May 1, 2014, 12:09 AM ETPanel, Conference Presentation, Other

Theory to Practice: A New Generation Transforms Impact Investing

The Milken Institute and Morgan Stanley co-host the "Morgan Stanley Sustainable Investing Challenge," a four-year-old global competition designed to harness business school student innovation for impact investing strategies.
The 2023 iteration features 39 participating schools worldwide, including Harvard, Stanford, Wharton, Kellogg, LSE, and INSEAD, generating over 70 submissions.
The competition utilizes a rigorous judging panel composed of hundreds of investment professionals from diverse sectors (public equities, hedge funds, etc.) to ensure unbiased evaluation and broaden industry exposure to impact concepts.
The final round narrowed 39 schools down to 10 finalists, and subsequently to 4, including a joint submission from Yale's School of Forestry and Business School.

Core Concept: A fund to plant hybrid poplar tree farms on 5 million acres of U.S. brownfields (abandoned, contaminated industrial sites) to generate financial returns while remediating soil and groundwater.
Problem Scale: Identified 450,000+ brownfield sites covering 5 million acres, representing a $650 billion remediation cost if addressed via traditional mechanical methods.
Remediation Mechanism: Utilizes phytoremediation, where hybrid poplars clean toxins from soil and groundwater within 1–10 years, reducing remediation costs by 80–90% compared to the average $57,000–$500,000 per acre of conventional cleanup.
Financial Returns: Targets 6–11% internal rates of return (IRR), projecting 6.5% for a 10-year horizon and 10.8% for a 20-year horizon.
Revenue Streams:
- Sale of timber products (pulp, paper, biomass energy) via established markets.
- Land value appreciation through a 15–20% equity promote upon redevelopment.
- Potential future revenue from ecosystem services, carbon credits, and government subsidies.
Capital Strategy: The initial fund series aims to raise $50 million to plant 25,000 acres; the second series targets $250 million for 125,000 acres.

Site Selection Criteria: Requires minimum 40-acre plots, specific contaminant profiles amenable to tree remediation, absence of major structures, and 8–16 year lease terms for full growth cycles.
Risk Mitigation: The team proposes leasing land rather than direct ownership to mitigate liability; they are also developing partnerships with the EPA to secure "letters of comfort" against future litigation.
Operational Challenges: The primary constraint is finding sufficient contiguous urban land; the team is focusing on municipalities with larger plots rather than cobbled-together one-acre lots.
Environmental Safety: Trees are designed to either trap contaminants in tissue (burned with scrubbers for biomass) or chemically neutralize them, preventing toxicity transfer to end-users (e.g., wood veneer in RVs).

Precedent: The model leverages the existing profitability of Greenwood Resources, a timber company managing 32,000 acres acquired by TIAA-CREF in 2012.
Case Study: A pilot in Elkhart, Indiana, successfully used poplars on a 50-year-vacant brownfield to supply 20 million wood panels annually for local RV manufacturers, replacing imported Italian wood.
Land Acquisition Economics: The team models a $5/acre lease fee, noting that cities like Chicago and Gary, Indiana, may offer land at $1/plot or even $0/acre for blighted properties requiring productive use.

Educational Demand: Enrollment in core finance classes is declining at top institutions like Wharton, while new impact investing classes are attracting 180 students across three sections.
Student Motivation: There is a documented generational shift where students prioritize purpose-driven careers, civic engagement, and connecting global news cycles to personal investment choices.
Future Scalability: The organizers plan to institutionalize support for winning teams via incubators and fellowships within existing asset management firms to bridge the gap between student concepts and operational funds.
Geographic Expansion: The competition is expanding its footprint to London next year, signaling the globalization of impact investment innovation.

Immediate Goal: The Fresh Coast team plans to launch a pilot tree farm in May of the following year and seeks mentors, partners, and early-stage funders.
Product Development: The team intends to model higher returns by exploring partnerships with oil and mining companies for EPA compliance services and by considering direct land purchase rather than leasing.
Instrument Innovation: The challenge encourages students to experiment with non-standard fund structures (e.g., green bonds, shorter-duration instruments) to address the liquidity challenges of traditional 10-year impact funds.
Audience Request: The team explicitly invites the conference audience to provide mentorship, introduce potential strategic investors (particularly family offices and high-net-worth individuals with local ties), and share local market knowledge.