Conference Presentation, Fireside Chat, Panel
The Sustainable Investing Challenge: Innovative Plans from a New Generation
Milken InstitutePaul Irving, Ryan Alam, Suzana Amoes, Dave Chen, Megan Strawther, Susanna Amos, Thomas Witt, David Bank, Amit Boren, Cameron Saul
- Event Context: The Morgan Stanley Sustainable Investing Challenge entered its sixth year at the Milken Institute Global Conference, featuring 10 finalist teams from 60 business schools across 21 countries, including a graduate team from an agricultural university in Indonesia competing against institutions like Harvard and USC.
- Competition Evolution: Over six years, the program shifted from student-led volunteer initiatives to a structured curriculum component at top business schools, such as Wharton, which now offers core finance courses in sustainable investment; previously, the only comparable opportunity was a five-week intensive class at Kellogg.
- Winning Team: The USC Master of Science in Social Entrepreneurship team, named Terra Limpa, won the competition with a proposal to rebuild Angola's agriculture sector by clearing landmines and developing smallholder farms.
- Team Composition: The three-member team consists of Megan Strother (nonprofit development background), Ryan Alam (investment advisory and public administration focus), and Susanna Amos (born in Angola during the civil war, with a business degree from the University of Virginia).
- Market Problem: Angola, historically the "breadbasket of sub-Saharan Africa," now imports 80% of its food despite having 92% of its arable land uncultivated due to the threat of 10–20 million scattered landmines from a 27-year civil war.
- Pricing Disparity: Rural farmers in Angola sell crops (e.g., lemons) for $0.60, while urban markets in Luanda sell the same goods for $4.50, representing a 7.5x price differential driven by supply chain fragmentation and fear of landmine-contaminated land.
- Investment Vehicle: Terra Limpa plans to raise a $30 million fund to acquire 5,500 hectares of land perceived to be contaminated, aiming to secure titles at a discount of up to 90% (approx. $150/hectare) compared to cleared agricultural land.
- Remediation Strategy: The fund will partner with certified Unexploded Ordnance (UXO) technicians to clear land at a rate of 3 hectares/day at a cost of $550/hectare, utilizing contractors like Humanetics Robotics and former U.S. Navy EOD personnel.
- Value Chain Partners: Identified partners include TechnoServe and One Acre Fund for technical assistance, Syngenta and Seed Company of Zimbabwe for inputs, John Deere dealer Lone Angro for equipment, and institutional buyers like ShopRite, Jumbo, and the Angolan Army.
- Target Crops: The team has prioritized cassava and potatoes as primary crops due to their resilience, longer shelf life, and status as staples identified by the Angolan Ministry of Agriculture, with a projected sell price in urban areas 5–10 times higher than rural purchase prices.
- Financing Structure: The fund utilizes a layered capital structure:
- Class C (Concessionary): Government, PRIs, and foundations; first-in, last-out with lower returns to provide social capital.
- Class B: Long-term for-profit investors.
- Class A: Short-term, risk-adjusted investors.
- Exit Mechanism: Investors receive dividends from crop yields, while the fund exits by transferring land ownership to the farmers over a 5–7 year period, funded by a mandatory 20–30% withholding from farmer wages into a savings plan.
- Risk Mitigation: The team plans to denominate contracts in U.S. dollars by partnering with institutional buyers to mitigate currency risk and has established contingency funds to cover liability risks from landmine extraction.
- Government Alignment: The Angolan government, seeking to diversify an economy dependent on oil for 95% of fiscal revenues, offers tax breaks, crop insurance subsidies, and loan guarantees for agricultural investments.
- Social Impact Goal: The fund aims to increase household income for smallholders, diversify land ownership (particularly for women), and tie a portion of the fund's carried interest to achieving specific social impact hurdles.
- Pilot Launch: The team plans to return to Angola in June for field research, with a pilot project scheduled to begin in January 2017 to test economic viability before scaling.
- Key Risks Identified: The team cited currency fluctuation, landmine removal liability, market volatility, and the lack of traditional capital market exit options in emerging markets as primary challenges, addressing these through specific partnership structures and farmer buy-out mechanisms.
- Industry Trend: The 2014 and 2015 winners of the challenge have successfully executed their plans into pilot projects, indicating a shift from theoretical student concepts to real-world impact investing vehicles.
- Future of Program: Organizers are discussing the creation of a fellowship program to support winning teams for 12–18 months, providing capital and mentorship to help them navigate the complex process of actually launching a fund.