Responsible and Impact Investing

20 Pages·2015·0.56 MB·English

PANL 5302 - FALL TERM 2015
Responsible and Impact Investing
September 14th 2015 - December 7th 2015

Instructor: Dr. Tessa Hebb Time: Mondays 5:30 pm to 8:30 pm

note: no class Oct 12
(Thanksgiving) and Oct 26 (Fall
Break) ; there will be a one make-
up class Sat. Nov. 21st.

Office: 2125 Dunton Tower Room: SPPA Board Room 5th Floor, River Building
Telephone: [phone] ex1217 Office Hours: Mondays 3:00 pm to 5:00pm
or by appointment
E-mail: [email protected]

Learning Objectives
 Knowledge of the principles, instruments and good practices of responsible and impact
investing.
 Understanding of regulatory, organizational and other challenges involved in
implementing responsible and impact investment.
 Ability to recommend a sound strategy for responsible/impact investment in light of
knowledge of good practices and challenges.

Overview of the Seminar
Foundations and other investors of philanthropic funds are increasingly looking for
social, environmental and financial – blended – returns on their investments.
Foundations in particular are increasingly leveraging more of their invested assets in
support of their missions: no longer is there a clear distinction between endowments and
grant-making as foundations look to using their investments for mission or program-
related purposes to achieve both a financial and a public benefit return.

Foundations, pension funds and charities, among others, are also increasingly interested
in ensuring the investments they make align with their missions and accord with broader
principles, as articulated by the United Nations-backed Principles for Responsible
Investment Initiative (PRI).

This course develops an understanding of the rationale, principles and financial
instruments for responsible and impact investment. Substantial parts of the course
consider the regulatory enablers and barriers to both impact investing and responsible
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investing, the challenges involved in expanding these areas, analysis of alternative
instruments, and the measurement of social return on investment.

Organization of the Seminar
Classroom sessions will involve lectures, guest speakers, group exercises, and discussion.
During this period, participants will be asked to read approx. 90 pages of readings per
week (3 hours @ 2 minutes a page), and to present to the class a summary and analysis of
one set of the readings. Each participant will also be asked to submit an individual 15-
page (min.) (double spaced) short essay drawing on the assigned readings on impact
investing or responsible investing at the half way point in the course. A longer 25 (min.)
to 30 page (double spaced) paper that explores the regulatory questions that arise in
impact investing and responsible investing or the measurement questions that are
embedded in these topics, will be due at the end of the course. You can work in a team of
2 for this assignment - each will be required to contribute 25 pages (double spaced) and
identify their contribution. This research essay will draw on the course readings,
additional literature reviews, possible interviews, and your own analysis of the topic.
Please check with me on your research topic and if you wish to work in a group.

Grading
Participant grades will comprise the following components:
-Class Participation, 20%
-Reading presentation 5%
-Short Essay, 25%
-Long Essay, 50%

Course expectations. In this seminar course it is essential that all the required readings
be completed in advance of each week's sessions. Class participation grade will be based
on demonstrating each week that the readings have been completed and actively
participating in the group discussion. While there will be some lectures, class discussion
will be the primary mode of engagement in each week's seminar. Students presenting
and animating the week's readings will present the week's topic. I will add to these
discussions as needed. Guest lecturers will provide learning opportunities for students
from those directly working in the fields of impact investing and responsible investing.
Group exercises will also be feature every few weeks.

Required Readings
There is no textbook for the course; all readings are available through CULearn .
You can access CULearn from the main Carleton University webpage:
https://carleton.ca/culearn/

Output Deadlines
Participants will be responsible for producing the following outputs on the specified
target dates:
1) All assigned readings
2) Summary and Analysis of a set of Course Readings (you will sign up for these in
week 1)
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3) Short Essay: due Nov. 2nd 2015(15 pages double spaced)
4) Research Paper: due December 7th 2015(25-30 pages double spaced)

Page-number targets refer to double-spaced pages. The essays will utilize the APA style
guide for formatting references or footnotes. Plagiarism will result in a failing grade.
Late outputs will be penalized. Outputs will be received by the Instructor via hand or
email until midnight of the due date.

Assignment Overview

Short Essay-Due Midnight, Nov. 2nd (by hand or email-15 pages). Marks deducted
for late essays – 1 mark out of 25 for each day late. This essay should draw on the
readings and discuss an element in either impact investing or responsible investing that is
enabling or required in order for these sectors to grow. Take a cross cutting theme from
the course. Find the tensions that arise from the theme and write about them. Make an
argument. Draw on the literature to either back up your argument or refute it. Draw on
our own experience. Draw on an organization you are familiar with. Examples of cross
cutting themes: 'scarce resources are putting strain on NPOs - they must find ways to
diversify their revenues' - 'social finance is a positive way to address this problem' or
'social finance is just the 'flavour of the day' - it is forcing innovation on NPOs but doesn't
really address the underlying problems' or 'rapid growth and new sources of revenue
sources lead to mission drift - this is not good for the sector' or "Canada lags other
countries in impact investing - explore the reasons' or 'the small size of assets in the
Canadian Impact investing market space mean that we lack intermediaries to enable this
market to grow'. I would leave the regulatory side of either responsible investing or
impact investing as you will address this area in your long essay. Your own
organization's growth and challenges definitely would be a good case study. Use your
own experience and the course readings - I need to see both.

Research Essay - Due Midnight December 7th. (By email- 25-30 pages). Marks
deducted for late essays – 2 marks out of 50 for each day late. This essay draws on
class readings, literature reviews and additional research (such as interviews). Pick a
public policy or regulatory area that has a direct impact on either responsible investing or
impact investing and examine this topic and its implications for policy, investors, the
third sector and any other key stakeholders you can identify. You should choose a
different subject area than you used in the short essay. You can work in a team of 2 for
this assignment - each will be required to contribute 25 pages (double spaced) and
identify their contribution. This research essay will draw on the course readings,
additional literature reviews, possible interviews, and your own analysis of the topic.
Please check with me on your research topic and if you wish to work in a group.
These questions can explore past developments, current barriers, future enablers, a
comparison of countries, or provinces - in short you have a wide scope of exploration for
this paper.

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Think about the regulatory questions we explored in class - For example - what role does
CRA play as a barrier or enabler of impact investing? How has fiduciary duty shaped our
response to responsible investing? What policies in the Task Force on Social Finance
have been advanced, why and why not? Are social impact bonds a good idea? Could
community bonds leave investors unhappy in the end - what role does the Securities
Commission play and why - really the list goes on and on. Similarly for metrics and
measurement - can we measure social value? - why and how or why not? should metrics
be standardized? what metrics are we using? Can and should ESG be measured and how?
when ESG standards fall what should investors do? These are just a few questions to help
spark your own thinking. Check with me if you aren't sure about your topic and question
esp. if you want to look at a question outside the policy or regulatory framework or the
measurement and metrics questions.

Draw on the readings!! This long essay is 25-30 double spaced pages. That includes
reference list and appendices - you can run a little long if you like - but don't run short!
You can work in teams of 2 if you want to - but each of you must produce at least 25
pages of the long essay and identify your work in the index. You can think of this
assignment as more of a report format - you can describe the landscape and situate the
topic you are exploring.

University Policies
Academic Integrity
Please be aware that this paper must be original to this course, and your own work.
Academic offences are serious infractions and will not be tolerated. Students should
consult Section 14 of the Faculty of Graduate Studies Calendar, General Regulations
concerning academic integrity and instructional offences.

Intellectual Property

Student or professor materials created for this course (including presentations and posted
notes, labs, case studies, assignments and exams) remain the intellectual property of the
author(s). They are intended for personal use and may not be reproduced or redistributed
without prior written consent of the author(s).

Academic Accommodation
Academic Accommodation
You may need special arrangements to meet your academic obligations during the term.
For an accommodation request the processes are as follows:
Pregnancy obligation: write to me with any requests for academic accommodation
during the first two weeks of class, or as soon as possible after the need for
accommodation is known to exist. For more details see the Student Guide
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Religious obligation: write to me with any requests for academic accommodation during
the first two weeks of class, or as soon as possible after the need for accommodation is
known to exist. For more details see the Student Guide
Academic Accommodations for Students with Disabilities: The Paul Menton Centre for
Students with Disabilities (PMC) provides services to students with Learning Disabilities
(LD), psychiatric/mental health disabilities, Attention Deficit Hyperactivity Disorder
(ADHD), Autism Spectrum Disorders (ASD), chronic medical conditions, and
impairments in mobility, hearing, and vision. If you have a disability requiring academic
accommodations in this course, please contact PMC at 613-520-6608
or [email protected] for a formal evaluation. If you are already registered with the PMC,
contact your PMC coordinator to send me your Letter of Accommodation at the
beginning of the term, and no later than two weeks before the first in-class scheduled test
or exam requiring accommodation (if applicable). After requesting accommodation from
PMC, meet with me to ensure accommodation arrangements are made. Please consult
the PMC website for the deadline to request accommodations for the formally-scheduled
exam (if applicable).

COURSE SCHEDULE

Session 1
Monday September 14th
Introduction to impact investing and responsible investing

Student Self-Introductions

Review Course Outline, Schedule, Readings and Assignments

Trends in the nonprofit and philanthropic sector: diversified sources of revenue and
new investment-based approaches in philanthropy.

Objectives:
 Begin to develop a framework for understanding impact investing and responsible
investing.
 Able to define impact investing and responsible investing concepts in broad
terms.
 Gain knowledge of the changes to the nonprofit and philanthropic sector over the
last 20 years and the emergence of these trends
 Recognize the implications and challenges for the sector that arise from these
investment approaches.

In this initial session we will start with the basic definition of impact investing and
responsible investing. We will discuss the drivers of these trends over the past ten years?
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How has financing changed in the sector and what are the implications? Please be sure to
complete your readings before class in order to participate in the discussion.

Why should investors engage in responsible investing and impact investing - what's in it
for the investor? Who are these investors? Why have philanthropic organizations
adopted this practice? What about the investee organizations? How are they changed by
these investment approaches. How are responsible investing and impact investing alike
and how are they different? Who are the key players in each of these areas?

Required Readings:

Gibson, K., S. O’Donnell and V. Rideout. 2007. “The Project-Funding Regime:
Complications for Community Organizations and their Staff.” Canadian Public
Administration, 50 (3), 411-435. 24 pages. ISBN: 008-4840.

Gregory, A. G. and D. Howard. 2009. “The Nonprofit Starvation Cycle.” Stanford
Social Innovation Review, Fall, 49-53. 5 pages. ISSN: 941156365.

Phillips S., and Hebb T. 2010. Financing the Third Sector: Introduction. Policy & Society
29.

Bugg-Levine and Emerson J. 2011 Impact Investing, Wiley Press, San Francisco,
Chapters 1.

Session 2
Monday September 21st
Theoretical underpinning of impact investing

Objectives

 Develop a deeper theoretical understanding of impact investing
 Gain a stronger analytic framework to interrogate impact investing
 Ability to apply theory to practice: particularly the Blended Value Proposition
and Shared Value to the nonprofit and philanthropic sectors.

In this session we will examine the theoretical underpinnings of impact investing. In
impact investing we draw on the blended value proposition as a means to understand the
logic of impact investing. More recently Michael Porter and Marc Kramer have termed
this approach shared value. In this session we will explore these theories and analyze the
way in which they shape practice in the field of impact investing.

Following the break we will watch a podcast of Jed Emerson describing his theory of
Blended Value.

Required Readings:
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Emerson, J. and S.Bonini. “The Blended Value Map: Tracking the Intersects and
Opportunities of Economic, Social and Environmental Value Creation,” Executive
Summary, Blendedvalue.org, 2003. 19 pages. (Unpublished Mimeo).

Emerson J. “Capitalism 3.0” Blendedvalue.org

Monitor Institute. 2009. “Investing for Social & Environmental Impact” New York:
Rockefeller Foundation. http://www.monitorinstitute.com/impactinvesting/ (20 pages )

Porter M. and Kramer M. (2011) "Creating Shared Value" Harvard Business Review,
January 2011. You may also want to listen to this pod cast on Shared Value by michael
Porter.
https://hbr.org/2011/01/how-to-fix-capitalism

Session 3
Monday September 28th
Building a market for impact
Tools, instruments and intermediaries in impact investing
 Apply knowledge of financial tools and instruments to impact investing
strategies and opportunities.
 Understand the two types of impact investors (as defined in the Monitor
Report) and their rational for using these tools and instruments.
 Identify impact investment intermediaries in Canada and gain knowledge
of their role in facilitating.
 Ability to analyze the strengths and weaknesses in the impact investing
market in Canadian.

As impact investing is defined as "using standard financial approaches to address social
issues" it is necessary to have a solid grasp on standards financial tools that are used in
impact investing. This session will provide a deeper understanding of basic financial
terms, tools and instruments. These standard financial approaches will then be applied to
both "impact first" impact investors and "finance first" impact investors. Additionally we
will examine how the sector itself views these financial tools and instruments. What
works? What doesn't work in the sector. How do we develop a pipeline of investable
opportunities in the sector? Who will invest? How? Who are financial intermediaries and
what role do they play? We will hear from a Canadian impact investing intermediary on
her/ his experience in developing the market for impact investing in Canada.

Guest Speaker (TBC) Karim Harji, Purpose Capital

Required Readings:

Godeke, S. with D. Bauer. 2008. Philanthropy’s New Passing Gear: Mission-Related
Investing. New York: Rockefeller Philanthropy Advisors;

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O’Donohoe, Nick; Christina Leijonhufvud & Yasemin Saltuk. 2010. Impact Investments
An Emerging Asset Class. Report. New York: J.P. Morgan & Rockefeller Foundation.
Follow on report: 2014.

Harji K. and Reynolds J. State of the Nation Impact Investing, MaRS Impact Investing
Centre, Report, May 2014.

Session 4
Monday October 5th
Theoretical Underpinnings of Responsible Investment

Objectives

 Develop a deeper theoretical understanding of responsible investing
 Gain a stronger analytic framework to interrogate responsible investing
 Ability to apply theory to practice: particularly the Universal Owner, ESG and
Sustainable Investment to the nonprofit and philanthropic sectors.

Objectives
In this session we will look more closely at Responsible Investment. We will examine
several theories that apply to responsible investing, including the Universal Owner
hypothesis, principle/agent theory, and stakeholder saliency in order to gain a deeper
understanding of why investors are integrating environmental, social and governance
factors into their investment decision making. What do these theories tell us about the
practice of impact investing? How do they shape practice? Do they hold up over time.
Do we need to have theory in order to inform practice? Is this important to definitions?
What about regulation - should it be informed by theory?

Hawley, J., and Williams, A. (1997) The Emergence Of Fiduciary Capitalism. Corporate
Governance, Vol. 5, No. 4. 206-213.

Clark, G. L., and Hebb, T. (2004) Corporate Engagement: The Fifth Stage Of Capitalism.
Relations Industrielles / Industrial Relations, Vol. 59 142-170.

Richardson, B. and Cragg W. (2010) Being Virtuous and Prosperous: SRI’s Conflicting
Goals, in Journal of Business Ethics 92 Issue 1 pages 21-39

Woods, C., & Urwin, R. (2010). Putting Sustainable Investing into Practice: A
Governance Framework for Pension Funds. Journal of Business Ethics, 92(S1), 1–19.

* Monday October 12th 2015 - Thanksgiving Holiday - no class

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Session 5
Monday October 19th 2015 (remember to vote before class)
Emerging Trends in Responsible Investing

Objectives
 Examine the underlying drivers behind responsible investing.
 Understand emerging new trends in RI.
 Understand the linkages between responsible investing and impact investing.
 Critically assess the implications of responsible investing on fiduciary duty.
 Ability to implement a responsible investing policy.

This session looks closely at responsible investing. Responsible investing (RI) is defined
as integrating environmental, social and governance factors into investment decision
making. It is an approach that has been embraced by many large institutional investors
including foundations and endowments. Responsible investing has grown considerably
over the past decade. Currently investors representing over $56 trillion of assets under
management have signed on to a UN-backed set of principles - the Principles for
Responsible Investment.

We will look at emerging trends in responsible investing and new areas of controversy
such as the debate on fossil fuel divestment in RI. This session will investigate the
implications of RI for the fiduciary duty of trustees of institutional assets. We will look at
a variety of strategies for integrating environmental, social, and governance factors into
investment decision-making including positive and negative screening, shareholder
activism and engagement, and direct investing in community that is the intersection
between responsible investing and impact investing.

Guest lecture: (TBC) Cary Krosinsky, noted author and RI specialist. via video linkup.

Readings:

Freshfields Bruckhaus Deringer, 2005. A Legal Framework for the Integration of
Environmental, Social and Governance Issues into Institutional Investment. United
Nations Environment Programme Finance Initiative, Geneva. (pages 6-14)

Friedman, Milton. (1970) The Social Responsibility Of Business Is To Increase Its
Profits. New York Times Magazine, September 13, 122-126.

Hawley J. (2015) Setting the Scene: the Basics and Basis of Responsible Investment in
Routledge Handbook of Responsible Investment, Hebb T. et al. editors. Routledge Press,
London UK.

Krosinsky C. (2015) Overcoming distractions on the road to increased levels of ESG
integration in Routledge Handbook of Responsible Investment, Hebb T. et al. editors.
Routledge Press, London UK.
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Lydenburg, S. 2002 "Envisioning Socially Responsible Investing", Journal of Corporate
Citizenship, 7 Autumn 57-77

Suggested Readings

PRI Initiative: 2014, 'PRI Annual Report 2014', Principles for Responsible Investment
Initiative, London. (24 pages)

****Note: On Tuesday Oct. 20th SPPA will host a special seminar on Divestment
from Fossil Fuel with Professor Ben Richardson. Panel debate to follow. This is a
great opportunity to hear from a global RI expert. I strongly recommend you
participate in this seminar.

Fall Break
Monday October 27th
-No Class

Session 6
Monday November 2nd
Short Essay-Due Midnight, Nov. 2nd (by hand in class or email-15 pages). Marks
deducted for late essays – 1 mark out of 25 for each day late. This essay should draw
on the readings and discuss an element in either impact investing or responsible investing
that is enabling or required for these sectors to grow. You should have at least 15
references in your reference list.

The case for and against venture philanthropy

 Apply critical thought and analysis to the topic of impact investing.
 Hone own view on utilizing business approaches and its benefits and drawbacks
to the sector.
 Debate the pros and cons of impact investing.

Increasingly philanthropic organizations are bringing an investment approach to their
grant-making and a mission-approach to their investment portfolios. This has been
termed venture philanthropy. What are the drivers for venture philanthropy? Why now?
What are the impacts for the third sector of this approach? Not everyone is in favour of
this new trend.

Some argue that business is not the right frame to apply to the third sector. In the first
half of the class we will set up a debate on the pros and cons of venture philanthropy and
its implications for the sector. Draw on the readings to this point in the course, your own
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