Conference Presentation, Panel
Sustainable Investing: Innovative Plans From a New Generation
Milken InstitutePaul Irving, Dave Chen, Chad Reed, Leigh Madeira, Zach Knight, Nick Wobrock, Jim Tolosano, Mark Timski, Micah
- The Milken Institute plans to expand student-entrepreneur competitions globally, with events scheduled for Hong Kong following stops in London, aiming to foster a shift from "soft" NGO-driven dialogue to professional, institutional investment strategies in impact sectors.
- Demand for sustainability and impact investing curriculum at leading business schools is projected to continue growing, evidenced by club expansion at institutions like Harvard, Duke, and Wharton, signaling a market preference for financial literacy in this sector over traditional hedge fund education.
- The Haas team proposes a proactive forest management solution for California addressing a severe drought, the worst in 1,200 years, which is expected to cause the loss of 23,000 agricultural jobs and $6 billion in direct economic losses in 2015.
- The proposed financial structure involves a capital stack of half debt and half equity to fund a $67 million initial project in the Mokelumne River, targeting debt IRRs of 5% and equity IRRs of 12% to 15% using conservative assumptions.
- Economic modeling indicates the solution could cost less than half of existing alternatives, with water utilities potentially paying $200 per acre foot compared to current rates of $500 to $1,300, while generating 125 to 366 gallons of water per acre daily above baseline.
- Operational projections include a 10-year forest management life cycle allowing for repeat, less intensive treatments, with revenues from water and hydropower intended to cover debt service and provide returns even under low-end historical scenarios.
- The total investable market is estimated at $1.6 billion, representing only 10% to 20% of actual forest land, with the potential to scale the platform across the western U.S. starting from the initial $67 million transaction.
- Timeframes for execution include a 10-year project life cycle, a two-year period to finalize contracts and secure pricing with the U.S. Forest Service, and an immediate need for $1.8 million to cover operating costs and legal fees for the first deal.
- Market risks involve the complexity of stakeholder relationships, specifically with the U.S. Forest Service, which may require up to two years before the first transaction can be priced, alongside extreme budgetary constraints driving the need for private partners in fire suppression.
- Future financial instruments may include green bond qualification for the debt portion, aligning with a sector shift where professional investment backgrounds increasingly drive the development of capital instruments for environmental and social benefits.
- The competition aims to challenge students to develop financial service strategies that deliver market-rate returns while generating positive environmental and social impacts, supported by the expectation that institutional investors will increasingly view sustainability as an alpha-generating opportunity.