The Sustainable Investing Challenge: Meet the Winning Team and See Their Plan

• The Milken Institute, in partnership with Morgan Stanley and Kellogg School of Management, launched the Sustainable Investing Challenge eight years ago to train the next generation of investment professionals in creating financial instruments with measurable social and environmental impact.
• The 2018 challenge engaged 34 countries, 65 business schools from 20 nations, and over 300 students who submitted more than 100 proposals, with the 2018 winning team representing Singapore Management University (SMU).
• The competition's thematic focus shifted from sustainable agriculture in prior years to climate change adaptation, specifically coastal resilience, with the winning project addressing typhoon risks in Southeast Asia.
• Past winners have successfully transitioned from academic proposals to real-world implementation, including Fresh Coast Capital (managing ~$100 million in projects to revitalize Rust Belt industrial lands) and Blue Forest (launching a $25–$50 million environmental impact bond for Sierra Nevada forest fire mitigation).

2018 Winning Proposal: ASEAN Storm Resilience Fund

• Objective: To lift smallholder farmers out of poverty cycles driven by climate disasters by financing the reinforcement of rural housing to withstand typhoons.
• Target Market: Southeast Asia, where four of the ten most climate-vulnerable nations are located, including the Philippines, Vietnam, Myanmar, and Thailand.
• Problem Scope: The region faces an average of 30 typhoons annually (20 in the Philippines), with projected intensity increases of 14%; 350,000 deaths occurred due to natural disasters in Southeast Asia over a 10-year period, with $2 billion in direct economic losses and $5 billion in indirect aid/livelihood costs.
• Proposed Solution: An ASEAN Storm Resilience Fund utilizing microfinance loans to finance home reinforcement (concrete foundations, secure roofing) capable of withstanding 200 mph winds, coordinated through local agricultural cooperatives.
• Financial Structure:
  • Capital Stack: Blends private investment, grants (covering ~10% of reinforcement costs), and a Development Impact Bond (DIB).
  • Investor Returns: Projected Internal Rate of Return (IRR) of 11–17% (base case 14–15%).
  • Borrower Rates: Below-market microfinance loans at 15% interest (vs. market rates of ~30%), amortized over 2–3 years to keep monthly payments near $45 USD.
  • DIB Mechanism: Payouts from multilateral partners (e.g., Global Environmental Facility) cover the interest rate differential between market rates and the discounted rate offered to homeowners, scaled by the number of homes reinforced.
• Scalability Roadmap:
  • Phase 1: Pilot in Luzon, Philippines (targeting 48,000 homes in a 10-million-person rural population).
  • Phase 2: Expansion to Mindanao, Visayas, and Northern ASEAN regions (Thailand, Vietnam, Laos), targeting 1 million homes.
  • Phase 3: Full regional scale-up to 10 million homes across 300 million rural residents.
• Risk Mitigation: Addressed via group lending models (social pressure for repayment), cooperative partnerships for ground-level trust, and a governance framework with KPI tracking.

Market Trends and Educational Evolution

• Evolution of Impact Investing: The concept has shifted from aspirational theory eight years ago to concrete implementation, evidenced by the U.S. Speaker of the House recently citing Opportunity Zones and Social Impact Bonds as viable policy tools.
• Educational Expansion: A global network of over 130 graduate-level classes on impact investing has emerged, with high demand in the U.S. and Europe (e.g., Wharton offering four sections of 60 students; Harvard seeing significant enrollment).
• Asian Market Maturation: Asia is rapidly adopting impact investing frameworks, led by Singapore, which includes:
  • Monetary Authority of Singapore (MAS) integrating impact investing into policy discussions.
  • The Singapore Exchange requiring sustainability disclosure for listings.
  • Corporate adoption of ESG-linked debt (e.g., OLAM's $500 million debt offering with variable interest rates pegged to ESG ratings, backed by 15 banks).
• Philanthropy to Investment Shift: In Asia, corporate social responsibility (CSR) is evolving into formal impact investing, often driven by large conglomerates (e.g., post-2015 haze crisis in Indonesia/Malaysia/Singapore) and family offices funding research before capital deployment.

Q&A Highlights and Implementation Challenges

• Affordability Validation: Cooperatives in the Philippines indicated that farmers are already willing to pool resources for soil testing and livelihood protection, suggesting the $45/month reinforcement loan is within their economic capacity.
• Climate Uncertainty: In response to concerns about increasing wind speeds (potentially reaching 250 mph), the team plans to incorporate "downscaled" climate data from the ASEAN Specialized Meteorology Centre and allow for iterative design hardening in future infrastructure refresh cycles.
• Execution Reality: The SMU team acknowledges that launching the fund is a multi-year process requiring an estimated $1.5 million in starting capital and active partnerships to manage operational risks.
• Future Outlook: The team is currently in an exploration phase to secure capital and partners, emphasizing that the project is a serious startup initiative rather than a temporary academic exercise.