The Cornerstone November 2016 Journal of Sustainable Finance...

The Cornerstone

Journal of Sustainable Finance and BankingSM

November 2016

Volume III Issue 7

“Proximity”

©Michael Bednarek/Shutterstock

Global Market Strategy Regional and Sector Strategy: October Update Michael Geraghty … p. 13

Global Earnings Synthesis Michael Geraghty … p. 14

Global Sector Research Poultry Antibiotics in Emerging Markets: Should We Rethink Growth? Food Safety: Is Whole Foods Prepared? Michael Shavel, Sebastian Vanderzeil… p. 15-16

Extractive Company Values Sebastian Vanderzeil, Michael Shavel, Carolyn Trabuco … p. 17

Accelerating Impact Proximity Ignites Change Michele Bongiovanni, HealRWorld LLC … p. 19

The Legacy of the CGI: Doing Well by Doing Good Lives On Derek Yach, Discovery Vitality… p. 21

The Gender Equality Gap: A Problem Too Big to Tackle? Alicia Robinson, Oxfam America … p. 23

Social Equity Investing Demands Greater Proximity Between Investors and Beneficiaries Katherine Pease, KP Advisors … p. 25

Regional Imperatives Place-Based Impact Investing: How to Invest in Your Own Backyard Lauryn Agnew, Bay Area Impact Investing Initiative… p. 27

Enhanced Analytics The State of LGBT Entrepreneurship in the US StartOut … p. 30

Systems Thinking in Impact Entrepreneurship Jennifer Leonard … p. 35

Sustainable Editorial Changing the Narrative on Radicalism Andrew MacLeod, Kings College, London … p. 37

2 / Cornerstone Journal of Sustainable Finance & BankingSM / November 2016

CEO’s Letter on Sustainable Finance & Banking

With this edition of the Cornerstone Journal of Sustainable Finance and Banking (JSFB), issued in such close proximity to the rather astounding US Presidential election, we see investors driving a dramatic downward move in bonds and a strengthening dollar based upon expectations of fiscal stimulus driving more rapid growth and the prospect of inflation. How close we are to these trends actually materializing is another story entirely.

"Proximity" is a central question for so many sectors and for the capital markets. How close are we to artificial intelligence and automation? When are autonomous vehicles set to overhaul taxi fleets? How soon will battery technology allow power consumers to disconnect from the grid and ramp the electric vehicle infrastructure? When will microbiome therapy leverage the healing abilities of the human body? Can open-source software accelerate the penetration of robots? What will be the pace of nano-material development in engineering? So, by sector, we question the pace of change.

For the global economy, we have a whole other set of questions: Will we really see the demise of US commitment to globalization? As the Paris Agreement comes into force, can we and hope that COP in Marrakesh can mark some global unity and momentum as the world seems to tackle the rise of GHG emissions? And of course, how close are we to when the data-driven Federal Reserve Bank will move forward in normalizing monetary policy?

As policy proposals and realities evolve, and while uncertainty and volatility will persist, there is no doubt that macro and structural trends in the US and Global markets are bigger and more powerful than any administration or regulatory regime over the long term. At Cornerstone we believe that the private sector will power progress in meeting the world’s imperatives including addressing everything from climate change, water scarcity, income inequality, gender equity, and healthcare provision, to infrastructure building. We believe that shifts in the political landscape aside, the rising influence of “universal owners” and advisors with a fiduciary duty to their clients will also continue to move the needle on corporate social responsibility.

In this edition of the JSFB we include voices from the impact investment community that illustrate the principle of private sector engagement. In Accelerating Impact, contributor Derek Yach recounts the achievements of the Clinton Global Initiative as it winds down; we feature the work of Oxfam to support women’s economic empowerment in Latin America; and are pleased to have been included in the “SustainRWorld” day campaign for the Sustainable Development Goals (SDG’s), as recounted by HealRWorld’s CEO, Michele Bongiovanni. Also, in Regional Imperatives, we see the potential offered by the investment approach of the Bay Area Impact Investing Initiative.

We argue that promoting the health of the capital markets through transparency and collaboration will empower the innovation necessary to

Erika Karp Founder & Chief Executive Officer Cornerstone Capital Inc.

November 2016 / Cornerstone Journal of Sustainable Finance & BankingSM / 3

meet any challenge. Our discipline of deeply integrating the analysis of pivotal ESG factors into all investment processes allows for the alignment of our clients’ values and investments. And in seeking those managers and those companies in which we place our faith over the long-term, we will aspire to corporate excellence and sustainability. We will remain in relentless pursuit of material progress towards a more regenerative and inclusive global economy.

And we will continue to leverage the power of positive investing. We will stand by those who seek to accelerate the flow of funds into sustainable investment strategies as they demand competitive financial returns. We will highlight the essential nature of an inclusive society where rifts between people and communities are repaired. We offer this view that this shift in political landscape is a call to action … to focus the power of thoughtful and responsible capital markets facilitating solutions to the most critical imperatives of our time.

My sincere regards, Erika Karp Founder and Chief Executive Officer


Table of Contents The views of our guest contributors are independent and their inclusion does not imply an endorsement by Cornerstone Capital Group

CEO’s Letter on Sustainable Finance & Banking

Market Summary

Overview 4

Market & Global Sector Performance, Monetary Policy & ESG Data 5

Global Market Strategy

Regional and Sector Strategy: October Update Michael Geraghty, Global Equity Strategist Cornerstone Capital Group

13

Global Earnings Synthesis Michael Geraghty, Global Equity Strategist Cornerstone Capital Group

14

Global Sector Research

Poultry Antibiotics in Emerging Markets: Should We Rethink Growth?

Food Safety: Is Whole Foods Prepared?

Michael Shavel, Sebastian Vanderzeil, Global Thematic Research Analysts Cornerstone Capital Group

15

Extractive Company Values Sebastian Vanderzeil, Michael Shavel, Carolyn Trabuco, Emma Currier, Global Thematic Research Analysts Cornerstone Capital Group

17

Accelerating Impact

Proximity Ignites Change Michele Bongiovanni, CEO HealRWorld LLC

19

The Legacy of the CGI: Doing Well by Doing Good Lives On Derek Yach, Chief Health Officer Discovery Vitality

21

The Gender Equality Gap: A Problem Too Big to Tackle? Alicia Robinson, CIO, Women in Small Enterprise Fund Oxfam America

23

Social Equity Investing Demands Greater Proximity Between Investors and Beneficiaries

Katherine Pease, Principal, KP Advisors

25

Regional Imperatives

Place-Based Impact Investing: How to Invest in Your Own Backyard

Lauryn Agnew, Founder Bay Area Impact Investing Initiative

27

Enhanced Analytics

The State of LGBT Entrepreneurship in the US StartOut: Waverly Deutsch, PhD, Vivienne Ming, PhD, Mary Shea, PhD, Chris Sinton

30

Systems Thinking in Impact Entrepreneurship Jennifer Leonard, Director, Manager Due Diligence Cornerstone Capital Group

35

Sustainable Editorial Changing the Narrative on Radicalism Andrew MacLeod, Visiting Professor,

Kings College, London 37

I


Market Summary

Overview As we move past the US election, the markets are rallying but the uncertainty of President-elect Trump’s platform and mixed signals from Chinese markets give reason to be hesitant. The S&P 500 reached all-time highs and the Asian markets continue their overall climb back from the fall at the beginning of the year. Prior to the election, central banks had held off from raising interest rates as they awaited further signs of economic recovery. The Federal Reserve has strongly indicated that it will raise rates in December given the recent rally and other economic indicators.

Macroeconomic data saw the US economy growing moderately, with improvements in the labor market and a mild increase in inflation. Real GDP in the third quarter increased at an annual rate of 2.9%, compared with 1.4% in the second quarter. Q3 earnings for the S&P 500 were up 2.9% compared to last year. In October, the producers manufacturing index rose 0.4 to 51.9 (a level below 50 represents contraction) while new orders fell 3.0 to 52.1. In the 12 months through October, CPI grew 1.6%, which was the biggest year-on-year advancement since October 2014. Signs of a steadying economy continued with October unemployment, which reached its lowest rate in eight years at 4.9%. In November, the number of people seeking unemployment benefits fell to a seasonally adjusted 235k against an expected 257k.

Against the backdrop of an improving US economy, much of the investment conversation has focused around the election, both before November 8th and since Trump’s victory. Trump’s lack of detailed economic plans on the campaign trail leave the practicalities of his presidency unclear. However, investors appear bullish about Trump’s headline policies, including reduced regulation and massive infrastructure spending. The financial and industrial sectors preformed particularly well. Since the election, S&P financials are up 10.77% and industrials are up 5.06%. Trump’s platform also included policies that would inhibit trade, particularly with China. Anti-

trade policies could drive inflation as experienced in the UK following Brexit.

The economic information and market rally appears to have strengthened the case for the Fed to increase interest rates in their next meeting in December. At a congressional hearing on November 17th, Fed Chair Yellen said economic conditions and anticipation of a fiscal stimulus packaged justified raising the interest rate “relatively soon.” The last rate hike was in December 2015.

In Japan, the central bank governor had stated that there would be no further monetary easing unless there was a large external shock. However, following the U.S. election, Japanese bond rates increased in expectation of policies from the Trump administration that would drive growth and inflation. The central bank has now decided to buy back an unlimited amount of bonds at negative interest rates to counter these rising yields.

The economic data from China shows mixed signals as the government announced an expected 6.5% annual growth target for the next five years, and regulators decided to open a new link to the Shenzhen stock market for foreign investors. October housing prices rose 1.0% compared to September, which was the 19th consecutive month of increases. October trade exports disappointed investors at -7.3% versus an expected -6.0% and imports fell 1.4% versus an expected -1.1%. Retail sales also disappointed, growing 10% against an expected 10.7%, a result of slowing auto sales growth. The regulators are attempting to limit credit, however, and ordered banks to hold November new mortgages below October levels as fears of a property bubble continue to haunt the government.

—Michael Shavel, Global Thematic Research Analyst

Emma Currier, Associate Analyst


Market Summary

Market and Global Sector Performance

MARKET / INDEX PERFORMANCE

As of 11/17/2016 (local currency) T1M (%) T3M (%) YTD (%) 2016 P/E 2016 P/B Div. Yield US Equity Indices

DJIA 4.7 2.2 11.0 17.3 3.2 2.6 S&P 500 3.0 0.7 9.0 18.4 2.7 2.1 Nasdaq 2.6 2.2 7.7 22.2 3.5 1.2 Russell 2000 8.5 7.2 16.9 29.9 2.0 1.3 MSCI KLD 400 Social 2.8 0.1 8.3 19.6 3.2 2.1 Developed International Indices

Euro STOXX 50 1.3 2.5 -3.2 14.4 1.4 3.9 in USD -1.9 -3.1 -5.1

FTSE 100 -1.7 -0.1 13.1 16.6 1.7 4.0 in USD 0.4 -4.4 -4.4

CAC 40 1.8 2.8 1.1 14.6 1.3 3.7 in USD -1.4 -2.9 -0.9

DAX 1.7 1.4 -0.5 13.2 1.6 3.1 in USD -1.5 -4.2 -2.9

Nikkei 225 5.7 7.5 -4.5 17.9 1.6 2.0 in USD 0.2 -1.6 5.1

ASX 200 0.0 -1.6 6.6 16.1 1.8 4.4 in USD -2.2 -3.8 9.0

Emerging Market Indices

IBOVESPA -3.1 2.5 40.2 15.5 1.5 2.7 in USD -9.2 -3.2 62.5

Shanghai Comp 5.5 3.3 -7.5 15.1 1.5 2.0 in USD 3.3 -0.4 -12.7

KOSPI -2.3 -3.1 1.1 11.2 1.0 1.7 in USD -5.4 -8.0 1.4

SENSEX -4.6 -6.1 1.9 17.6 2.6 1.6 in USD -6.2 -7.5 -0.8

Bovespa Corp. Sustainability -4.1 -2.3 16.3 15.8 1.9 2.6 in USD -10.2 -7.6 34.7


As of 11/17/2016 (local currency) T1M (%) T3M (%) YTD (%) 2016 P/E 2016 P/B Div. Yield Global Market Indices MSCI World 0.9 -1.3 4.7 17.3 2.1 2.6 MSCI All-Country World 2.0 0.5 8.6 15.1 1.5 3.4 MSCI EAFE -1.7 -3.9 -2.1 15.4 1.5 3.4 MSCI Emerging Markets -5.3 -6.5 9.2 13.2 1.4 2.6 DJ Sustainability World Comp 1.0 -1.3 4.4 15.4 1.8 3.3 FTSE4Good Global 1.2 -0.7 4.1 15.8 1.9 2.9 Fixed Income Barclays US Aggregate -2.0 -2.5 3.1 Commodities Levels 11/17/2016 5/17/2016 11/17/2015 WTI Crude 45.9 50.5 47.8 ICE Brent Crude 46.9 51.1 51.6 NYMEX Natural Gas 2.7 2.9 2.9 Spot Gold 1227 1279 1070 LME 3mth Copper 5433 4645 4690 CBOT Corn 348 412 399 ICE ECX Emission 5.9 6.1 8.7 Currencies Levels 11/17/2016 5/17/2016 11/17/2015 EUR/USD 1.1 1.1 1.1 USD/JPY 109.6 109.1 123.5 GBP/USD 1.2 1.4 1.5 AUD/JPY 81.7 79.9 87.8 DXY Index 100.6 94.5 99.6

Source: Bloomberg, Barclays. Equity Returns: All returns represent total return for stated period. Dividends and coupons are not included in the DAX and BOVESPA indices. Bond Returns: All returns represent total return for the stated period. Index characteristics: P/E, P/B, and Dividend Yield are based on Bloomberg consensus estimates for the stated period.


MSCI ACWI SECTOR PERFORMANCE

As of 11/17/2016 1 Month Price Return (%) YTD Price Return (%)

Source: Bloomberg. Sector returns are based on GICS methodology. MSCI ACWI is a free-float weighted equity index that includes both emerging and developed world markets.

Source: Bloomberg. Sector returns are based on GICS methodology. MSCI ACWI is a free-float weighted equity index that includes both emerging and developed world markets.

US EQUITY STYLE PERFORMANCE Style box returns are based on Russell Indices with the exception of the Large-Cap Blend box, which reflects the S&P 500 Index. All values are cumulative total return for the stated period including the reinvestment of dividends. The index used from left to right, top to bottom are: Russell 1000 Value Index, S&P 500 Index, Russell 1000 Growth Index, Russell Midcap Value Index, Russell Midcap Index, Russell Midcap Growth Index, Russell 2000 Value Index, Russell 2000 Index and Russell 2000 Growth Index.

1 Month

Source: Bloomberg

Year to Date

Source: Bloomberg

FinancialsMaterial

IndustrialsMSCI ACWI

Cons DiscrEnergyHealthcareInfo TchUtilityCons StplTel Sv

-10 -5 0 5 10

MaterialEnergy

Info TechIndustrialsFinancials

MSCIACWIUtility

Cons DiscrCons StaplTel SvHealthcare

-10 -5 0 5 10 15 20 25

Value Blend Growth

Larg

e

4.6 3.0 1.7

Mid 4.6 4.0 3.3

Smal

l

10.4 8.5 6.5

Value Blend Growth

Larg

e

13.1 9.0 5.6

Mid 15.9 11.4 6.8

Smal

l

24.2 16.9 10.0


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP

As of 11/17/2016

Company name Ticker Industry Mkt Cap (US$ Bn)

Price (Local)

Total Return YTD % (local)

P/E 2015E

EV/ EBITDA 2015E

Div Yield % 2015E

ESG Disclosure Score

Consumer Disc. Amazon.com AMZN Internet & Direct

Marketing Re 359.3 756.0 11.8 77.8 23.9 N/A 21.9

Toyota Motor Corp 7203.JP Automobiles 187.4 6151.0 -15.0 11.3 11.5 3.4 33.1

Comcast Corp CMCSA Media 163.1 68.2 22.9 19.5 8.5 1.6 30.2

The Walt Disney Co

DIS Media 158.9 98.9 -5.2 16.6 10.1 1.4 33.5

Home Depot Inc HD Specialty Retail 157.7 127.7 -1.9 20.1 11.7 2.2 23.0

Consumer Staples

The Procter & Gamble Co

PG Household Products

222.4 83.1 8.1 21.4 13.8 3.2 N/A

Nestle NESN.VX Food Products 213.7 69.0 -4.5 20.2 13.8 3.3 57.0

Wal-Mart Stores WMT Food & Staples Retailing

212.0 68.5 14.2 15.8 7.9 2.9 32.5

Anheuser-Busch Inbev

ABI.BB Beverages 208.9 97.1 -12.1 28.3 15.6 3.7 52.9

The Coca-Cola Co KO Beverages 177.2 41.1 -2.1 21.5 16.7 3.4 26.9

Energy

Exxon Mobil XOM Oil, Gas & Consumable Fuels

356.2 85.9 14.1 40.0 12.6 3.5 54.4

Royal Dutch Shell RDSA.LN Oil, Gas & Consumable Fuels

205.5 1993.0 41.0 25.3 9.1 6.9 57.3

Chevron CVX Oil, Gas & Consumable Fuels

204.9 108.5 26.0 80.7 11.3 4.0 48.1

Petrochina Co 857.HK Oil, Gas & Consumable Fuels

188.8 5.2 3.0 102.1 7.2 1.0 35.7

Total Sa FP.FP Oil, Gas & Consumable Fuels

117.7 43.7 10.6 14.2 6.8 5.6 58.5

Financials

Berkshire Hathaway

BRK/B Diversified Financial Services

390.4 158.4 20.0 21.9 N/A N/A 13.6

JPMorgan Chase JPM Banks 280.3 78.4 22.2 13.4 N/A 2.5 41.7

Wells Fargo & Co WFC Banks 264.4 52.6 0.0 13.2 N/A 2.9 51.3

Ind & Comm Bank of China

1398.HK Banks 222.0 4.5 1.4 5.2 N/A 6.1 29.4

Bank Of America Corp

Bac.us Banks 203.6 20.1 21.1 13.7 N/A 1.5 58.8


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP (CONTINUED) As of 11/17/2016


Price (Local)


P/E 2016E

EV/ EBITDA 2016E

Div Yield % 2016E


Health Care Johnson & Johnson

JNJ Pharmaceuticals 316.4 116.3 15.6 17.3 11.9 2.8 59.5

Roche Holdings ROG.VX Pharmaceuticals 201.4 234.2 -12.5 15.8 10.8 3.5 48.8

Pfizer PFE Pharmaceuticals 193.9 32.0 2.8 13.2 10.6 3.8 43.4

Novartis AG NOVN.VX Pharmaceuticals 190.1 72.7 -13.1 15.3 14.6 3.7 63.2

Merck & Co MRK.US Pharmaceuticals 172.1 62.4 21.1 16.5 10.9 2.9 56.6

Industrials General Electric Co

GE Industrial Conglomerates

272.9 30.9 1.3 20.7 18.1 3.0 57.4

3M MMM Industrial Conglomerates

103.8 172.6 17.7 21.1 13.0 2.6 56.6

United Parcel Service

ups.us Air Freight & Logistics

98.8 113.3 21.2 19.4 10.4 2.8 57.0

Siemens SIE.GR Industrial Conglomerates

97.1 107.2 24.1 14.2 9.7 3.4 56.2

Boeing BA Aerospace & Defense

90.5 146.4 4.7 20.2 11.9 3.0 36.8

Info Tech Apple AAPL Technology

Hardware, Storage &

582.3 109.2 6.0 12.1 6.0 2.1 50.2

Google GOOGL Internet Software & Services

536.2 786.5 1.1 22.9 12.7 N/A 24.0

Microsoft Corp MSFT Software 470.2 60.5 12.0 20.4 11.4 2.6 N/A

Facebook FB Internet Software & Services

336.6 116.5 11.3 28.4 17.6 N/A 26.4

Tencent Holdings 700.HK Internet Software & Services

237.7 194.8 28.1 37.2 25.9 0.2 12.0

Materials BHP Billiton Ltd BHP.AU Metals & Mining 91.3 24.1 37.6 23.8 7.2 2.4 56.2

BASF BAS.GY Chemicals 79.5 81.2 19.6 17.1 8.6 3.6 61.6

Rio Tinto RIO.AU Metals & Mining 69.9 57.6 35.1 18.8 7.5 5.2 58.7

Saudi Basic Ind. SABIC.AB Chemicals 68.8 86.0 19.8 15.6 7.6 4.7 32.2

Du Pont DD.US Chemicals 59.6 68.5 5.2 21.1 12.3 2.2 55.4


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP (CONTINUED)

As of 11/17/2016


Price (Local)


P/E 2016E

EV/ EBITDA 2016E

Div Yield % 2016E


Telecom AT&T T Diversified

Telecommunication 230.2 37.5 14.5 13.2 6.6 5.2 50.2

China Mobile 941.HK Wireless Telecommunication Ser

223.7 84.8 -0.3 14.2 4.2 3.2 45.7

Verizon VZ Diversified Telecommunication

195.3 47.9 8.3 12.3 6.7 4.8 32.1

Ntt Docomo Inc 9437.jp Wireless Telecommunication Ser

90.0 2490.5 3.2 14.0 6.7 3.2 51.7

Nippon Telegraph

9432.jp Diversified Telecommunication

82.6 4317.0 -8.5 11.3 4.6 2.8 52.1

Utilities Nextera Energy NEE.US Electric Utilities 55.0 114.7 12.8 18.4 10.8 3.0 49.4

Duke Energy DUK Electric Utilities 51.3 74.4 8.8 15.9 10.0 4.6 61.5

Southern Co SO.US Electric Utilities 46.7 47.7 6.5 16.5 12.4 4.7 30.6

Dominion Resources

D.US Multi-Utilities 44.6 71.1 8.2 18.7 13.9 3.9 45.3

National Grid NG/ LN Multi-Utilities 43.7 931.5 2.3 14.6 10.8 4.7 34.3

Source: Bloomberg. The securities in each sector represent the largest companies by market cap in the MSCI ACWI in their respective sectors. Sector classification is based on GICS methodology. Equity characteristics: P/E, EV/EBITDA and Dividend Yield are based on Bloomberg consensus estimates for stated period.

GDP / CONSUMER PRICE INFLATION / RATES

Real GDP (% YoY) CPI (% YoY) Official Rates Long Rates Region/Countries 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E United States 2.4 1.6 2.1 0.1 1.2 2.2 0.5 0.7 1.1 2.3 1.7 2.1 Euro Area 1.5 1.6 1.3 0.0 0.2 1.3 0.1 0.0 0.0 - - - Japan 0.6 0.6 0.8 0.8 -0.2 0.5 0.1 0.0 -0.1 0.3 0.0 -0.1 UK 2.2 1.9 0.9 0.0 0.7 2.4 0.5 0.3 0.3 2.0 1.2 1.6 Australia 2.3 2.9 2.8 1.5 1.3 2.0 2.0 1.5 1.3 2.9 2.1 2.3 China 6.9 6.7 6.4 1.4 2.0 2.0 4.4 4.4 4.1 3.2 2.8 2.7 Brazil -3.7 -3.3 1.0 9.0 8.8 5.4 14.3 13.6 10.9 - - - **India 7.4 7.5 7.7 6.2 4.9 5.0 6.8 6.2 6.0 7.6 6.8 6.5

Source: Bloomberg. Estimates are composite of Bloomberg contributor estimates. *Italicized text represents actual data. ** India fiscal year runs to March 31.

MONETARY POLICY

Sep-16 Mar-15 Sep-15 Monetary Base growth (YoY) -11.4% -3.5% 4.6% M-2 growth (YoY) 7.6% 6.7% 5.9% Money multiplier (M-2/mon base) 3.7 3.3 3.0 3Q16 3Q15 3Q14 Velocity of money (GDP/M-2) 1.4 1.5 1.5

Source: Federal Reserve Bank of St. Louis


KEY ECONOMIC CHARTS

C&I Loan Growth (%) University of Michigan Survey of Consumer Sentiment

Source: Federal Reserve Bank of St. Louis Source: Bloomberg NFIM Small Business Optimism Index ISM Manufacturing Purchasing Managers Index

Source: Bloomberg Source: Bloomberg US Treasury Yield Curve US Initial Jobess Claims

Source: Bloomberg Source: Bloomberg Production Employees Average Hourly Earnings

Source: Federal Reserve Bank of St. Louis

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1975 1980 1985 1990 1995 2000 2005 2010 2015

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1975 1980 1985 1990 1995 2000 2005 2010 2015

25

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1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 30Y

%

11/16/20165/17/201611/16/2015

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Regional and Sector Strategy: October Update By Michael Geraghty, Global Equity Strategist, Cornerstone Capital Group

Sector Strategy: Neutral. We are Neutral on every sector but one. By our methodology, the majority of sectors are closely grouped in ranking. In some instances, a sector — e.g., Financials — is attractive from a valuation perspective, but has poor earnings momentum. Other sectors — e.g., Materials — have a better earnings outlook, but their valuation is unattractive. Regional Strategy Still Selective. Russia and Australia, our only two Overweights, continue to enjoy the favorable combination of rising earnings estimates and attractive valuations.

Three More Sectors Moved to Neutral. We have downgraded Telecom to Neutral from Overweight based on a deteriorating earnings outlook. We have upgraded two sectors to Neutral from Underweight — Industrials (improved relative valuation) and Consumer Staples (improved relative earnings momentum).

Regional Strategy: Neutral to Negative. Russia is our sole Overweight based on the favorable combination of strong earnings momentum and attractive valuation. We have downgraded Australia to Neutral from Overweight based on a deteriorating earnings outlook, although the country’s valuation remains attractive.

A Cautious Equity Outlook. Both our sector and regional strategies are consistent with our broader concern about the equity outlook. In general, valuations seem elevated in an environment where expectations for earnings growth are being revised downward.

Figure 1: Sector Rankings

Source: Cornerstone Capital Group.

Summary of report originally published October 6, 2016.

©mirexon/Crystal Graphics

Michael Geraghty is the Global Markets Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.



Global Earnings Synthesis: Single-Digit Earnings Gains in 2017 Could Imply a Single-Digit Gain in Equity Markets By Michael Geraghty, Global Equity Strategist, Cornerstone Capital Group

2017 Estimates Seem Overly Optimistic. Consensus estimates currently imply a 31% gain in global earnings in 2017. Annual earnings growth has not exceeded 13% in any of the past five years. Financials and Energy have seen the biggest downward estimate revisions in 2016, but the consensus estimate is for those sectors to have some of the biggest gains in earnings in 2017.

A Single-Digit Gain in 2017 EPS Seems Plausible. Since 2010 the start-of-year expectation for MSCI ACWI EPS has, on average, been too high by 14%. If the current estimate of 2017 earnings declined by the average 14%, that would imply a 13% gain in 2017 earnings. However, with estimates likely to continue falling, actual earnings growth in 2017 could well be in the low single digits.

Equity Markets in 2017: Driven by Earnings Growth? The potential combination of stable P/E multiples and modest earnings growth raises the possibility that global stock prices will rise by just a single digit amount in 2017.

Figure 1: MSCI ACWI EPS ̶ Start-of-Year Consensus Estimate and Actual Year-End EPS

Source: MSCI, Cornerstone Capital Group

Summary of report originally published on October 14, 2016.

©mirexon/Crystal Graphics


Global Sector Research Poultry Antibiotics in Emerging Markets: Should We Rethink Growth? By Michael Shavel and Sebastian Vanderzeil, Global Thematic Research Analysts, Cornerstone Capital Group

Recent survey results indicate a move away from antibiotics in emerging market poultry production. WATT Global Media surveyed poultry feed producers and consumers globally (i.e., nutritionists, consultants, veterinarians, production managers) and 43% of respondents said that more than half of their feed production is now antibiotic-free. Based on the regional breakdown provided, we estimate that emerging markets accounted for 60-75% of survey participants.

Possible divergence from company views. In fiscal 4Q16, Phibro Animal Health (PAHC: $25.54) reported modest growth in sales of medicated feed additives (MFAs) containing antibiotics. Weakness in the US was offset by international growth from emerging markets such as Brazil and China. On the earnings call, Phibro cited emerging markets’ growing populations and need to improve productivity in food production as a long-term driver for their international MFA business. Our read of the survey results is that investors should be cautious assuming that growth in emerging market poultry production will translate into similar growth in MFAs.

Nutritional and specialty feed additive opportunities in EM. Our October 5, 2015 report Antibiotics and Animal Health: Value-Chain Implications in the US highlighted nutritional and specialty feed additives as having significant growth potential. We believe the survey implies a broader opportunity in EMs with two-thirds of survey respondents exploring, testing or using feed additives as antibiotic alternatives. Probiotics and prebiotics usage is also on the rise, supporting our previous view that growth these categories would outpace other additives.

Investment implications. For animal health companies, the survey signals possible checks to future growth in antibiotic use in EMs. Nutritional and specialty feed additives are generally produced by major chemical companies and represent a small portion of overall revenue, but opportunities in the EM appear to be growing. For companies with more concentrated exposure, probiotic and prebiotic feed additives offer the greatest growth potential.

Summary of report originally published October 14, 2016.

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group. He is responsible for researching industries, companies and trends in the field of sustainable finance. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at AllianceBernstein where he covered the energy, industrials, and materials sectors. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Sebastian Vanderzeil is a Global Thematic Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

©maerzkind/ Crystal Graphics


Global Sector Research Food Safety: Is Whole Foods Prepared? By Michael Shavel and Sebastian Vanderzeil, Global Thematic Research Analysts, Cornerstone Capital Group

On October 20, the Detroit Health Department announced an investigation into two cases of Hepatitis A potentially linked to Whole Foods’ stores. Whole Foods contacted the Detroit Health Department to report one of the cases, while the second case has not been definitively linked to Whole Foods. While we view the reporting of this incident to health officials as positive, we have concerns about the grocery chain’s food safety preparedness given its exposure to prepared/ready-to-eat food and its lack of food safety disclosure.

Ready-to-eat food accounts for the highest percentage of recalls in the US and Prepared Foods/Bakery accounted for 19% of Whole Foods sales in 2015. Prepared foods is a growing area for grocery stores, with consumers citing time and affordability as reasons for this choice. In June 2016, Whole Foods received a warning letter from the Food and Drug Administration citing ‘serious violations’ of federal regulations during an inspection of the company’s food preparation facility in Massachusetts. Whole Foods stated that it would respond to issues raised in the letter, but we have not observed an increase in disclosure.

Our review of previous food safety incidents revealed that grocery store sales suffer less than restaurants; however, growth in prepared foods may lead to an increased impact. In 2008, Kroger experienced a

multistate outbreak of E.coli linked to ground beef but did not experience a material sales impact. Restaurant chains such as Jack in the Box, Yum Brands and Chipotle experienced multi-quarter same-store sales impact as a result of a food safety incidents. We identified a key factor being the amount of time between purchase and consumption—adulterated or unsafe food is more likely to be consumed at restaurants. However, Whole Foods’ prepared foods are consumed quickly, thus creating a possible restaurant-level food safety risk.

In our July 2016 report Food Safety: In a State of Transformation, we developed a food safety disclosure assessment tool comprising 11 elements. Elements included internal food safety systems and independent auditors/standards, board expertise and product traceability. We view disclosure as a proxy for food safety performance as it suggests the company is actively considering the relevant issues and is able to publicly discuss its approach.

Whole Foods currently provides limited disclosure related to food safety, even after the FDA warning. We could not locate disclosure on an internal safety system or external auditors for its operations including its prepared food facilities. Whole Foods requires mandated food safety plans for high-risk items (e.g. eggs and baby food) but suppliers are not required to comply with a food safety standard accredited under the Global Food Safety Initiative. There is no food safety expertise present on the board or published Key Performance Indicators related to food safety.

Whole Foods recognizes in its 10K that it is held to higher standard on food safety due to its reputation but, given lack of disclosure, we question whether Whole Foods is appropriately considering this risk should further incidents arise. Increased disclosure would provide investors with greater confidence that the appropriate processes are in place. Disclosure would also provide investors with confidence that issues will be managed quickly and efficiently to avoid significant impact to the business.

©BigBounce/Crystal Graphics


Global Sector Research Extractive Company Values: Attention to Environmental and Social Issues as an Indicator of Companies’ Strategy Execution Potential Sebastian Vanderzeil, Michael Shavel, Carolyn Trabuco, Emma Currier—Cornerstone Capital Group

The extractive sector is important to the global economy and will be critical to a sustainable future. With a market cap of over US$6 trillion, the extractive sector encompasses over 5,000 companies. Extractive companies’ success will be in part determined by their ability to position themselves for this future. It provides raw materials for everything from energy creation to high-tech manufacturing to electronics. Even as the world starts to transition from greenhouse gas emitting commodities like oil and coal, natural resource extraction will remain essential. Smartphones and electric vehicles, for instance, require metals sourced from extractive operations around the world. Yet natural resource extraction is, by its very nature, environmentally destructive and socially disruptive — and managing the risks inherent in mining is of prime

concern to extractive companies and the host countries in which they operate. Mining is particularly important for emerging markets, and therefore emerging market investors, as these companies generate a significant proportion of economic activity but also impact the local environment and communities.

The environmental and social (E&S) issues we address in our report highlight strategic concerns for any mining or extractive company. Tailings risk (tailings are the effluents generated in a mine processing plant, and require long-term, secure storage), community-company conflict, contract workers and labor disputes, and management of global reputational risk (using biodiversity impact as its proxy) create event risks such as mine failures, shutdowns or license denials. They also impact longer-term operational planning because they require proactive engagement with local, global and contextual stakeholders to assure passage. We assess selected companies’ corporate governance as it relates to actively managing E&S issues, identifying leaders and laggards based on relative “attentiveness” to material E&S concerns.

Detailed analysis of E&S issues provides predictive insight. We offer a proprietary framework to assess extractive companies’ underlying values, leadership, and culture based on a bottom-up analysis of material, yet underappreciated environmental and social (E&S) issues. We then explain how the issues impact specific items within a company’s financial statements.

Key observations. At a high level, we came away with these conclusions:

• Community influence increasingly impacting social license to operate. Concerns over erosion, loss of biodiversity, contamination of soil and groundwater, waste material management,


and worker safety continue to threaten project timelines and economics. Local communities are increasingly protesting new mine expansion by companies that have failed to meet community expectations for previous mine closures, especially as community conflict becomes more transparent with social media. The cost of project delay from community conflict runs to $20m per week, though the largest cost is the inability to expand or sell a project.

• High CEO turnover impacts performance. A change in leadership is often followed by fresh initiatives and new strategies, especially in regards to health and safety. Among the companies we analyzed, outsider CEOs were more likely to be associated with best-in-class initiatives on transparency. The majority of these companies’ CEOs are engineers in training, which is well suited to the industry but also may counterintuitively increase the risk of community conflict.

• Employment. All else equal, an owner-operated mine is better-equipped to manage its relationship with the community than one that relies heavily on contract labor. Though contract mining is inherently more flexible, owner-operated mines invest in local communities and, when execute successfully, better maintain their social license to operate.

• Best / Worst performers. Cornerstone identified several markers of a company’s culture, values and leadership quality, which in turn speak to its willingness and ability to address emerging risks as it executes its strategy. Leaders: Antofagasta, Newcrest, Randgold, Tullow Oil. Laggards: Buenaventura, Harmony, Philex, South32.

Sebastian Vanderzeil is a Global Thematic Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

Michael Shavel is a Global Thematic Research Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Carolyn Trabuco is a Managing Director and Global Thematic Research Analyst at Cornerstone Capital Group. Carolyn has spent more than 25 years in the global equity investment space where she has identified dynamic secular changes, made investment decisions, developed business and industry models, valued companies, and assessed risk around global commodities, companies and industries. Previous firms include Pequot Capital, Phibro, Montgomery Securities and Fidelity Management and Research. She is an independent member of the Board of Directors of Azul Brazilian Airlines.

Emma Currier is a Research Associate at Cornerstone Capital Group. Emma graduated with a Bachelors of Arts degree in Economics from Brown University in May 2016. While at school, she worked with the Socially Responsible Investing Fund and as a teaching assistant for the Public Health and Economics departments. She spent her sophomore summer researching differences between American and Indian educational styles in Arunachal Pradesh, India, and completed a summer investment bank analyst position with Citi in the Media & Telecom group in 2015.


Accelerating Impact

Proximity Ignites Change

Michele Bongiovanni, CEO of HealRWorld LLC

In September 2015, the United Nations convened world leaders at a summit in New York City to make history. All 193 members of the United Nations agreed and

committed to work together in order to fulfill 17 global goals that will serve as a roadmap for improving the entire planet. The Sustainable Development Goals (SDGs) provided the framework for humanity to join forces from 2015-30 to address the world's most pressing challenges, such as climate change, sustainable energy, extreme poverty, health, education, gender equality, drinkable water, and economic growth.

To succeed, the SDGs must be clear, digestible, and emotionally resonant—and they must be known across every corner of the planet. To achieve this aspiration, we must not just lean on government, but also mobilize business. By harnessing the power of commerce towards achieving the goals, we will drive impact with brands, executives, corporations, employees, and ultimately consumers.

With this vision in mind, HealRWorld forged an alliance with the world’s largest activation agency and a leading global sustainable business convener of the planet’s most prominent brands to personalize the goals, drive awareness, catalyze engagement, and promote conscious capitalism in support of the SDGs.

SustainRWorld Day was launched September 8, 2016 at the United Nations by HealRWorld and our partners: Sustainable Brands, Geometry Global, and The PVBLIC Foundation. SustainRWorld Day set out to rally the private sector in support of the UN’s Sustainable Development Goals, putting a line in the sand to measure and celebrate progress annually.

The vision launched with a full marketing campaign called “The Seventeen.” Individual business leaders, influencers, academics and celebrities stepped up to be

the public faces of each of the seventeen SDGs. The campaign not only personalized each of the global goals, but put a public stake in the ground for businesses to rally for change.

“The Seventeen” campaign includes courageous and visionary leaders who are not afraid to leverage their personal brands to help humanity, such as actor Ted Danson for his work with Oceana, Jostein Solheim (CEO of Ben & Jerry’s), Naveen Jain (Founder and CEO of Moon Express), Eileen Fisher (Founder and CEO of Eileen Fisher), Jigar Shah (ex-CEO of the Carbon War Room and Co-Founder of Generate Capital), Paul Hawken (Environmentalist, Entrepreneur and Author) and Erika Karp, (CEO and Founder of Cornerstone Capital Group), as well as others.

The September 8 event launched with a number of speakers representing the United Nations’ Secretariat and agencies such as UNICEF, UNCTAD and the Global Compact, along with a number of private sector leaders and members of academia, including the Director of Princeton University’s Andlinger Center for Energy and the Environment. The excitement in the room was contagious and one fact became evident — that when you bring passionate leaders together around an important cause, you truly ignite change. The event immediately created momentum for further action and collaboration.

http://sustainrworldday.global/the-17-campaign


From this initial launch at the United Nations, HealRWorld has been inspired to form “The HealRWorld Foundation,” a non-profit that will be dedicated to furthering sustainability education, awareness and engagement globally and fundamentally igniting measurable actions through our work with the United Nations and other partners.

It’s time that the Sustainable Development Goals become a household name, and our vision is that every business adopts the SDG framework in some manner within their overall strategy.

In 2017, “The Seventeen” campaign will go global, with each country being offered the opportunity to participate by customizing the campaign with their local philanthropists and business leaders to further inspire the movement. From this spark we will create a global “SustainRWorld Day” event series to celebrate the collaborative successes each year. Won’t you join us?

For more information on SustainRWorld Day, “The Seventeen” Campaign or how to get involved, please contact our office at (908) 450-7315 or email me directly at [email protected]. For more information on SustainRWorld Day, go to sustainrworldday.global.

Together we can be a force for change.

Michele A. Bongiovanni is CEO of HealRWorld LLC, a social impact firm whose big data platform aggregates sustainability information (People, Planet, Profit) on global large and small & mid-sized enterprises (SMEs) to power products, drive revenues & foster positive change. For more than 20 years Michele has served in strategy, marketing and product innovation in the financial services industry.

mailto:[email protected]

http://www.sustainrworldday.global/


Accelerating Impact The Legacy of the CGI: Doing Well by Doing Good Lives On

By Derek Yach, Chief Health Officer, Discovery Vitality

In late September, the Clinton Global Initiative (CGI) convened top leaders from business, government and civil society for the 12th and final time. The end of the CGI Annual Meeting brings to a close not just an event, but a force that has helped change the way that companies everywhere think about social responsibility.

It’s been a decade since the Rockefeller Foundation (RF) endorsed me to advance CGI’s global health work, which at the time was new and already starting to make waves in philanthropy. President Bill Clinton’s enthusiasm for encouraging the private sector to step up as key players in the social impact space — rather than leaving such work to governments and nonprofits — was met with both curiosity and skepticism at the time. But the leadership at

Rockefeller recognized that CGI’s approach to addressing global challenges represented a fresh and needed way forward.

By facilitating the development of specific and measurable corporate plans to make a positive social and environmental impact — coined as Commitments to Action — CGI bet on the idea that corporate philanthropy could become more effective by embedding societal values into companies’ core business plans.

It turns out former President Clinton’s experiment worked. Taking philanthropy beyond the traditions of corporate social responsibility — “doing well by doing good” — is now the accepted norm for business ten years later.

Its success paved the way for similar approaches, such as Michael Porter and Mark Kramer’s shared value, PepciCo CEO Indra Nooyi’s “performance with purpose,” or Novo Nordisk’s approach to the triple bottom line. All of these new approaches seek to find a new and explicit nexus between financial performance and social impact. As an advisor to CGI, I witnessed the powerful way former President Clinton’s platform stimulated, guided, cajoled and excited companies to go beyond their quarterly earnings reports and bring about positive social change through their commitments to action.

The direct benefits to society have been most obvious in the myriad global health commitments that have been carried out since 2005. Because of the collective body of commitments made by the CGI community, more than 114 million people have increased access to maternal and child health and survival programs, and more than 33 million people have increased access to safe drinking water and sanitation. Because of these commitments, more than 36 million people received treatment for neglected tropical disease, and more than $318 million in research and development funds was spent on new vaccines, medicines and diagnostics.

© Paul Morse/Clinton Global Initiative

http://www.clintonglobalinitaitive.org/

http://www.clintonglobalinitaitive.org/

https://medium.com/@ClintonFdn/empowering-people-to-build-better-futures-for-themselves-their-families-and-their-communities-99d5843391fb#.bn3p3eq2o

https://medium.com/@ClintonFdn/empowering-people-to-build-better-futures-for-themselves-their-families-and-their-communities-99d5843391fb#.bn3p3eq2o

https://www.clintonfoundation.org/clinton-global-initiative/about-us/commitments-action

https://www.clintonfoundation.org/clinton-global-initiative/about-us/commitments-action

http://www.triplepundit.com/topic/shared-value/

http://www.pepsico.com/Purpose

http://www.pepsico.com/Purpose

http://www.triplepundit.com/topic/triple-bottom-line


Due to the CGI community’s embrace of “doing well by doing good,” many companies transformed their business models to place health gains as central to their work. Traditional corporate philanthropy was soon reframed to meet market failures, including research, human capacity and humanitarian crises.

In fact, many of the United Nations Global Compact’s (UNGC) member companies are also CGI members. From the start, the CGI Annual Meeting was held during the week of the United Nations General Assembly, in the hopes of spurring synergy between goals and visions discussed on the East and West sides of New York City. CGI companies brought their experiences into the U.N. system at a time of unprecedented support for new forms of private-public partnerships to complement the role of government in addressing the newly adopted Sustainable Development Goals. This could allow for CGI’s commitments to reach the scale needed to have true global impact. Health should be a major beneficiary.

To accelerate progress on health, the UNGC is collaborating with Discovery Vitality and Novo Nordisk to elevate health within business in other areas that have become the norm, including the environment, labor, human rights, and corruption. Discovery Vitality’s CEO, Adrian Gore, pledged to work with others to advance the integration of health metrics into corporate reporting in his plenary address at CGI 2013 in the presence of the Director General of the World Health Organization, Margaret Chan, and the session chair, Chelsea Clinton. This pledge is being advanced during the UNGC in 2016.

It has been a privilege to see how seemingly intractable health and social problems are being tackled in new ways that build on the joint expertise of companies, NGOs, academia and government. While I was at PepsiCo, our CGI commitments tackled undernutrition in Ethiopia and obesity in China, India, and Mexico. We also partnered with the Alliance for a Healthier Generation, the American Beverage Association, and private-sector peers to curb the marketing and sales of unhealthy foods and beverages in the United States. All of these commitments had profound implications for the future of business models of food companies.

At Discovery Vitality, we are now expanding our CGI Commitments to Action with a very sharp focus, as outlined in our just-released 2016 Sustainable Development report. Vitality Shared Value Insurance is leading our members around the world to live longer lives while also transforming one of the oldest business models – life insurance. Our plan is having impact on health in profitable ways. CGI’s leadership in supporting and steering companies to do this will have enduring impacts on peoples’ lives and on our planet’s survival.

Few global platforms can claim to have the direct and indirect impact of the Clinton Global Initiative. Even as CGI draws to a close, the important work and impact of our commitments will continue. Doing well by doing good – and valuing the integration of both business purpose and societal gains – is now an unstoppable force in best business practices and in modern philanthropy.

Derek Yach, MBChB, MPH is Chief Health Officer at Discovery Vitality. He has been a full time employee of PepsiCo and has been on the Advisory Committee for the Clinton Global Initiative since 2006.

https://www.youtube.com/watch?v=c2850vBpxXg

https://www.clintonfoundation.org/clinton-global-initiative/commitments/enterprise-ethiopea

https://www.clintonfoundation.org/clinton-global-initiative/commitments/community-interventions-health

https://www.clintonfoundation.org/clinton-global-initiative/commitments/american-beverage-industry-calorie-action-plan

https://www.clintonfoundation.org/clinton-global-initiative/commitments/american-beverage-industry-calorie-action-plan

https://www.discovery.co.za/discovery_coza/web/linked_content/pdfs/investor_relations/discovery_sustainable_development_report_2016.pdf

https://www.discovery.co.za/discovery_coza/web/linked_content/pdfs/investor_relations/discovery_sustainable_development_report_2016.pdf


Accelerating Impact

The Gender Equality Gap: A Problem Too Big to Tackle? By Alicia Robinson, Chief Investment Officer, Oxfam America's Women in Small Enterprise Fund

Closing the gender equality gap is among the priorities of the United Nations Sustainable Development Goals (Goal 5), along with end ending poverty and hunger, and ensuring quality education. In short, it is, has been, and will continue to be one of the most tremendous challenges of our times. What precedes this article is a plethora of literature telling us “what” to do (provide more leadership and equal opportunities, offer gender-sensitive trainings and access to resources, ensure participation, reform policies). This article focuses not only on how to actually begin putting these “whats” into practice, but also on how to get closer to closing this gap.

One of the most important and effective ways to close the gender equality gap is through women’s economic empowerment. Countless women across the globe face insurmountable barriers to fully participate in and contribute to the economy; these range from discrimination in the workforce, unequal pay, inability to access credit, lack of land ownership, lack of community support, and restricted movement. Others are unable to engage in income-generating tasks as a result of family chores such as washing clothing by hand, fetching water, cooking, and cleaning--also known as

“time poverty.” Empowering women economically can reverse all of these trends and help women gain agency and respect in their societies.

There are many places to start, but the question is not “where,” it is “how.” Oxfam America identified a growing, underserved number of women entrepreneurs in Latin America whose businesses had credit needs ($5,000-$50,000) that exceeded traditional microfinance loan sizes (typically no more than $1,000), but were at the same time unattractive for larger commercial banks. They therefore formed a so-called “Missing Middle” of women unable to grow their businesses further.

In Guatemala, this missing middle faced significant constraints in accessing finance: They typically have no collateral to back their loans (only 15% of land is owned by women), interest rates can reach as high as 40% annually, and banks can require up to a 240% guarantee coverage. Banks may also require women to obtain their husbands’ permission to acquire a loan, and oftentimes fail to provide them with a copy of their contract.

Oxfam America proceeded to launch its first impact investing fund, the Women in Small Enterprise (WISE) Fund in Guatemala, with an eye to women’s economic empowerment. The WISE Fund provides a 50% guaranty to local


financial institutions in exchange for better loan terms for women. In our most recent partnership with a savings and credit cooperative in Alta Verapaz, we have reduced interest rates from 30% to their lowest rate, 18% (in effect transferring women entrepreneurs to their lowest-risk customer segment), reduced collateral requirements from up to 140% to no more than 100%, and allowed for mixed guarantees.

How this program gets closer to closing the gender gap is by recognizing and accounting for the fact that true empowerment requires more than simply increasing access to finance. Opening up space for women to play a larger role in their surrounding economy can carry a number of implications and unexpected side effects, such as backlash from society or male family members unwilling to question gender roles. These unexpected results may disrupt or completely thwart well-intentioned efforts. Another way to frame this is that a holistic approach to women’s economic empowerment ensures that years of planning, fundraising, and investing translate into real change instead of an experiment gone wrong.

The WISE program couples access to finance with business skills training that includes hard and soft skills (such as how to negotiate business and household affairs) and, with the support of gender specialists, incorporates male family members so as to reduce negative repercussions as a result of participating in the program. Through evidence generated from fund and portfolio performance and changes observed within the financial partner, WISE advocates for the country’s highest institutions to enact policy changes that will bring about permanency to this work.

Each country, program, and approach faces varying demands and opportunities. What remains clear is that without a holistic approach grounded in the specific context in which women are living, the result will be disappointing. Irrespective of the path chosen, any strategy meant to close this gap should:

• Place other women in leadership roles in the development and implementation of these programs;

• Empower women to build negotiation skills; and

• Be able to generate reliable and persuasive evidence to legitimize advocacy strategies.

Alicia Robinson is Chief Investment Officer at Oxfam America's pilot Women in Small Enterprise, based in Guatemala, where she lived for ten years. Alicia holds a B.A. from Stanford University and a J.D. from Harvard Law School. Her interests are in the fields of business and human rights in Latin America and human rights-based approaches to economic development.


Accelerating Impact Social Equity Investing Demands Greater Proximity Between Investors and Beneficiaries By Katherine Pease, Principal, KP Advisors

Cornerstone Capital recently analyzed environmental and social issues facing extractive and mining companies in a new report entitled Extractive Company Values: Attention to Environmental & Social Issues as an Indicator of Companies’ Strategy Execution Potential. The authors argue that environmental and social issues require “longer term operational planning because they require proactive engagement with local, global and contextual stakeholders to assure passage”. The same came be true for investments across a spectrum of issues, especially when the investments are designed to create socially equitable outcomes.

In a recent report that I co-authored with Sarah L. Thomas, In Pursuit of Deeper Impact: Mobilizing Capital for Social Equity, we analyzed how the process of making investments that are designed

to achieve social equity can be improved. In a critical area, our research affirms what many in the international development field and others have learned the hard way: there are financial and social costs to excluding the ultimate beneficiaries of investments. Not only is the process of engaging beneficiaries helpful in its ability to assure passage of regulatory hurdles, it also mitigates against costly mistakes that can be avoided by bringing beneficiaries into the impact investing process early and often.

For instance, the renewable energy industry is replete with examples of foreign investments gone awry due to negative community response. With early and authentic engagement of local communities, investors can better understand the true issues that communities face and thus the actual costs – financial and otherwise – that are involved in complex investments. One expert in the field, Chinesom Ejiasa, former managing director at the Overseas Private Investment Corporation (OPIC) puts it this way:

“It’s tough with investors who require a certain return and they don’t spend enough time thinking about the broader implications of the investment, particularly for the local community. For example, in terms of moving populations from ancestral land to clear ground for a renewable energy project, the investors don’t fully appreciate that the local residents will probably have to move from government-owned land, where they don’t have to pay rent, to privately-owned land where they will have to pay for rent they often cannot sustain. Better community engagement that uncovers the motivations and desires of a community would further mitigate the commercial risks of these sorts of investments and more importantly produce more broad-based benefits. To effect ideal change in a community, one has to consider the make-up of the

©digitalista/Crystal Graphics

http://cornerstonecapinc.com/wp-content/uploads/2016/10/Cornerstone-Capital-Group_Extractive-Company-Values_October-2016_Report-Extract.pdf




http://www.katherinepease.com/

http://www.katherinepease.com/


community, otherwise one will employ an investment thesis that will benefit some, but generate unintended consequences that are adverse to the community meant to benefit the most.”

To understand how inequality works and how investment capital can help address the effects of inequality, it is critical that we do not just look at data. It is also essential to learn from people who are living with the effects of inequality in their daily lives. In other words, we have to develop more strategies to bridge the gap – or create greater proximity – between investors and those in whom they invest. When we acknowledge that the great majority of investment professionals (78 percent of whom are white and 65 percent of whom are male) do not come from the communities in which impact investments are made, we can also acknowledge the need for intentional engagement of communities. By engaging

beneficiaries in the investment process, we can gain insights into key factors that drive impact investing success and increase our understanding of:

• The real social and economic issues and opportunities affecting people and communities;

• Contextual factors that may influence the ability to make social and economic change an understanding of the real risks involved with an investment;

• Whether their investments are actually resulting in the intended impacts that they were designed to achieve.

Impact investors spend a lot of time trying to determine how to measure impact. Perhaps one of the inputs we could consider alongside our determined effort to quantify impact is the perspective of those who know best what matters most: the beneficiaries of investments.

Katherine Pease is the principal of KP Advisors, a Colorado-based firm working with foundations, nonprofits and investors. She has worked with foundations, investors and nonprofit organizations for more than 20 years.

“Investing for social equity is defined as making

investments with the intention of achieving

financial and social returns that result in fair

access to livelihood, education, and resources;

full participation in the political, economic and

cultural life of the community; and self-

determination in meeting the fundamental needs

of the beneficiary community.”

- From In Pursuit of Deeper Impact: Mobilizing Capital for Social Equity, Katherine Pease & Sarah L. Thomas


Regional Imperatives Place-Based Impact Investing: How to Invest in Your Own Backyard

By Lauryn Agnew, Founder, Bay Area Impact Investing Initiative

Interest in impact investing concepts that combine financial returns with a positive social or environmental impact have been growing in appeal. What seems to be lacking is a model to encourage broad-based place-based impact investing across all asset classes. For fiduciaries of place-based organizations’ funds, like those at community foundations, pension plans, endowments and many family wealth pools, the HOW of regional impact investing is challenging: The due diligence requirements for what would be a small portion of a portfolio are as stringent as in global investing, but resources are often too constrained to allocate the necessary time and effort to seeking these smaller investments and finding enough of them for diversification, as well as measuring the impact and outcomes of these investments.

A central, regional virtual and physical intermediary could perform these due diligence duties, act as a clearinghouse for regional impact investments and be the platform for a broad array of local investment options, connecting capital seekers with capital providers. Picture a family of five separate multi-manager funds, as proposed for the Bay Area Impact Investing Initiative (BAIII)1: public equity, fixed income, real estate, infrastructure and private equity. Each fund is designed to offer benchmark- or market- like returns for each asset class and a positive local impact in the San Francisco Bay Area.

Place-based public equities: Designed to be a small part of a globally diversified portfolio, this place-

1 The research paper describing the BAIII was published in the Routledge Handbook of Sustainable and Social Finance with Oxford University: “Regional Impact Investing for Institutional Investors: The Bay Area Impact Investing Initiative,” July 2016

based public equity strategy was a case study for the United Way of the Bay Area2 that developed an investment process and model portfolio for the small endowment fund at the UWBA, whose mission is to “reduce poverty in the Bay Area”. The model portfolio has these characteristics:

• overweights Bay Area headquartered companies -- the model portfolio has a 4X overweighting of Bay Area headquartered companies (75% of this custom

universe is based in the Bay Area vs. 19% for the S&P 500);

• optimizes the construction of the portfolio to maintain market weights for each sector similar to the Russell 3000 or S&P 500, not the cap-weighted Bloomberg Bay Area Index, BBACAX, which is tech heavy;

• incorporates ESG criteria that emphasize

strong corporate governance, employee policies and environmental stewardship;

• predicted a tracking error to the Russell 3000 of less than 2%;

• 5-year model performance (2011-2015) is 13.95% vs. the Russell 3000 of 12.14% vs. the BBACAX at 12.64%; and

• would also include active corporate engagement and proxy voting.

Place-based fixed income investments are another financial tool that has impact. Investing in a diversified portfolio of local corporate bonds, direct

2 The Federal Reserve Bank of San Francisco encouraged and published the research working paper: “Impact Investing for Small Place-Based Fiduciaries: The Case Study of the United Way of the Bay Area”. http://www.frbsf.org/community-development/files/wp2012-05.pdf

©Andy777/Crystal Graphics

http://www.frbsf.org/community-development/files/wp2012-05.pdf


lending pools for local businesses, local SBA loans, and federal agency housing securities can provide market -like returns and be tracked to local impact. The recent study for the Urban Sustainability Directors Network3 provides dozens of examples of traditional financing tools, like municipal bonds, industrial revenue bonds, and partnerships that can be used by our cities to finance sustainability and climate action plans that reduce GHG emissions. Intentionally investing in our cities is another way to invest locally for impact and new platforms are being developed for local fixed income investing, like Neighborly.com.

Real Estate is clearly place-based (location, location, location), and if your mission includes place, then real estate as an asset class offers investment opportunities ranging from single- and multi-family homes, office spaces, and industrial spaces to community space and open space. Sustainable and mixed-use neighborhoods can develop with the tools of finance we have today and generate the multiplier effect of the positive impacts across the region.

Long-term financing for infrastructure investment and public private partnerships is needed to address regional issues like congestion and transit-oriented development, access to the internet, education, health, and food security. Building cross-disciplinary partnerships can leverage our investments in sustainable infrastructure.

Private equity and venture capital have been the impact investment of choice for mission investors seeking job creation or specific ‘bottom of the pyramid’ solutions globally. Private equity investments, particularly when located in local low- to moderate-income neighborhoods provide much-needed jobs, skills training and a positive community impact. We are seeing innovation in financing these opportunities through incubators and crowdfunding platforms as well. As the business model itself evolves to include themes like ‘profits with purpose’ and ‘doing good while doing well’, social entrepreneurs will need access to capital and private capital needs and wants to find

3 Financing Sustainable Cities Scan and Toolkit, October 2016, in partnership with HIP Investor: to download the paper: http://usdn.org/public/page/32/Government-Operations

these impactful solutions to our community challenges.

When place-based fiduciaries in the Bay Area allocate a small portion (1-10%) of assets to some or all of these local portfolios, the intermediary would manage those portfolios and build deal flow, investment opportunities and partnerships across the capital stack. Delegating the due diligence and management of the funds to a central intermediary and collaborating with other investors for collective impact reduces the costs of managing and monitoring these impact and location-specific portfolios and compounds the impact.

For community development investments that are dependent on philanthropic and public grants, private

capital could be included in the ‘below-market-return’ portion of the capital stack through tools like loan loss reserves and guarantees, social impact bonds, flexible lines of credit, or low interest rate loans through CDFIs. A collaborative, flexible, collective neighborhood impact pool

could aid neighborhood organizations that rely on grants to serve their missions. San Francisco’s Tenderloin neighborhood is home to over 30,000 residents in a ten-block area and has the help of 150 non-profit service providers who work to improve the lives of the residents. Access to capital could leverage the work being done in the Tenderloin for more impact.

Understanding and connecting capital providers (fiduciary/market rate return funds, MRIs and PRIs, grants, subsidies, tax credits, etc.) with capital seekers across thematic regional challenges, like housing, can make that capital more productive and diversified. Further research into housing will reveal the continuum we see through a wide impact investing lens:

• non-profit organizations like Mercy Housing

• the social impact bond for housing blight offered by the Richmond Community Foundation

http://usdn.org/public/page/32/Government-Operations


• sustainable, affordable multi-family buildings like Healthy Buildings in Napa

• homeownership options like Verbhouse, a private fund that offers an alternative path to homeownership for renters who want to be homeowners

• the Mayor’s office for down payment assistance,

• public policy on building and developer requirements, and

• the multi-year partnerships for the renovation and renewal of entire neighborhoods like Bay Meadows in San Mateo or “Candlestick Village”, where private and public companies like Stockbridge and Lennar partner with public and philanthropic resources to build new communities in a more sustainable fashion.

The San Francisco Bay Area has the talent, wealth pools and robust economy to offer a wide variety of

attractive impact investing opportunities to promote sustainability in our region. Collaborating across the financial continuum, across themes like housing, water, jobs, and transportation, and with a focus on our own regional backyard could provide the resources to move the needle on the sustainability and resilience of the Bay Area. Other regions and missions could adapt this BAIII model of financial collaboration and collective impact by developing portfolios and a regional/local platform based on their unique resources and needs. It makes sense that regional resources collaborating to address regional challenges can speed the development of the solutions we need to become and remain a sustainable, prosperous, and resilient community.

Lauryn Agnew is Founder of the Bay Area Impact Investing Initiative (www.baiii.org), which develops customized model portfolios across all asset classes for mission alignment under fiduciary standards of due diligence and performance expectations.

http://www.baiii.org/


Enhanced Analytics The State of LGBT Entrepreneurship in the US By Waverly Deutsch PhD, Vivienne Ming PhD, Mary Shea PhD, and Chris Sinton, on behalf of StartOut

In August of 2016, StartOut delivered its inaugural study investigating the state of LGBT entrepreneurship in the United States. Focusing exclusively on emerging high-growth companies with a sample size of 140 LGBT entrepreneurs, this study is the most comprehensive of its kind, and is intended to paint a clearer picture of the LGBT entrepreneurial experience in the US. To supplement data gathered from the entrepreneurs, StartOut researchers also surveyed 87 early-stage angel and venture capital investors. We then conducted in-depth interviews with ten LGBT entrepreneurs and five early-stage investors. Finally we culled public data sources and StartOut’s membership list to compare 6,703 LGBT growth entrepreneurs with 92,096 entrepreneurs whose orientation was straight or unknown.

When analyzing the data and survey sets as well as the more in-depth qualitative interviews of founders and investors we began to uncover trends around LGBT founder profiles, their location and migration patterns around launching their business, their willingness to present their authentic selves as part of the financing process, and their success or lack thereof in raising capital. StartOut researchers were additionally able to delve into investor mindsets around investing with diversity within their portfolios and the impact of diversity on portfolio performance. Following are several key themes and trends that emerged from the research. For more detail please download StartOut’s full study, The State of LGBT Entrepreneurship in the US.

LGBT Entrepreneurs in Investor Portfolios

With regard to the profile of LGBT growth entrepreneurs we found that:

• LGBT founders are primarily motivated to start their businesses by a passion for the idea or opportunity, with 67% of our sample citing that as the reason for launching their ventures. The second most frequent response of being one’s own boss was cited by 14% of our sample.

• LGBT people choose to start and run their businesses in places that are more open, tolerant and friendly to the LGBT population. 84% of our sample companies operated in cities that earned a 100% positive ranking on the Human Rights Campaign’s (HRC) Municipal Equality Index.

• 75% of LGBT growth entrepreneurs are concentrated in three sectors – software, internet/media and consumer goods/recreation.

• 48% of investors surveyed could identify at least one openly LGBT founder in their portfolios.

©corund/Crystal Graphics

https://startout.org/research/


• While 48% of our surveyed investors said they actively invest with diversity in mind, that focus did not lead to a higher incidence of having LGBT founders in their portfolios. Nor did being LGBT themselves correlate with the presence of LGBT founders in their portfolios. Of our 12 self-identified LGBT investors, half could identify LGBT founders among their investments and the other half could not.

Figure 1. Sectors Where LGBT Growth Entrepreneurs Are Concentrated

Source: StartOut.

Figure 2: Geographic Concentration of LGBT Growth Entrepreneurs

Source: StartOut.

Three Themes Emerged from the Data

• States with policies unfriendly to the LGBT community lost many, if not all, of their nascent growth entrepreneurs before they founded their companies. Later, when LGBT founders moved the headquarters of their companies to a new state, 78% moved to California, New York and Illinois. This translates to over 1 million jobs lost for states unfriendly to the LGBT community.


• Gender trumps LGBT status in adding difficulty to the funding process – in this sample, approximately 38% of both male and female entrepreneurs raised outside capital to help fund their business but 70% of female LBT entrepreneurs raised less than $750K while 47% of male GBT entrepreneurs raised more than $2M, mirroring the gender funding gap seen in entrepreneurship in general.

• Many LGBT founders choose to remain closeted while raising capital – when fundraising, 63% of LGBT founders came out to investors during the process – most in the early stages of discussions – but a meaningful 37% chose not to self-identify as members of the LGBT community, 12% citing concerns that it might hurt their chances to get capital, while 47% said that “being out” wasn’t relevant.

Implications for Stakeholders

• LGBT growth entrepreneurs – “Coming out” during the entrepreneurial process remains a difficult decision for many. Evidence suggests most investors normally would value such openness as part of building a healthy entrepreneur-investor relationship.

• Investors – For angels, VCs and syndicates interested in LGBT diversity within their portfolio companies, it may be necessary to actively signal this acceptance of LGBT founders to lower the risks LGBT people feel in coming out during the process.

• Policy makers – Communities seeking to capture a share of new job creation driven by high-expectation entrepreneurs should create LGBT friendly environments. Otherwise they are driving away an active segment of job creators and damaging their local economies.

As we reflected on the research results we found that “Out” is relevant. Possibly to business performance in both positive and negative ways. But certainly to the early-stage entrepreneur–investor relationship. While it is not necessarily appropriate to “test” investors by announcing upfront, “I’m LGBT and I’m raising capital,” it does behoove LGBT entrepreneurs as they build relationships with potential investors to be authentic and forthcoming about personal aspects of their lives as they come up in conversation. That authenticity helps create trust that can strengthen the business connection going forward.

Perhaps one way to avoid having to find a way to elegantly insert the coming out process into conversations is to publicly signal LGBT affiliation in social media profiles like LinkedIn by using membership in organizations like StartOut or the LGBT Chamber of Commerce. Knowing that investors use these data sources in their due diligence process allows that information to be tacitly conveyed prior to discussions.

More role models are needed. Aside from Tim Gill and Michael Kors there are few very visible successful LGBT entrepreneurs showcased in the popular media. Millennials are less inclined to be “out” at work than older, more established LGBT workers with only 5% of LGBT young people ages 18 to 24


being totally open at work versus 32% of LGBT people ages 35 to 44. Evidence shows there is still a penalty to be paid for this openness – almost 40% of LGBT workers report discrimination and harassment when they are “out” at work, compared with the 10% who experience the same challenges while closeted1.

LGBT founders need to consider broadening the industries they choose to innovate in. With over half of LGBT founders focusing on internet/media and consumer goods/recreation startups, they find themselves competing in industries with relatively low cost of entry, lacking in intellectual property barriers to entry and receiving only 6% of angel dollars and 14% of VC investment.

It’s time to include the LGBT community when thinking of diversity in investment. Our research shows we are an active source of emerging high-growth businesses. An LGBT inclusive diversity policy can help attract deal flow and increase return on investment.

For investors, funds and syndicates interested in LGBT diversity within their portfolio companies, it may be necessary to actively signal this acceptance of LGBT founders to lower the risks of LGBT people in coming out during the process.

Given that young LGBT people in general tend to migrate towards states and municipalities with higher levels of tolerance for difference, investors seeking LGBT entrepreneurs would do well to expand their geographic parameters to source opportunities in New York and the Great Lakes regions in particular where LGBT entrepreneurs are over-represented relative to current investment dollars.

In recent years, the LGBT community has gained substantial positive representation and visibility in politics, entertainment, Corporate America and even professional sports, culminating in the June 2015 Supreme Court Decision legalizing marriage in all 50 states. While there is much to celebrate there is more work to do.

1 “A Survey of LGBT Americans”, Pew Research Center—Social & Demographic Trends, June 2013


Since the mid-twentieth century demographers have struggled to gain an accurate picture of the number of LGBT people in the United States and these data remain elusive today. While the collective buying power of US LGBT adults is estimated at $884 billion, much less is known about the LGBT community’s contributions to driving economic growth. StartOut’s inaugural report, The State of LGBT Entrepreneurship in the U.S., is a launch point in the economic discussion of the important role LGBT entrepreneurs play in American entrepreneurship. As entrepreneurial activity plays an increasingly important role in the overall U.S. economy, the goal of this and subsequent research is to provide more clarity, visibility, and contour around the experiences and contributions of LGBT entrepreneurs.

About StartOut Economic equality is a critical step along the continuum of progress for the LGBT community. While LGBT people are often stereotyped as being affluent the reality is the opposite: 21% of LGBT people have an income of less than $12,000 per year, versus 4% of the general population2. The LGBT community has made political strides, yet the economic playing field is not level for our community when compared to the rest of Americans.

Founded in 2009, StartOut’s mission is to enable economic empowerment for our community through entrepreneurship. We do this by supporting LGBT entrepreneurs and the next generation of business leaders. With six chapters and a growing constituency across the US, we hold educational and inspirational events; connect qualified LGBT entrepreneurs to investors; provide mentorship for lesbians and enable digital and in-person networking for our members. Through our events, networking platform and research program, we will continue to enable LGBT entrepreneurship in the U.S. and shine a light on any inequalities that hinder progress for our community.

Waverly Deutsch, PhD, is Clinical Professor of Entrepreneurship at University of Chicago Booth School of Business. Her research focuses on the execution issues entrepreneurs face as they grow their businesses, especially marketing, sales, operations and team building. Vivienne Ming, PhD, is a theoretical neuroscientist, technologist and entrepreneur. She co-founded Socos, where machine learning and cognitive neuroscience combine to maximize students’ life outcomes. Vivienne is also a visiting scholar at UC Berkeley’s Redwood Center for Theoretical Neuroscience, where she pursues her research in neuroprosthetics. Mary Shea, PhD, is a Principal Analyst serving Forrester’s B2B Marketing Professionals. Her research looks at how go-to-market organizations can prioritize and maximize their sales enablement investments. Mary is also an Adjunct Professor of Marketing at the Booth School of Business. Chris Sinton is an Internet and philanthropic trailblazer. In 1994, at Cisco Systems, he pioneered the B2B Internet with cisco.com identifying, articulating and helping create a new business paradigm. In 2000, as an early driver of digital philanthropy, he saw that as the Internet changed the way business was done, it had could change the way people helped each other.

2 “Paying an Unfair Price: The Financial Penalty for Being LGBT in America”, Center for American Progress & Movement Advancement Project, November 2014



http://cisco.com/


Enhanced Analytics

Systems Thinking in Impact Entrepreneurship

By Jennifer Leonard, Director, Manager Due Diligence, Cornerstone Capital Group

We recently attended the SOCAP conference in San Francisco and came away invigorated by the hive of activity occurring within the social entrepreneurship space. New businesses are proliferating and tackling some of the world’s most daunting challenges. However, we noted that systems thinking was often absent from the discussion. It is important for impact entrepreneurs to incorporate this mindset into their business models from the outset, in order to maximize the scale and scope of the impact that they can create.

For purposes of common understanding, Cornerstone Capital Group defines systems thinking as an understanding and consideration of a system by seeking to understand the interactions and linkages of the different components therein. For impact entrepreneurs, this translates into an understanding of the connections between the social enterprise and the different stakeholders with which it interacts. It involves thinking about how an enterprise operates within a specific, broad system, such as the

immediate ecological environment or the social strata present in a society, and interpreting the needs and limitations of that system in the decision-making process using an ESG lens.

Combining a systems-based approach with an ESG framework involves considering the ramifications of decision-making at the business level on environmental, social, and governance systems. These are not necessarily mutually exclusive systems, and there is significant room for overlap. For example, an enterprise that is focused on building solar infrastructure will definitely have an impact on environmental systems by raising the availability of clean energy sources. However, the entity’s structure and board composition will also have consequences for governance systems, including how the company interacts with other entities due to its governance policies.

While systems thinking is important for any business endeavor, it is especially so for impact entrepreneurs who are looking to achieve a change to the status quo via their business model. Failure to think about the impact of a business model on the overall system within which it operates, and on the individual components within that system, will constrain the enterprise’s ability to drive the change it is looking to create, and to do so at a meaningful scale. So what should impact entrepreneurs be doing to facilitate systems level change and thinking through an ESG lens?

• Think broadly when developing the business plan and analyze the entire system. Where are there breakdowns within the system’s components and how can your business address these? This means going beyond the usual SWOT analysis to broadly consider all of the actors within the system, their roles, motivations, and limitations.

©digitalista/Crystal Graphics


This will result in a business model capable of creating lasting change within a system overall.

• Understand the impact of a system’s actors on the business model itself, not just the impact of the business on the broader system. In addition to understanding how a business model impacts a system, it is important to understand how the different actors within a system could potentially impact the business model. Are there elements of the system that could limit the business model’s ability to create change at scale? Are there actors within the system that could facilitate this? How can the business leverage the different system components to achieve its goals?

• Focus on scalability from the outset. Consider how the business model can scale within a given system and focus on building a business that can reach millions of people, even if it will only target 1,000 to start. Understand the entire system and how to leverage the different components to achieve this scale. Ensure that scale is embedded in the business model alongside the desired impact so that impact will be created within an ESG framework as the business grows.

• Are there important linkages between systems to consider? For example, clean cook stoves could have positive impact on both the environmental system (reduced pollution in the ecosystem) and the social structure (lowered negative impact on the respiratory health of low income women). As a result, part of the systemic impact could be the reduction of the burden on governments and NGOs to provide healthcare services to low income women suffering from respiratory illnesses. How can a business model positively impact multiple systems through these linkages? Is there an opportunity to create a scalable business that delivers change across multiple systems?

This is just a starting point for systems level thinking. Indeed, impact entrepreneurs face a challenge in building a discrete business model while also factoring in the diverse needs of complex systems in order to maximize their capacity to create change at scale. However, failure to consider the broader system from an ESG perspective will reduce the potential impact that a social enterprise can have, while also potentially limiting its growth. It is critical for impact entrepreneurs to consider these factors at the outset of their business plan development if they are to maximize the impact that they can create.

Jennifer Leonard is Director of Manager Due Diligence at Cornerstone Capital Group. Previously, she was vice president of impact investing at The CAPROCK Group, where she co-led the firm’s impact practice and helped clients build customized, impact-mandated portfolios.


Sustainable Editorial Changing the Narrative on Radicalism

By Andrew MacLeod, Visiting Professor, Kings College, London

A picture gifted to me just under ten years ago, for my 40th birthday, hangs in my home study. It is a lovely still-life of a fruit bowl masterfully drawn in colored pencil. ‘Amarah’ (not her real name), a 19-year-old intern, drew it for me during the time I worked for the UN in Islamabad, Pakistan.

Amarah had a tough life to that point. Economically she was not well-off and struggled to stay at University. She was an only child brought up by a single parent. What was more difficult was the fact she had been brought up by a single father. In her culture this made for a very bleak future for a female child, with poor prospects for a whole host of reasons.

Amarah was volunteering to in my office’s coordination of the massive two-and-a-half-year-long relief and reconstruction campaign following the 2005 Kashmir earthquake. Over the time we worked together our conversations had covered many subjects, from religion (she is a devout Muslim and I an avowed atheist), to politics (Pakistan was still a dictatorship), to general life.

By the time I turned 40 we had become close friends – perhaps too close for our age, religious and cultural differences – hence why the picture has such meaning. I liked her and hoped that she would have a good life.

“What will you do after you graduate”, I once asked her.

“I want to be a suicide bomber”, she said in a matter of fact way.

“How would you feel if I died in your attack?” I asked.

“I would be upset,” she said, “not because you would die, but because as a non-believer you would go to hell.

I like you and would miss you in Paradise. I would like to see you for eternity but can’t. That makes me sad.”

In a strange way it was a lovely thing to say – how much she would want to spend eternity with me even though she would have taken me from ‘this life’ on earth.

Suicide bombing is evil, as is all terrorism. There is no justification for it and it must be defeated. But how? Many people like to say that terrorists are insane. They would read the above story and think Amarah was mad and perhaps I was nuts to listen to her.

Understanding Terrorism

However there is another view. To defeat terror we must understand the motivations and dynamics behind it. Listening to Amarah’s thinking process and justification is critical to finding a path to defeat terrorism.

Most Muslims, like Amarah, Jews and Christians believe in the same Abrahamic God. Gaining access to God’s afterlife is the key reward for following the ‘codes of conduct’ set out by their religious traditions.

The Torah, New Testament and Qur’an give Jews, Christians and Muslims guidance on how to reach eternity with their common God through righteousness and piety.

However, all three texts also have episodes of violence and butchery between their pages that, when taken out of context or manipulated by evil, have been and are used to motivate and encourage acts of evil violence.

So are the perpetrators of this evil ‘crazy,’ and how do we defeat them?


Imagine if you were a believer in God and heaven. Imagine if your life was pretty bleak and you had to endure 60 years of miserable existence before gaining entrance to heaven. Imagine then if someone showed you a ‘short-cut’ to escape this difficult life and gain access to heaven early?

Would following the ‘short-cut’ be crazy, or would it be logical?

If you were told that dying while trying to rescue a drowning child at sea would gain you access to heaven, would a believer attempt it? Such altruism surely would be rewarded? What about trying to kill an infidel who is intent on corrupting the ‘lifestyle’ that God wants humanity to follow?

Rabbi Jonathan Sacks calls this thought process ‘altruistic evil’ because of the flawed belief that such evil is what ‘God wants’.

Today, nearly a decade on, ‘Amarah’ no longer wants to explode. Instead she works in the Pakistan arm of a major international bank. Creating a career and a sense of hope for Amarah removed from her the desire to take the short cut to heaven.

Fighting Terrorism

Amarah’s story provides guidance on how to defeat terror with four avenues of attack.

Firstly, the content of the ‘code of conduct’ needs to be tackled. Long-term positive education programs countering the evil narrative of all religious extremism – Christian extremism included - for susceptible communities, foreign and domestic, need to be followed. Killing people does not gain one access to heaven.

Secondly, organizations like IS that provide the logistics and planning for terrorist attacks must be defeated. Strong foreign and domestic security responses by armed and security forces must take place – including judicious use of drones and military action where necessary. At the same time a ruthless crack-down on fundamentalist social media recruiting, like with anti-pedophilia programs, must occur.

Thirdly, the motivation to ‘short-cut’ the way to heaven must be tackled. Long-term economic growth in foreign and domestic susceptible communities is key

to defeating the allure of the short cut to heaven. In short, we must make life worth living for all. Economic disadvantage, including leaving people to fester in refugee camps, does not help this aim.

Fourthly, Western responses to the first three points must not inadvertently add to the motivation and recruitment tools of extremists.

Killing innocents as ‘collateral damage’ is also a powerful motivator of people – hence military action, whilst needed, has consequences and needs to be very carefully balanced.

Islamic State understands well the propaganda machine that is social media. It has used the medium effectively to inspire people to join their cause. Calling people terrorists who may not be, or banning the (Australian-invented) “burkini” from French beaches, or calling out Muslims to be monitored or prevented from entering a country, adds to the narrative of dividing us versus them that Islamic State and other extremists desperately want. Such propaganda is a gift that Islamic State must love.

Let us look at one controversial aspect – the politicians’ and media’s quick response to attacks by throwing around the label ‘terrorist’ too often.

While there is no doubt that some of the recent killings, such as the Charlie Hebdo murders, have been conducted by organized fanatics who follow a twisted and flawed interpretation of Islam, other isolated loners have been given an elevated status they do not warrant.

Discrediting “Terrorism”

Not all murderers who claim that they kill in the name of God are terrorists. The media and politicians are naming terrorists even before Islamic State proclaims them as terrorists.

By rapidly naming these loners as Islamic terrorists and incorrectly giving them status, are the media inspiring copy-cats to follow in their footsteps? Are we doing Islamic State’s propaganda work for them? Should we stop doing so even if it impinges on free press?

For example, were the Orlando murderer, the Sydney siege murderer, or the Nice murderer terrorists? These


three were not part of organized groups. None of them had a deep religious history. All three rarely prayed in mosques. They drank, had sex out of marriage, did not fast during Ramadan. None was a ‘devout Muslim’.

What the three men did have in common was broken relationships with their wives and partners. They were all estranged loners who didn’t ‘belong’. They all had a history of family violence. In the case of the Orlando murderer, he had a long history of steroid use, which increases aggression.

No formal link with an Islamic terrorist group has been found. There were no pre-attack suicide videos, no suicide notes. The Sydney siege murderer didn’t even have an IS flag! It took days for Islamic State to claim each of these murders precisely because Islamic State knew nothing about them.

We should not gift Islamic State warriors to worship, nor should we pander to their dead egos by giving them names or false status as global warriors in a twisted cause.

But, one might ask, if they were not terrorists, what were they?

In the 1990s in the US we saw the rise of what became known as ‘suicide by cop’. Deranged loners decided to end their lives in a burst of publicity and misery, killing others and forcing others to kill them.

In death, sick loners like these look for a sense of belonging. They look to die in publicity being labeled a hero of a group. These people don’t murder because they are Muslim, they murder because they want to be on the front page. And they know if they yell ‘Allah-u-Akhbar’ they will get publicity.

Why give these people what they are looking for in death? Why give them what we want, and risk encouraging more deranged fools like them to follow?

These men were sick, murderous killers, but they weren’t terrorists and do not deserve to be given the right to terrorize us. We should follow the French lead and no longer publish these murderers’ names, and we should not falsely give them a cause.

We must stop playing into Islamic State’s hands. Islamic State has said that it wants to create an ‘Us v Them’ conflict between Islam and the West. When media commentators or politicians call for bans on Islamic migrants, or ban the burkini on beaches, they feed Islamic State’s narrative of a war against Islam, inspiring more people to join their twisted cause.

We must have a long-term education strategy, a security crackdown where necessary, and a long-term economic development strategy in underprivileged areas.

But above all we must stop gifting Islamic State free hits in the propaganda war. Above all we must stop giving these people status they don’t deserve and stop encouraging copycats. When these butchers murder people, let the security services determine if they are terrorists. Everyone else should just call them for what they are. Murderers.

Andrew MacLeod is a Non-Executive Director of Cornerstone Capital, a visiting Professor at Kings College London and a former UN and Red Cross official who served in countries like Rwanda, Yugoslavia, Pakistan, Afghanistan and others. He has negotiated with warlords and terrorists. He can be followed on Twitter @AndrewMMacleod.


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