I had a good talk at the Wharton School’s IGEL Program (Initiative for Global Environmental Leadership) A great group of MBA students attended. While the presentation was one about the key asset areas that both Bio-Logical Capital and Equilibrium Capital are focused on (energy, water, agriculture, real estate, etc) the questions were even more interesting.
The most awakening realization seemed to be that in these key sustainability sectors, it is possible to build business models that generated outsized returns while “doing it right.” In other words, by becoming a steward of the resource and managing for the long term, the IRR were more stable and higher yielding.
This surprised most people as it should. The work that needs to be done can get done and provides a path for driving change that can make great returns, and in turn, drive more capital into the sector which drives more change. It becomes a virtuous cycle. While I gave examples of how Bio-Logical Capital can turn around an agricultural system, or a wastewater treatment system and generate superior returns, it is often hard to see until you work through the plans, the numbers, and see it in action.
I could see that the audience liked the idea of the potential to work in sectors that are interesting and prospering while taking care of the environment. Rarely do people get to hear this viewpoint. There is a sense that most initiatives in the area of CSR or ESG are just a tax to the corporate P&L. These thoughts exist in Corporate America and even in most business schools.
I began my presentation with this key point: These initiatives (CSR, ESG, impact investing, etc.) all understate the problem and underestimate the opportunity. There will be fundamentally new businesses created in the key resource areas that will drive the changes needed to maintain or restore our much needed natural resources.
One student asked, “Why don’t other people do this?”
My response: It requires a rethinking and systems view and you cannot fear the complexity of what we are doing.
Another asked, “Is there an exit path for shorter term investors? (Typical being 5-10 years for these assets). Are you are talking about being stewards for a longer period of time?”
My response: Yes, once a project is up and running and stabilized the risk/return changes, we can securitize it in a REIT like or MLP-like structure with reduced yield but very predictable returns.
After the presentation, I heard from Wharton professors who said students continued to talk about the ideas for hours after the talk. They discussed how it would be great to create a roundtable/panel discussion to engage students from different parts of the college (policy, social work, design) who could discuss and debate the ideas and approach from multiple angles.
For me, being able to participate in the discussion of creating impact by doing it profitably and doing the right thing is exhilarating. I encourage others to follow what is going on and get in front of this big wave of change. It will be bigger than most people ever thought and it will be paramount to any society that wants to survive.