September 2016

Neil Shah (VP Research) Christy Ma (Analyst) Cameron Perry (Analyst)

Queen’s Social Investment Initiative 2014 – 2015 1 QS2I: September Hiring

Available Positions for the 2016 – 2017 year:

2 Frosh Reps 1 VP Logistics 1 Publications Analyst

Applications due September 17th at 11:59 PM

Applications can be found at http://tinyurl.com/QS2I-Hiring

We are seeking enthusiastic team-players with a passion for learning!

2 Impact Investing: An Overview

Understanding its impact and significance within today’s economy

1 Defining Impact Investing 2 Types and Methods 3 Growth of the Industry

• Key Players – Who’s • Social Impact Bonds • Past Performance and Involved? Returns • Green Bonds • History and Origins • Challenges of Growth • Responsible Investment • Impact Investing vs. Strategies • Future of the Industry Traditional Investing

3 Defining Impact Investing Introduction to an Vehicle

Pure Social Pure Profit

Program- Socially Philanthropic Venture ESG Traditional Related Responsible Donations Philanthropy Investments Investments Investing Investments

Impact Investing: an investment made into companies, organizations, or funds that aim to generate social and/or environmental impact along with financial returns Supply Network Demand Network

Sources of Impact Channels of Impact Forms of Finance: Impact Service Providers: Capital Capital: Organizations: • Government • Social Banks • Secured Loans • Income-Generating • Government Investment • Community • Unsecured Loans Nonprofits Programs • High Net Worth Development • Charity Bonds • Socially • Accelerators Individuals Finance Institutions • Social Impact Bonds Responsible • International NGOs • Charitable Trusts • Impact Investment • Quasi Equity Corporations • Foundations (as and Foundations Fund Managers • Equity • Microfinance commissioners) • Local Funds • Impact Investment • Grants Banks • Standard-setting • Institutional Intermediaries • • Development Organizations Investors & Banks • Crowd-Funding • Private Debt Banks • Crowd Funding • Corporates Platforms • Real Assets • Social Enterprises

4 Defining Impact Investing Differences and Similarities Between Investments

Financial Gains Social Gains Impact Intent Returns Screening

• Compliance Mission Philanthropy Full (with leverage) None - Low • Impact Effectiveness • Impact Scalability

• Impact first, then Impact Investments Some - Significant Moderate - High financial • Financial first, then impact

• Financial + ESG1 Traditional None - Modest High - Maximized Screen Investments • Financial

1. ESG Screen - Environmental, social and governance (ESG) refers to the three main areas of concern that have developed as central factors in measuring the sustainability and ethical impact of an investment in a company or business

5 Defining Impact Investing Growth of the Impact Investing Industry

1990 2000 2007 2009 2013 2014

Jed Emerson Baruch Lev (NYU The term “impact A report from the Canada: 4 green of impact advocated the Stern): investment” Monitor Group 87% bonds were issued blended value emerged estimated that the investors who with a total of Published a book approach: impact investing targeted $1.53 billion. on collated – an approach industry could competitive For foundations to thinking about that builds All four issuances grow from US$50 returns either met invest in alignment intangible assets intangible assets were over- billion in assets to or outperformed with the mission of (social gain) subscribed, proving Led to furthered US$500 billion in expectations the foundation, alongside tangible, demand for Green thinking about non- assets within the a rather than to financial ones Bonds in Canada maximize financial financial effects of decade (financial return) return corporate production

Impact Investing: Around the World

Europe Latin America and the Caribbean

• The United Kingdom was the first place to issue a Social § The Multilateral Investment Fund committed $3 Million Impact Bond at HMP Peterborough in 2010 of investment capital to launch three SIBs

• In 2013 the Netherlands issued the Social Impact Bond Asia and the Pacific Rotterdam § Australia: first in the region to launch a SIB with a • Portugal has set up a 150 Million euro social innovation specific focus on foster care interventions fund to support SIBs § In South Korea, the Government is working with a • Germany issued a Social Impact Bond: Eleven Augsberg private investors to create a SIB for child welfare in 2013 to increase employment § Malaysia is exploring a SIB to tackle social services

6 Defining Impact Investing: How to Measure Impact

3 Basic Parameters:

1 Enterprise Impact 2 Investment Impact 3 Non-Monetary Impact

Social Value of:

• Goods The various contributions • Services An investor’s contribution that investors may make to • Other Benefits to the social value created the enterprise’s social value Which are provided by the investing enterprise

Other Tools of Measurement:

SE Balanced Scorecard GRI Guidelines Social Accounting

3rd Sector Performance Dashboard Global Impact Investing Ratings System

7 Social Impact Bonds SIB Structure

Social Impact Bond (SIB): a pay-for performance contract between investors, intermediary organizations, and the government where the government agrees to pay for the improved social outcomes

Source: McKinsey

8 Social Impact Bonds Global Distribution

Belgium - employment for young migrants Canada – Gov released statement in Ireland – Creating 2012 about its willingness to re- intervention ideas examine partnerships with private sector -Saskatechewan: SIB for single mothers France – examining international SIB Portugal– Primary benchmarks, have education appointed a Minister of Social Sector

US -Goldman SIB failed, looking for other interventions in (high risk young men, homeless people) and Connecticut -Utah: Early childhood Israel– SIBs education established for focus on employment for orthodox Arab populations and university retention

Australia – SIBs developed in 2012 for foster care interventions

9 Green Bonds An increasingly popular investment vehicle for impact investors

What is a green bond? Who is selling green bonds?

• Uses 100% of proceeds for projects or assets that fit within the Climate Bond Taxonomy:

• The new Liberal government included green bonds in its Renewables Low carbon Waste & pollution election platform, which is expected to drive a increase in development buildings control Canadian green bond activity

Reclamation of Water protection Public transport ecosystems and treatment development

• See www.climatebonds.net/standards for detailed criteria

10 Responsible Investing An alternative method to include sustainable investing

Overview and Description Responsible Investing Strategies

• Seen as the “the integration of environmental, • Positive or Best-in-Class • Corporate engagement and social and governance (ESG) factors into the Screening shareholder action selection and management of investments” • Negative or Exclusionary • Norms-based screening • Impact investing as a subtype of RI Screening • Sustainability-themed • ESG Integration Investing Key RI Industry Highlights: • Impact Investing Growth of in RI from $600B in 2013 to $1 trillion in 2015, 68% increase in two years 1000 800 600 400 200 0 2006 2008 2010 2013 2015 Responsible Investment mutual fund assets are up 52% whereas non-Responsible Investment mutual fund assets are up only 30%

87% of impact investors who target competitive returns met or outperformed expectations in 2013

Source: RIA Canada 2015 Report 11 11 Trends in Impact Investing Rapid industry growth is driving greater accessibility and sophistication

A more accessible market Growing demand for investment managers

• There are now more tools and infrastructure available for • iShares MSCI AWCI Low Carbon Target ETF – Global impact investors, making entry easier for individual and stocks with a lower carbon exposure than the broader institutional investors alike market

• PowerShares Cleantech Portfolio – Cleantech innovators in the developed world

• iShares Jantzi Social Index ETF – Canadian stocks excluding companies with a poor social responsibility record based on ESG criteria

Impact measurement becoming the norm

• The focus in the industry has shifted from “should we measure impact” to “how” as the need to quantify and compare impact across investments and types of impact (i.e. environmental, social, etc.) grows.

• Several rating and reporting systems have been developed to meet this need:

12 Growth in Impact Investing How major players are reacting to this sector

Bain Capital on Impact Investing TPG Growth on Impact Investing

Former Massachusetts Gov. has TPG plans to branch out into the world of social joined Bain Capital as a managing director and impact investing that is meant to be head of a new investment platform focused on philanthropically and financially successful — and social impact. with operations on a big scale.

Launch a brand new business line that will raise • Plans to raise ~$1 billion for the Rise Fund funds to invest in companies that will deliver strong investment returns while also doing good • The fund will involve a partnership with Elevar Equity, an investor that has backed 24 companies Raising a fund that likely will have the flexibility to in seven countries invest in a variety of asset classes (private equity, , mezzanine loans, real estate, etc.) • Expects returns from the new fund to produce, at minimum, market-rate returns

Source: Fortune, New York Times 13 13