aug, 2022

4 min read

Are you an investor who cares not only about the performance of your portfolio, but also how your investments affect the environment, society, or humanity as a whole? If you do, you’re not alone. There are many investors who invest based on their own morals, what they think is ethical, or to achieve a certain social goal. In fact, this type of investing is so popular that there are a handful of different terms that refer to the practice of aligning your investments with your values. You may have heard of impact investing, sustainable investing, socially-responsible investing, or ESG, but what do all these terms actually mean? And how do they differ?   Let’s define some of the commonly used terms:   ESG — Stands for <a href="https://fennel.com/fennel101/esg">Environmental, Social, and Governance</a>. A framework for assessing companies beyond solely financial data, by looking at that company’s impact on the environment, its impact on society, and how that company is organized. ESG is about better understanding a company by taking into account this information.   ESG investing — Involves incorporating ESG data in order to make investment decisions. Traditionally, ESG investing is <a href="https://fennel.com/blog/how-does-esg-relate-to-risk-management">viewed as a form of risk management</a>, where ESG is used to identify companies that are managed sustainably and avoid those that could face regulatory scrutiny. However, ESG investing is often grouped together with socially responsible investing or sustainable investing — even though technically those refer to different strategies.   Ethical investing — Using your personal code of ethics to determine what to invest in. This differs from investor to investor. One person may think ethical investing involves divesting from companies that test on animals, while another person may not care about animal testing and instead focus on avoiding companies that benefit from child labor.   Impact investing — According to the <a href="https://thegiin.org/impact-investing/need-to-know/#what-is-impact-investing">Global Impact Investing Network</a>, impact investing refers to making investments “with the intention to generate positive, measurable social and environmental impact alongside a financial return.” Impact investing is a broad term, but in order to qualify as impact investing the investor should have the desire to create a positive, the ability to measure that impact, the evidence to inform that investment decision, and the goal of also generating returns in the end.   Socially responsible investing (SRI) — Involves investing in something based on how that investment impacts the environment, society, or the greater good. The concept of SRI has been around for decades (at least) and is sometimes used interchangeably with ethical investing and sustainable investing.   Sustainable investing — According to <a href="https://online.hbs.edu/blog/post/sustainable-investing">Harvard Business School</a>, sustainable investing refers to “a range of practices in which investors aim to achieve financial returns while promoting long-term environmental or social value” — emphasis on long-term. Sustainable investing often is associated with investing in green energy or environmentally-friendly practices because the word “sustainable” is often used in that setting   Values-based investing — Similar to ethical investing, values-based investing involves making investment decisions based on a person’s own set of values. Sometimes those values reflect a person’s morals or religion, and other times they reflect a more generalized set of beliefs. Regardless of what those beliefs are, a values-based approach depends on the individual investor.    <h4>Which approach is best for you?</h4> After going through all of these terms, you may have noticed that there are a lot of similarities. Sometimes the differences between these approaches depend on the intention or end goal, other times it just comes down to semantics. Hopefully, next time you hear one of these terms get tossed around you’ll have a better understanding of what it means. This understanding may help you make your own investing decisions going forward.   * * * 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>.

ESG

Investing

ESG vs SRI: What Do All the Terms Mean?

There are a lot of terms used in the world of impact investing, what do they all mean?

Fennel

01 Nov, 2022

2 min read

How People and Businesses Strive to Create Social Impact

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