The future is specialized. The rise of artificial intelligence (AI) is affecting the professional job market in much the same way automation and robotics impacted production and service jobs over the past decade. The current turmoil in the global economy may temporarily slow the pace of change, but could trigger accelerated adoption of AI as economies recover and companies seek to reduce reliance on personnel. The question remains: As technology advances and the required workforce skills change, will there be enough skilled workers to fill those future jobs? How can workers acquire the skills needed in the new paradigm?
Rethinking education and training. The U.S. employment market pre-pandemic was characterized by millions of unfilled jobs along with a pool of underemployed or “discouraged unemployed” who had given up seeking work. When economic activity resumes, this dynamic will still exist and may in fact be exacerbated by ongoing social distancing and companies’ ramping up focus on technological solutions to business challenges.
What can investors do to help close the growing skills gap? Reskilling and upskilling may provide the answer to the current and future employment skills gap. We have identified a series of funds that invest in practical solutions to help train, reskill and upskill the workforce of today and the future. Some of the funds focus on improving the skills of young people just entering the workforce, and some provide lifelong learning needed to adapt to the rapidly changing economy.
In this report, we address the widening workforce skills gap and identify the socio-demographic groups that may be most exposed to changing technology such as automation and robotics. We identify specific investments which may help close the widening skills gap. We also share case studies of innovative training and skill-building programs.
Download Investing in the Future of Work
We are pleased to invite you to a webinar to discuss the Future of Work with experts in the field on Tuesday, June 9, at 2 pm ET. The discussion will focus on investment opportunities that promote practical solutions to help train, reskill and upskill the workforce of today and the future. Register here.
On April 22, Earth Day, Cornerstone hosted a webinar titled “Every Day Must Be Earth Day: Climate, Coronavirus and Complexity. CEO Erika Karp was joined by Karl Burkart, Managing Director of One Earth, a project of Rockefeller Philanthropy, and former Director of Science & Technology at the Leonardo DiCaprio Foundation. One Earth is dedicated to advancing cutting-edge science to address the climate crisis. The organization funded a breakthrough climate model (published as Achieving the Paris Climate Agreement Goals by Springer Nature) which shows how the world can achieve the ambitious 1.5°C goal through currently available technologies at a lower cost than our current energy system.
In a wide-ranging discussion, Erika and Karl tackled these questions:
- Is the COVID-19 pandemic related to climate change?
- Will the pandemic-related drop in carbon emissions lead to lasting changes?
- Will the oil market collapse slow the pace of transition to alternative energies?
- What is the impact of the current crisis on social and economic justice?
- What can people do to move the needle on climate justice?
In preparation for our call, Karl provided a written assessment of the questions we used to shape our discussion. Below are his responses.
Is the COVID-19 pandemic related to climate change?
There is a large and growing body of scientific literature linking climate change to the spread of vector-borne disease. Studies have focused mostly on insect carriers such as mosquitos (malaria) and ticks (Lyme). There is a general consensus that increased warming will drive increased vector-borne diseases, but no one knows exactly where and by how much.
It’s also possible that vertebrate animals are being exposed to more vector-borne diseases, making them carriers of novel diseases to humans. These ‘zoonotic’ diseases — pathogens that jump between species — include the COVID-19 outbreak, but it’s very hard to make a direct link to climate change. What we do know is that deforestation and encroachment of human activity on wildlands is creating greater risks for both humans and animals, as edge effects increase. We need to retain our current footprint of wildlands (approximately 50% of the terrestrial surface) in order to save biodiversity, preserve priceless carbon sinks, and reduce the risk of future zoonotic diseases.
Climate change will certainly increase risks to public health, and we’re only just starting to learn about the ways this could happen. An emerging body of science is looking at “zombie pathogens” that have been frozen, sometimes for centuries, but are thawing due to climate change. One anecdotal example of this, an outbreak of anthrax in Siberia in 2016, was caused by increased temperatures thawing permafrost and an anthrax-infected reindeer carcass from 1941. Whether this will happen at larger scale is a very controversial topic and the science is new, but it’s clear there are strong linkages.
Will the pandemic-related drop in carbon emissions lead to lasting changes?
It’s hard to talk about the silver lining to such a horrible pandemic, but it is true that emissions will likely drop 5-10% or more as a result of COVID-19. This is essentially exactly what was needed to get us on track to 1.5°C — a net reduction of 56% of global emissions by 2030 (or roughly 6.5% per year).
I myself had a pretty bad carbon footprint due to my travel and speaking engagements, and I’m seeing many of these venues events now going online, including Climate Week, which is normally held in New York concurrent with the UN General Assembly in September. The irony of Climate Week is that you have the whole world gathered in one place talking about solving the climate crisis while emitting enormous amounts of CO2. We’re now being forced to learn how to do many things virtually, with a much-reduced carbon footprint.
This could be a tipping point when virtual working becomes the standard, rather than the exception. A study in 2018 showed that 70% of people were able to work remotely on occasion. What if that were reversed – with physical officing being the exception rather than the rule? The permanent reduction of carbon emissions implicit in such a transformation of our work lives would be a game-changer. But I think many are rightfully skeptical that this will turn into permanent behavior change. And behavior change is only a piece of the climate change puzzle…
There’s only so much we can do as individuals to help. We need permanent policy shifts. We need to stop subsidizing fossil fuels (at a whopping $4.7 trillion per year according to the IMF) and start subsidizing clean, renewable energy. To make that shift happen, we will need a different kind of behavior change… VOTING. People need to start voting for candidates in much larger numbers at all levels of government of they care about clean air, clean water, and a balanced climate. Perhaps if we get nationwide mail-in voting, this could be the beginning of more civic engagement, which will drive the policy changes needed to solve the climate crisis.
Will the oil market collapse slow the pace of transition to alternative energies?
This is an excellent question and a very complicated subject. In my opinion, COVID-19 is “sinking all boats” — fossil fuel energy and renewable energy. I was in Riyadh for G20 meetings in late February, and prior to COVID-19 breaking out there was already a brewing conflict with OPEC+ nations balancing whether or not to cut production to stimulate falling prices. The fact of the matter is, the oil industry was already heading for a rough year. We supported research by Carbon Tracker, a think tank in the UK that has been analyzing data from many of the Oil & Gas majors, and they predicted a major decline in the sector in the early 2020s, as more and more people switch to electric and hydrogen modes of transport.
Then COVID-19 hit. The oil markets are now in a freefall, with negative trades for the first time in history. This will put a lot of oil and gas companies out of business, including the oil services industry (companies that manage, build, and maintain the production pipeline). Massive layoffs are happening right now, and when the economy comes back to life, hopefully in a year or two, it will be a huge and difficult ramp-up for the fossil fuel industry. There will be many, many losers and only a few winners. And some of the losers need to lose, like the tar sands in Alberta, which produce 25% more supply chain emissions per barrel of oil than the global average. Then there is increased demand for electric vehicles. Just last month, Tesla had record sales in China.
I’m almost brave enough to predict that COVID-19 will be the beginning of the end of the fossil fuel era as we’ve come to know it. We will have to rebuild our economy, and I think clean economy will win out, with solar and wind power now heading to 4 cents per kilowatt hour (c/kWh) on average and one solar hybrid project last summer bidding below 2c/kWh. Renewables also make the most sense as a stimulus for economic recovery, creating jobs at a ratio of 3 to 1 per dollar invested versus fossil fuels. This is not to say the renewable energy industry isn’t also being pummeled. This was set to be the biggest year in history for solar deployment, and now there are massive layoffs. We’ll just have to see how bad it will be on both sides and hope for a realignment of subsidies to promote a clean future.
What is the impact of the current crisis on social and economic justice?
First let’s consider health. Before COVID-19 hit, there were an estimated 4.2 million deaths per year due to ambient air pollution, according to the World Health Organization. Low-income communities constitute by far the majority of those deaths. And this isn’t the case just in the developing world. A recent study in California shows that black and brown people are exposed to 40% more emissions than white people. This is often due to the location of low-income communities in proximity to fossil fuel plants — land that wealthier (and historically whiter) people didn’t want to build on.
So we need to acknowledge that low-income communities were already struggling with lung disease and other diseases at a higher rate. Now, according to a new study, those same communities are experiencing many more COVID-related deaths than the national average. In Michigan and Illinois, for example, black people make up 41% of Covid-19 deaths, despite being less than 15% of the population. And in Louisiana, nearly 60% of the people who died of coronavirus in the state are black, while the demographic is just a third of the state’s population. Top all that off with the lack of socialized healthcare in the US, and you have a recipe for disaster.
There’s blame to share in many directions, but first let’s point a finger at the fossil fuel industry, and the lack of regulations to protect communities from pollution. Second, let’s look at our healthcare system in the US. Many European countries last month called citizens home who were on visas in the US because they deemed our country as lacking sufficient medical infrastructure. Post-COVID, these two problems have to be addressed to even begin a conversation about social justice. In the global context, I shudder to think about the impacts of so many people losing their jobs and livelihoods. But one thing that does appear to be emerging is a growing movement to tackle climate injustice head-on. I think COVID-19 is going to add fuel to that fire as these great inequalities in our economic system are revealed.
What can people do to move the needle on climate justice?
It shouldn’t take a global pandemic for us to see clear blue skies and breathe in clean fresh air. We deserve better. If anything good can be said of COVID-19, it is this momentary glimpse of what the sky should look like and some space to think about the future we want to create.
So what is the future we want to live in post-COVID? I think that’s the question we all need to be asking. Are we going to let the fossil fuel industry come roaring back to life? Or are we going to finally start to build the clean energy future we all need? We could have an opportunity to start righting the wrongs, provide low-income communities with access to clean energy while providing job training and income opportunities for a clean energy future. This is what a Green New Deal should focus on – pivoting subsidies away from the ailing fossil fuel sector and towards investments in renewable energy, along with a major jobs program to transition coal, oil and gas workers to good, long-term jobs in solar, wind, and energy efficiency.
Internationally, we know developing countries are going to be hard hit by the pandemic and one initiative, Sunfunder, is working to bring energy access to rural areas of Africa where it’s needed most. There is a risk of default for many community solar projects across Africa due to the pandemic, which would be a horrible loss to the people there, derailing more than a decade of progress to bring clean, affordable energy in the region. So these are the types of efforts that need to be supported now more than ever.
One thing we do at One Earth is to identify key initiatives that are strategically important in creating a green future and achieving the 1.5°C goal of the Paris Climate Agreement. If you’re interested, please feel free to visit our website OneEarth.org and sign up for a monthly briefing of projects around the globe that are working towards a green, and sustainable future.
Editor’s Note: From an investment perspective, there are numerous ways to deploy capital in support of climate justice. Cornerstone Capital Group works with to clients to identify their financial goals and impact interests, and recommends appropriate investment solutions. Our recommendations reflect rigorous research into investment opportunities to understand their risk and return profile, their environmental, social and governance characteristics, and the degree to which an investment facilitates access to the products, services and systems needed to achieve the United Nations Sustainable Development Goals. If you would like to explore how Cornerstone may be able to serve you, click here.
We recently hosted a second discussion on the near-term impact and longer-term implications of the current coronavirus pandemic. Cornerstone Managing Director Alison Smith moderated a Q&A session with CEO Erika Karp and CIO Craig Metrick, based on questions submitted by attendees. The dialogue focused on asset allocation, implications for various sectors and asset classes, and the role of environmental, social and governance analysis in crafting resilient portfolios. We hope you find this replay helpful, and welcome your feedback at email@example.com or via our website Contact Form.
The economic model of our current era is linear. We take resources from nature, make them into a product and then throw the item away when we’re done with it. The result? Overflowing landfills, trash filled waterways and, too often, toxic waste. This rampant waste of resources poses an existential threat to the world as we know it. A circular economy uses as few resources as possible in product creation; keeps resources in circulation for as long as possible, extracting the maximum value from them while in use; then recovers and regenerates products and their components at the end of their service life. Embracing circular economy principles is perhaps the most essential initiative we can undertake as a global society. We believe it is the only way forward if we want to sustain humankind.
–Intentional Design: Embracing the Circular Economy, Cornerstone Capital Group, October 2019
Amidst these difficult times, we are pleased to see that the European Union has moved forward with a bold, comprehensive plan to embrace the circular economy. The new Circular Economy Action Plan, adopted on March 11, 2020, focuses on the design and production of a circular economy. It aims to ensure that the resources used are kept in the EU economy for as long as possible. The introduction of this new framework follows the December 2019 European Green Deal, which set a roadmap towards a climate-neutral circular economy. 
We believe this is an important, proactive policy development that could serve as a model for government entities in other regions. The framework offers some specific guidelines for various economic sectors and lays the groundwork for strong rules and restrictions. We are especially encouraged by the proposals for sectors such as electronics, food and packaging—areas of the economy that tend to generate the most waste.
We recognize that these are recommended guidelines. Actual legislation still needs to be formulated and passed. Given the current coronavirus pandemic, we suspect that implementation of any legislation will likely be delayed due to the pandemic’s negative economic impact globally. Looking out longer term, however, we believe this type of legislation will be beneficial for the economy and the environment.
Executive Vice President for the European Green Deal, Frans Timmermans, said: “To achieve climate neutrality by 2050, to preserve our natural environment, and to strengthen our economic competitiveness, requires a fully circular economy. Today, our economy is still mostly linear, with only 12% of secondary materials and resources being brought back into the economy…With today’s plan we launch action to transform the way products are made and empower consumers to make sustainable choices for their own benefit and that of the environment.”
The EU Circular Economy Action Plan:
1) Propose legislation on a Sustainable Product Policy, to ensure that products placed on the EU market are designed to last longer, are easier to reuse, repair and recycle, and incorporate as much as possible recycled material instead of primary raw material. Single-use will be restricted, premature obsolescence tackled, and the destruction of unsold durable goods banned.
2) Empower consumers so they have access to reliable information on issues such as the reparability and durability of products to help them make environmentally sustainable choices.
3) Focus on the sectors that use the most resources and where the potential for circularity is high. The Commission will launch concrete actions as shown in the table below:
Virginijus Sinkevičius, commissioner for the environment, oceans and fisheries, said. “The new plan will make circularity the mainstream in our lives and speed up the green transition of our economy. We offer decisive action to change the top of the sustainability chain–product design. Future-oriented actions will create business and job opportunities, give new rights to European consumers, harness innovation and digitalization and, just like nature, make sure that nothing is wasted.”
The full EC report can be found here: https://ec.europa.eu/environment/circular-economy/pdf/new_circular_economy_action_plan.pdf
On March 19, 2020, Cornerstone Capital Group held a conference call addressing concerns about the current coronavirus pandemic and its impact on the markets, the economy, and importantly, the changes in how we think about the infrastructure of our society over the longer term. Cornerstone’s Erika Karp, Craig Metrick and Michael Geraghty were joined by two equity managers on the Cornerstone platform: Cathie Wood of Ark Investment Management, and Garvin Jabusch of Green Alpha Advisors. The full call replay can be accessed here.
Managing Portfolio Risk Through Integrated Analysis
The participants on the call focused on the benefits of integrating environmental, social and governance (ESG) factors into the investment process in an effort to de-risk long term portfolios and identify critical growth opportunities. Both Ark and Green Alpha look at multiple risk factors at a systemic level to minimize exposure to threats such as climate change. This extends to investing in methods to address risk — such as pandemic crisis. In their view, by focusing on innovation and the future while considering all stakeholders instead of only shareholders, investors may experience better long-term returns with lower volatility.
Kicking off the discussion, Erika highlighted that “sustainable investing is a proxy for quality. It’s a proxy for innovation and a proxy for resilience. And that is precisely what we need right now.” She asked whether, when we emerge from this current crisis, we would be forever changed:
“We have to think about issues like distance learning, telecommuting, distributed health systems. We have to think about supply chain logistics. We have to think about surge capacity. We have to think about virtual entertainment, emergency service centralization, obviously food safety, water quality, hygiene standards. We have to think about mental health provision. We have to think more proactively and in an innovative way about investing. Going forward to attack these challenges, we remind everyone that impact and sustainable investing is just investing. But a more conscious, predictive way to invest. Impact investing is the new cornerstone of capitalism.”
Michael Geraghty, Cornerstone’s market strategist, discussed the volatility of the markets under the current coronavirus situation. He doesn’t believe the markets will stabilize until the virus is either contained or a vaccination is developed and made available to the public. Michael notes, however, that this is a short-term shock to the system and not a structural one. That’s not to say that this pandemic won’t have a profound effect on the economy or the markets near term. The consumer accounts for 70% of U.S. Gross Domestic Product (GDP). If consumers are staying home and hunkering down, a cut in rates by the Federal Reserve and a payroll tax cut by the Federal government won’t have a strong impact on consumer behavior.
Craig Metrick noted that Cornerstone focuses on long term investment objectives while creating an investment plan which is designed to achieve social and environmental impact. He then interviewed Cathie and Garvin as to their views on the longer-term implications of the current crisis.
Investing in Disruptive Innovation and Strong Governance
Ark Investment Management focuses on investing in disruptive innovation over a five-year time frame. Its five core themes are: DNA sequencing, robotics, artificial intelligence, energy storage and blockchain technologies. Cathie Wood noted that the companies her firm invest in are not typically in any indices. Other managers are selling these names while buying names in the indices, such as the S&P 500, giving firms like hers an opportunity to buy these innovative company stocks at lower valuations. Over the long haul, she believes these investments should outperform older economy names that still dominate the indices.
Garvin Jabusch noted that a recession is already priced into the markets and his firm is looking for companies that will perform well out of the downturn. Bottom-up analysis is key, in his view. He looks for companies that are good stewards of capital, are innovative and create solutions that will make the economy more productive. Green Alpha is a long term buy and hold manager. The firm focuses on innovative companies that can help de-risk the economy such as those engaged in decarbonization, biotech and electrification.
Summing up the discussion, which included a very lively Q&A, Erika noted: “When it comes to ESG analysis, the “G,” governance, is first among equals. Because if we’re talking about a well-governed company, then by definition it is looking at environmental and social issues. And if a company is not looking at environmental and social issues, it is by definition not well-governed. It’s tautological.”
Ark Investment Management and Green Alpha are two of the strategies included in the Cornerstone Capital Access Impact Fund. Click the link to view standardized performance and the Fund’s top ten holdings: https://cornerstonecapitalfunds.com/quarterly-commentary
You should carefully consider the investment objectives, risks, and charges and expenses of the Fund before investing. The prospectus contains this and other information about the Fund, and it should be read carefully before investing. You may obtain a copy of the prospectus by calling 800.986.6187. The Fund is distributed by Ultimus Fund Distributors, LLC. Cornerstone Capital Group is the adviser to the Fund. Investing involves risk, including loss of principal. Applying ESG and sustainability criteria to the investment process may exclude securities of certain issuers for both investment and non-investment reasons and therefore the Fund may forgo some market opportunities available to funds that do not use ESG or sustainability criteria. Securities of companies with certain focused ESG practices may shift into and out of favor depending on market and economic conditions, and the Fund’s performance may at times be better or worse than the performance of funds that do not use ESG or sustainability criteria.
Shortly following trips to Davos during the World Economic Forum in late January, Erika Karp sat down with Juliet Scott-Croxford of Worth Media to compare notes on their experiences and most meaningful takeaways from the week. Below is a transcript of that conversation, which we captured via video.
JSC: Hi everyone. I’m Juliet Scott-Croxford, CEO of Worth Media. And I’m excited to be joined by Erika Karp, CEO of Cornerstone Capital, to talk about our shared experience at Davos in the end of January.
EK: I’m Erika Karp, the Founder and CEO of the Cornerstone Capital Group. As we think about investing for impact we’re here to talk about Davos, what happened at the World Economic Forum last week and some of the most interesting takeaways.
JSC: What was your biggest takeaway from the event on based on what you attended and some of the conversations that you heard?
EK: For me, the biggest takeaway is the extent to which we need more systems thinking if we’re going to meet these huge challenges. Because it seemed like there were a lot of events going on — whether it was about climate, whether it was about health or whether it was about technology and blockchain or women or LGBTQ events — each of these events touches on way more than it might seem.
JSC: And, and how do we take action on creating big systems thinking around those types of challenges?
EK: Well, it’s really hard. I think that that kind of thinking can’t just happen at the top. That is not just a high-level conversation. That conversation needs to go down to the grassroots level. And so I wonder … if everyone who needs to be in the room sometimes is in the room.
JSC: Hmm. So just playing on that point a bit, I think there was 24% female attendance at Davos this year. Last year it was 23%. What were your takeaways around the sort of notion around diversity and inclusion?
EK: By the way, that’s a big jump for Davos, because I know in many past years it’s been stuck at kind of 20% or even below. And that’s challenging. So the idea of women not just having more power but more influence is hugely important. And I think women’s voices, diverse voices are not being heard to the extent to which they need to be.
JSC: I attended a lot of the sessions that were done at the Equality Lounge [hosted] by the Female Quotient and a big part of their focus was on UN Sustainable Development Goal 5, around closing the gender gap. What conversations did you hear around gender and diversity outside of perhaps one of those areas?
EK: Unfortunately, very little. And here’s what I think we have to get to… people might talk about SDG 5 and women’s economic empowerment. But when you think of how you actually get there, you have to talk about all the other SDGs. So we think at Cornerstone in terms of the idea of access. Women will not be really empowered until we have access to water, to healthcare, to education, to broadband, to capital. And so that intersectionality, that systems thinking around diversity, I don’t think we’re there yet.
Capitalism and Sustainability
JSC: The main sort of focal point for the event or the big theme was around better capitalism and sustainability. How encouraged or not were you by that kind of conversation and thinking?
EK: There was a lot of talk about stakeholder capitalism, what we’ve seen the Business Roundtable talking about. And I think that’s great, but it’s so much more than talk that we need to get it done. When we go back to those Sustainable Development Goals, that systems thinking, that’s what you really need to see. So we need data, we need accountability, we need measurability, we need intentionality — all the things that we talk about with impact investing. And if you think about it, any board of directors, you know, yes, they need to serve their shareholders. They need to serve their employees. They need to serve their customers. You can’t optimize profitability without doing all three. But the issue is, it has to be about long-term profitability. We have to stop [the impact of] externalities from not being accepted by the users of capital. We have to think about financial capital, but also human capital, natural capital. We have a long way to go, I think.
JSC: Well, one of the key takeaways for me was that the business community is awake to the climate crisis. That was encouraging for me, whilst it’s possibly a little too late. I did feel like the conversation around that was baked into every conversation or session that I had. And perhaps more so outside of North America as well. I think there’s an interesting conversation coming out of a lot of the European businesses. I think that the key challenge is how do we take it beyond conversation and into real action. Seeing the letter that Larry Fink put out and, and some of the conversations around the Business Roundtable, what do you think the next steps are? How do we take that and. to your point, build that sort of systems thinking into —
EK: Action? Well, one of the big next steps is to facilitate tangible information, data, decision-useful information. I think that kind of push for real information, real data accountability is the starting point. And so that’s one of the things that I take away from it. Because when you have real information, real data that data providers and index providers and ETFs and fund managers and ultimately investors can have, not flawed information all through that system, then I think we have a better start.
JSC: And what about the sense of having a common language around how we’re describing this? So a common way to describe it, a common way to measure it, a common way to hold each other accountable to it. How important do you see that?
EK: Hugely important and that leads on from what I talked about with regard to data. We don’t have a common language when it comes to the whole idea of sustainable investing. Cornerstone uses a very clear definition. We think sustainable investing is the systematic integration of material, environmental, social and governance factors into the investment process. That is sustainable investing. It’s not ideological, it’s not political, it’s not divisive. It is about pragmatism and enhanced analytics. It is a discipline. And that discipline in finance, I mean ultimately it’s just going to be called investing and investment research, but we’re not there yet. Sometimes you’ll hear people say ESG investing. There is no such thing as ESG investing. There’s ESG analysis. We have to bring this into the realm of finance, not ideology.
JSC: And how important is partnerships and this notion of stakeholding when it comes to taking this to the next step?
EK: It’s, it’s just critical. This goes exactly to what we’re talking about, with systems thinking and going from not just the top down but from the bottom up to have this interdisciplinary discussion about getting things done. Partnerships are a must-have if we go back to talking about achieving the Sustainable Development Goals, which, by the way, in and of themselves are not investible. So again, when we frame things at Cornerstone, we think about the idea of access, giving the world access to each of those SDGs, giving investors access to each of those SDGs. And that implies you’ve got to have partnerships. SDG 17, right?
JSC: Yeah, absolutely. And people like Greta [Thunberg], who I personally think is so essential to helping hold businesses and key influences accountable to make progress. What what were your thoughts on her speech?
EK: Oh my God. The idea of, you know, this young person talking about what is blindingly obvious to almost the whole world, except certain administrations. I think it’s tremendous. I think she represents, you know, basically the whole world that’s not at Davos.
JSC: Playing that forward to the point around inclusivity … she has such a loud voice, a voice that is so important to people that aren’t able to be at something like [Davos]. I just think her presence is so poignant.
The Davos Experience
JSC: So this was your first and my first Davos. I’m still processing it a bit ’cause there’s so many different layers and elements to it. It’s a place of many contradictions, and it has been and is under scrutiny. Having been there and come away, what are your sort of overall thoughts on the importance of it? The challenges with it?
EK: You know, the biggest challenge is clearly the perception of eliteism, the few, the very few making decisions for everyone else. And so that’s a huge challenge now with regard to how Davos comes together.
For a number of years I worked on the Global Agenda Council which leads up to Davos — what should be included, what are the pivotal questions that we’re going to address at Davos? The question I have is whether the hard work done on the agenda councils and the work that becomes you know, very specific, [does that] get right into the Davos conversations? I’m not sure of that. So that’s something I think we have to be very thoughtful about, because I think that innovation and ideas come from everywhere. Are those [ideas] making their way into any decisions or actions that might be taken over that one week? I’m not sure.
JSC: What were some of the most interesting sessions you attended?
EK: Obviously the ones that I worked on! The Green Debate was about action. What I felt that was so interesting was the extent of the earnestness of that group, which really wants to get something done. The other [event] that I was involved with, which I’m really excited about is called the World Benchmarking Alliance, the WBA. And the reason I love this initiative is because it is really about a systems-based approach: Let’s look at the keystone companies in the global economy, those that potentially can have more impact than other companies by virtue of where they’re situated in the system. And let’s keep raising the bar for the industries.
JSC: Fantastic. So you thought the WBA offers a solution to integrate this systems-based analysis?
EK: From what I can see. It’s relatively new initiative. But yes, it is showing us which companies can be most powerful in driving everything forward. And I should say there is no perfect company. You know, every company has challenges, whether it’s upstream or downstream, whether it’s a technology company, consumer company — every company has challenges. But if the WBA can really identify what exactly those keystone companies are doing, what do they touch and how can they be most powerful, I think that’s terrific.
JSC: What do you think the best way of integrating that into future Davos events, to your point and taking it to the grassroots? So it can’t just sit with this sort of small group of incredibly influential people. How much does the World Economic Forum take a lead in ensuring that happens?
EK: I think the WEF really could take the lead. I’ll give you an example as it relates to these keystone companies, or companies that are not keystone companies but sit in industries that have an outsized impact on what’s going on. One of the things that I observed — or didn’t observe — was the extent to which there’s real entrepreneurship, real disruption inside the companies that are part of the WEF. I think a lot of companies have forgotten how to take risk. They have forgotten how to innovate. And I think that’s unfortunate, especially, I would argue, since some of the agenda councils, which over the past decade have come up with interesting solutions, innovative, entrepreneurial solutions. I don’t know that we’re seeing [such solutions] to the extent that we should.
JSC: I think that’s an interesting point. I was surprised that there were quite a lot of young people at the event, more so than I expected, but also more representation from tech companies and data companies and software companies. And I’m surprised that they haven’t taken more of a lead on [creating] more of a systems-based universal way of an analyzing and assessing progress in some of these areas.
EK: Did you feel, ’cause I did a little bit, did you feel that there was more a sense of fear of new technologies, the negative impact of new technologies by one generation than there was by the other? It felt to me like there was a little bit of a focus on the scary stuff.
JSC: Yeah. I think you’re right. And I think, you know, Facebook’s been in the headlines a lot, so I think that there definitely is this sense of, yeah, how much do we embrace these platforms for good? I think that is a challenge both for those companies and for people, but there is this wealth of knowledge and expertise. Let’s apply it in these areas that we need to apply it.
JSC: Are there other conversations or interesting people that you met that have kind of stuck with you a few days later?
EK: There was one particularly interesting woman I spoke to from a health research organization. One of the things she said that just really struck me is that, you know, we can talk about systemic change as much as we want. But when it comes to healthcare and the intersection of healthcare and the technologies we need, she said the funding picture is so off, you know, without government funding of basic research. She says we can talk all we want, but it’s not enough.
JSC: Why do you think that is? Why, what is driving that lack of investment or capital in the area?
EK: I think it does have to do with the short-termism, broadly, whether it’s in the private sector or the public sector. Some in the foundation world are doing wonderful work, but it’s a drop in the bucket compared to what we need. If the foundations are giving a kind of first loss capital [to attract the] private sector that’s great. But again, when it comes to basic research, it’s a drop in the bucket. And then our conversation went on to infrastructure spending and education spending and you know, the things that so need to come first. But it was that healthcare discussion that reminded me this is going to take everyone.
The Role of the Sustainable Development Goals
JSC: Yeah. And, and how integral do you think the Sustainable Development Goals [SDGs] were to the entire conversation? Cause that, that was the other thing I noticed. They were very prominent in certain places, but in other places actually weren’t the lead focus. What can we do to use them as a way to align all of these stakeholders and companies around a way forward?
EK: I was actually surprised that they were included in lots of places because I was expecting nothing. So I was pleased to see the SDGs around and in their own little building that was [colorful]. You know, the fact that the SDGs have branded themselves as eye candy is beautiful — whatever it takes. I wouldn’t call it prominence, but it was clearly there.
I think one of the problems we have, actually, is if companies kind of hang their hats on achieving SDG 5 or whatever. I think that’s really problematic because if you really try to go after one (and we talked about this before), you’re not going to get really much done. Yeah. So I think this was the WEF kind of tiptoeing into the SDGs.
JSC: Yeah, I agree. I’d really love this sense of having a shared set of goals and I do think that’s a really powerful way of bringing different stakeholders together around a common issue and some of the biggest issues that we’re faced with. I think you just, you kind of want to see more of it. And I sense there have been quite a lot of laggards when it comes to adopting these or taking them seriously or thinking actually this is a good way to do it.
EK: I mean with all due respect to the WEF, it’s astonishing that this is the first time that they’ve really tackled climate.
JSC: Yes. And it is sort of slightly contradictory in the fact that the backdrop is the, you know, the mountains and the temperature was quite warm. Yes, there’s snow on the ground, but it, I sort of felt like it was almost quite stark in that the conversation was around climate crisis finally, and we were in the backdrop that we were in.
EK: I put that aside to some degree because had it been snowing and freezing, then somebody would say, ‘Oh look, no climate change.’ I mean, you know this is about volatility, not about any particular day. So it didn’t bother me that much. It was convenient. Walking around was a little easier than it would have been. But you know, getting between all those black cars…
JSC: I was going to say, it takes 20 minutes to walk end to end on the promenade and I would far rather walk. I was surprised at how much traffic there was and they weren’t, I don’t think they were electric.
EK: Well, actually I have a picture of Prince Charles arriving in a fully electric vehicle. Yes. I think, I don’t know where that was published, but we’ve got that right.
JSC: There’s definitely more that they could do there, I think.
EK: I think there’s a little more they can do. Yeah.
JSC: So you saw Prince Charles, who else did he see that kind of made you [perk up].
EK: You know, no one, not really. Maybe I was looking down or doing my work. But I did see some of my favorite people. Nigel Topping, you know, I don’t know if everyone knows Nigel, but he’s amazing. A few other people that I’ve known for a long time that in my view are really the leaders, like Steve Waygood from Aviva. I don’t know if people know Steve, but yeah, he’s one of the leaders. So it was really nice to see those serious people.
Next Year at Davos?
JSC: What would you, a year from now, thinking about Davos next year, what change would you like to see?
EK: I would love for Davos to just take up the issue of entrepreneurship. You know, we know that in a global economy, impact comes from entrepreneurship, new companies revitalizing economic growth. You know, the fact that we have the world’s monetary authorities driving the stock market is not okay, right? Real economic growth comes from entrepreneurship. And I don’t know that there’s been a Davos that’s really taken that up.
JSC: And so how would you, how would you do that?
EK: I’d like to see the conversation truly be a catalyst for growth. Focus on the idea of entrepreneurship, in fact, impact entrepreneurship. That’s where growth comes. That’s where new companies come from. Why don’t we have, you know, a discussion about great companies that know how to disrupt themselves and innovate from inside. And then of course, the outside companies, the innovators, the disruptors that are outside. I think it has to be about entrepreneurship because ultimately that’s how we’re going to face the big challenges of the world.
JSC: So watch this space and we’ll work on impact entrepreneurship as a topic between now and next year. Thank you.
EK: Thank you.
Cornerstone Capital Group Founder and CEO Erika Karp addresses the state of impact investing, offering a clear distinction between impact investing, ESG analysis, and sustainability. No matter what labels are used, someday this will all simply be called “investing.” Note: This video originally appeared on cornerstonecapitalfunds.com.
The economic model of our current era is linear. We take resources from nature, make them into a product and then throw the item away when we’re done with it. The result? Overflowing landfills, trash-filled waterways and, too often, toxic waste. This rampant waste of resources poses an existential threat to the world as we know it.
What is the way forward? The circular economy. A circular economy uses as few resources as possible in product creation; keeps resources in circulation for as long as possible, extracting the maximum value from them while in use; then recovers and regenerates products and their components at the end of their service life. Embracing circular economy principles is perhaps the most essential initiative we can undertake as a global society.
In our report Intentional Design: Embracing the Circular Economy, we look across a range of sectors to identify critical resource issues and identify examples of companies that are adopting circular economy practices into their supply chain management. In many cases, companies are increasing their efficiency, reducing waste, and saving money through their investments in the relevant processes and technologies. The transition to a circular economy is also spurring new business models and collaboration across supply chains.
For investors, forward-thinking asset managers are increasingly incorporating circular economy considerations into their investment processes; “pure play” circular economy investment vehicles, though rare, do exist. The report highlights several existing investments that we consider under the circular economy umbrella. In our view, investing in the circular economy is poised to become a central theme in sustainable and impact investing.
Download Intentional Design.
It seems clear that the “circular economy” is the only way forward for humanity. In my view, adopting circular economy principles will combat our current crisis of waste – wasteful manufacturing, wasteful packaging, food systems, technology, extractive materials. We can begin to repair the planet. The concept resonates deeply with me and the team at Cornerstone, which was founded with the vision for a regenerative and inclusive global economy.
For those who don’t know, a circular economy “aims to redefine growth, focusing on positive society-wide benefits. It entails gradually decoupling economic activity from the consumption of finite resources, and designing waste out of the system.” 
I recently attended the Circularity 2019 conference, hosted by Greenbiz. It was a fascinating and thought-provoking few days, with sessions ranging from Digitizing Circularity to Catalytic Capital. I participated in a fascinating panel with Ron Gonen, Co-Founder and CEO of Closed Loop Funds, and Emily Landsburg, Director at private equity firm Ultra Capital, on the role of investors in financing companies engaged in the circular economy. I’m pleased to share Greenbiz’s recording of that conversation.
Investment in infrastructure and innovation are crucial drivers of economic growth and development, and are key to finding lasting solutions to both economic and environmental challenges. Promoting sustainable industries and investing in scientific research and innovation are all important ways to facilitate sustainable development. More than 4 billion people still do not have access to the Internet, and 90% are from the developing world. Bridging this digital divide is crucial to ensuring equal access to information and knowledge, as well as fostering innovation and entrepreneurship.1 SDG 9 is further refined by targets that can be more easily translated into actions. These targets highlight the interconnected nature of the goals. For example, strategies to support inclusive industrialization and innovation also promote progress toward SDG 5 (Gender Equality) and SDG 8 (Decent Work & Economic Growth). Below are a series of synergies that can come from providing access to products, services and systems that work to drive Industry, Innovation and Infrastructure.
Invest in Fair Treatment and Equal Opportunity
Recent research points to a strong connection between openness to different cultures and ideas, and the ability of a place to adapt to economic changes and grow.2,3 Currently, however, not all are equally able to innovate. Women have more difficulty acquiring external business financing than men, and only received 2% of all venture capital in the US in 2017.4,5 Disparities in financing opportunities also extend into microfinance, where evidence has emerged of discrimination against disabled micro-entrepreneurs.6 Fostering inclusive growth depends on removing these biases and connecting all with opportunities to contribute to innovation.
Invest in Financial Services
Sophisticated financial services will provide smooth cash flows and enable individuals and businesses to accumulate assets while making productive investments. Small businesses require financing to grow, and currently there is a lack of financial institutions that can support small to medium-sized enterprises through traditional loans or a line of credit.7 As additional financing for SMEs is more available, national productivity and social welfare can be improved as there is additional access to employment and resources. Technology can be used not only to facilitate payment transfers but also to access banking services remotely, making financial services available imore broadly.8
Invest in Telecommunication Systems
In the last decade the number of people that are connected to the internet has tripled. This still leaves 60% of people lacking internet access globally. Mobile and wireless coverage are more available than household internet access, and the cost of data prohibits access for many.9 Communication technologies play a role in almost all industries including health, education, agriculture, finance, transportation, energy, and commerce. With the advancements in infrastructure and innovation in technologies, telecommunication services will be available at a lower cost and higher speeds.10
Invest in Affordable, Sustainable and Modern Energy
Access to affordable, sustainable modern energy encompasses the ability to improve living conditions through lighting, education, and fresh water. Available forms of energy in many places are not only time-consuming to gather and inefficient, but also unhealthy and unsafe. A lack of developed infrastructure globally shows that approximately 20% of people live without electricity, and 50% of all households and 90% of rural households use solid fuels for cooking and heating. These include unprocessed biomass, coal, or charcoal.11 The danger from indoor use of these materials lies in the chemicals produced when burning in confined areas; solid fuels in households accounted for 2.2 million deaths in 2005.12 Access to electricity and biomass cookstoves can boost economic development and reduce poverty and hunger, improving conditions for the poorest segments of society. Improvements lead to greater outputs in agriculture, commerce, and industry with greater more efficient production. 13
Invest in Clean Water including Sanitation and Hygiene
Worldwide, three out of four jobs are water dependent. Investment in water infrastructure not only promotes health initiatives and job creation in developing areas but also stimulates advancement toward green economies.14 In agrarian communities where agriculture supports not only the economy but also acts as the main food source, access is critical to sustainable growth. Infrastructure that supports maintenance, reduction, reduction, recycling, and reuse of water must be put in place, updated and supported.15 Sound water management involves supply, infrastructure, and wastewater treatment.
Invest in Clean Air
With the modernization of societies globally, infrastructure and industry need to be designed in a way that reduces contributions to climate change. Since the industrial revolution, there has been an unsustainable rapid increase in carbon dioxide emissions causing global warming.16 Industries need to focus on reducing waste and becoming more sustainable with environmentally practical process and technologies.17 Investment into energy efficiency and an increase in investment in low-carbon initiatives through innovation across industries will support clean air practices.18 In addition to providing clear health benefits, clean air has also been linked to broader economic benefits as it results in more productive workforces and healthier populations who save on avoided medical expenses.19
Invest in Safe, Affordable and Sustainable Transportation
Transportation and infrastructure development support economic growth through industries. Additional infrastructure makes the transportation of goods easier, faster and less expensive. Advanced transportation infrastructure supports complex supply chains globally, nationally and regionally with the movement of goods and people. Establishing trade routes and partners across these categories links economic functions in the distribution of goods from producer to consumer. Progress in developing advanced infrastructure supports economic growth as more jobs are accessible to those who would otherwise not have access.
SDG 9: References
5 International Finance Corporate (2013f) ‘International Finance Corporation Enterprise Finance Gap Database’.
6 Discrimination by Microcredit Officers: Theory and Evidence on Disability in Uganda https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1722122
On May 20, we hosted a video webinar with Cornerstone’s Katherine Pease and Craig Metrick, who provided an overview of our new impact measurement framework, the Access Impact Framework. Katherine and Craig provided background on why Cornerstone created the framework, our rationale for basing our framework on the UN Sustainable Development Goals, and described our methodology.
Rising income and wealth inequality is a widely recognized social concern in the United States. This is a multi-faceted issue, with root causes that vary according to demographics, and one that impact investors have shown strong interest in addressing.
Since the 1990s, there has been a growing disparity in economic opportunity for rural Americans. This demographic issue has gained public awareness in mainstream social discourse in the recent past. In this report, we lay out the key challenges faced by rural America, highlight approaches to revitalization that have proven effective, and describe existing investment strategies.
The decline of manufacturing and shift to a knowledge- and service-based economy left many rural communities unable to recover adequately from the Great Recession of the late ’00s. The resulting challenges can be summarized as:
- Lack of jobs, or a mismatch in skills with available jobs.
- Poor infrastructure: Rural communities often lack high speed internet, access to quality healthcare, and local banking services.
- Drug addiction, specifically opioids, which compounds the effect of limited health care access.
Effective strategies for revitalization
Asset-based community development (ABCD) is a “self-help” strategy that sets the stage to attract private loans and investments by taking advantage of a community’s existing strengths. Initially a community might use government or foundation funding to develop community assets, e.g. supporting existing local entrepreneurs or developing local natural resources to offer an attractive quality of life. Once an initiative proves viable it may be possible to attract private investment.
Community Development Finance Institutions (CDFIs) and other local intermediaries can help aggregate capital to support local investment. Aggregators attract capital to an investment theme and allocate sums to projects that need funding.
Real estate development is another possible path to revitalization, with Opportunity Zones potentially attracting investment that might not otherwise be economically feasible.
We highlight several initiatives that are under way related to broadband projects in small communities that may finally begin to deploy this critical infrastructure.
Lastly, we highlight how some communities are making a concerted effort to attract a younger population and stem the “brain drain” of rural youth to urban areas.
For investors interested in promoting capital investment in infrastructure and businesses that create jobs in rural America, there are various strategies one can consider across asset classes. We describe these strategies in this report; some are general categories of investment, and in other cases we refer to specific strategies available to our clients.
In our recent report Sustainable Protein: Investing for Impact at the Nexus of Environment, Human Health and Animal Welfare, we pointed out that in developed countries, diet-related health concerns and less- or no-meat lifestyles have sharply reduced consumption of red meat. Flexitarian, vegetarian and vegan preferences have been driven, in part, by animal welfare and climate change concerns.
Today, a flexitarian diet – one that doesn’t adhere to a specific eating style and may combine plant-based and meat-based dishes – is now practiced by 31% of Americans, with another 13% subscribing to a specific eating lifestyle such as veganism or vegetarianism. In the U.K., almost 13% of the population is now vegetarian or vegan, with a further 21% identifying as flexitarian, according to a 2018 survey of British consumers. Our report also highlighted a preference by consumers for fresh and organic products.
On February 21, Kraft Heinz announced that it was writing down the value of some of its best-known brands by $15.4 billion which, according to a Bloomberg article was “an acknowledgment that changing consumer tastes have destroyed the value of some of the company’s most iconic products.” Subsequently, the stock price of Kraft Heinz plunged 21%.
Another Bloomberg article observed that “all the old guards of the supermarket aisles are struggling as consumers opt for fresher, less-processed and more on-the-go food items from upstart businesses.” In our report, we pointed to rapid growth in the organic yogurt, almond milk and protein bar categories in recent years, with many of the leading companies being relatively young start-ups. While Kraft Heinz attempted to respond to these trends, its efforts haven’t been enough. As Bloomberg observed, the company “has tried to spruce up a tired suite of brands — from organic Capri Sun to natural Oscar Mayer hot dogs.”
Our report concluded that, reflecting the shift to sustainable protein, opportunities exist in alternative proteins, organic foods, new agricultural technologies, sustainably managed farmland, and sustainable fisheries and aquaculture.
 Kraft Heinz Falls Near Record Low on $15.4 Billion Writedown, 2019-02-22
 Kraft Heinz’s Financial Recipe Turns Sour, 2019-02-22
Advances in agricultural technology, changes in human diet, and rising awareness of the environmental destruction caused by factory farming are accelerating the rise of sustainable protein.
Investors can target a number of outcomes — access to a sustainable food supply, lower greenhouse gas emissions, more plentiful and cleaner water, and a reduction in animal cruelty — through sustainable protein related investments. Opportunities exist in alternative proteins, organic foods, new agricultural technologies, sustainably managed farmland, and sustainable fisheries and aquaculture.
In this report we outline how a confluence of behavioral, technological, and regulatory changes have fueled the trend toward sustainable protein; identify emerging developments in the “alternative protein” space; and highlight ways to consider sustainable protein investment across asset classes.
This article originally appeared in Investment News on December 13, 2018.
Sustainable and impact investors are set to intensify their decades-long support for action on climate change on the heels of a recent report from the Intergovernmental Panel on Climate Change and the Fourth National Climate Assessment, issued by the U.S. government.
The U.S. government notes that unless urgent action is taken, climate change could shrink the U.S. economy by hundreds of billions of dollars every year in direct costs. Consistent with these findings, the IPCC’s alarming (and unsurprising) conclusions are that urgent global economic transformation is needed to head off catastrophic damage to ecosystems, communities and economies beginning within a quarter century.
Many investors now understand that climate change is not merely an environmental issue but a material economic risk for long-term portfolios. However, investors should avoid a single-minded focus on climate change that ignores the relationship between ecosystems and human development.
The IPCC report stresses that an effective fight against climate change must include efforts to achieve sustainable development goals such as gender equality, the eradication of poverty, and food security.
In other words, how we fight climate change matters. Even the most optimistic scenarios will require substantial human adaptation to changed ecosystems, which will be especially challenging for poor or marginalized communities. Achieving sustainable development goals will strengthen the ability of poor communities to adapt to inevitable change and complement more direct efforts to mitigate climate change. However, these climate mitigation efforts by themselves may either help or hinder progress towards the sustainable development goals.
For example, mitigation strategies such as reforestation or biofuel development may reduce the land available for agriculture at a time when crop yields are already declining because of rising temperatures and water stress. The resulting increases in food prices have the effect of reducing buying power and possibly destabilizing civic and political cultures in developing countries.
Conversely, sustainable agricultural strategies, conducted with attention to social equity, can increase food security and counteract some of the negative effects of climate change on drinking water, biodiversity and income inequality, while reducing greenhouse gases associated with intensive farming practices.
The empowerment of women can also support and reinforce both climate change mitigation and adaptation. Improving the quality of cookstoves available to poor women has the direct effect of reducing fuel use and deforestation. It also reduces asthma rates, which improves educational outcomes, and empowers women by freeing them from the labor-intensive “drudgery” of traditional cooking methods.
Numerous studies have also shown that as women gain education and empowerment, they earn more income and often choose to have fewer children, which is associated with reduced poverty and lower greenhouse gas emissions.
The introduction of modern technologies such as cookstoves into poor households would have an undeniably positive effect on quality of life for the poor and the resilience of their communities. However, the resulting increase in the demand for energy could undermine the intended climate benefits unless these strategies are accompanied by investments in renewable energy and energy efficiency — both of which come with additional benefits for income and energy access.
These and many other examples demonstrate the need for a holistic understanding of the connection between issues of climate and human development. Yet much of the financial capital flowing into climate mitigation today is motivated solely by opportunities for financial return arising from new public policies and the dramatic improvement in renewable energy technology.
These flows are important for achieving global scale for environmental solutions. However, a lack of attention to the social dimension of investment decisions may create a blind spot for unintended consequences that counteract environmental benefits.
The insights of sustainable and impact investment offer an essential complement to mainstream financial analysis. Integrating environmental, social and economic concerns into investment analyses can yield a more nuanced understanding of the complex interactions between climate and society. As part of this analysis, a commitment to stakeholder engagement will help investors incorporate the perspectives of local communities who will be impacted by investment decisions — because, as the IPCC report notes, climate change will impact people differently depending on geography, income and culture.
So what can investors who are concerned about climate change do? First, their investment policy statements should explicitly incorporate both climate change and key related social issues, such as gender equity, poverty, food security, and health. Second, the evaluation of investments or investment strategies intended to address climate change should integrate an analysis of their impact on broader sustainable development goals. Third, investors should use their voice to ask companies, governments and financial markets how climate change and sustainable development is incorporated into policy, planning and performance measurement.
An effective response to climate change will require the mobilization of every resource available to society, including governments, business, and civil society. Given the unique power of financial markets, investors can contribute to a long-term solution or exacerbate existing problems. Sustainable and impact investors have an opportunity to influence the outcome, if they choose to take it.
On October 17, 2018, ROBO Global, LLC (ROBO) hosted a panel on robotics, automation and artificial intelligence (AI) at the New York Stock Exchange prior to ringing the closing bell. ROBO is an index, advisory and research company focused on helping investors invest in the fields of robotics, automation and AI globally. The firm is an index provider with an ETF, under the ticker ROBO, that tracks the index and is traded on the NYSE. Panelists included experts on Robotics and AI from academia, investment banking and industry. The panel discussion is timely given the relatively recent explosion of big data, which ROBO cites as the fuel for AI, the big leap in machine intelligence capability, and its impact on multiple sectors of the global economy. The following are some highlights of the panel discussion.
Disruptive technology – should it be feared or embraced?
Overall, the panel had a positive outlook for the future of AI, robotics and human productivity. A lot has been written in the American press about machines taking over human jobs and fear about the dangers and related disruptions attributable to AI and robotics. According to the panel, this is counter to the attitude in Asia and Europe, which seem to embrace the emerging technologies. U.S. fears, while understandable, may not be realized fully. One of the panel experts noted that machines make a lot of mistakes by themselves and human workers tend to be error-prone as well. But when humans partner with machines, mistakes plummet and productivity improves.
Big data fuels AI and robotics
Big data is the fuel of AI and it is growing by billions of gigabytes daily. Given the massive growth of data, improvements in AI, automation and robotics technology, the outlook for a new era of productivity can be realized through these disruptive technologies across multiple sectors of the economy. Everything from defense and manufacturing to the medical field will be impacted. For example, Wyatt Newman, a professor of computer science at Case Western Reserve, sees a day when physicians will be elevated to become mainly supervisors… of robots. Already, physicians direct robots built by companies such as Intuitive Surgical to more accurately perform surgery. Long term, he believes there will be “home” robots far more sophisticated than Roomba, a vacuum cleaning robot, able to tackle many needed tasks.
What’s driving the evolution of this technology?
Dr. Newman noted that a fundamental change in the AI/robotics industry is happening due to a confluence of events. The cloud, big data and automation are all benefiting from technological advances in the gaming industry, where advances in hardware have helped Google and Intel innovate. He notes that reusable software for robots is bringing costs down while “deep learning” helps make robots function more effectively. Deep learning is part of a broader family of machine learning methods based on learning data representations. Specifically, deep-learning software attempts to mimic the activity of neurons in the brain where thinking occurs. The software learns to recognize patterns in digital representations of sounds, images, and other data as opposed to task-specific algorithms.
Asian and global juggernaut
Morton Paulson, head of research at CLSA Japan and an expert in the industrial sector, notes that while the U.S. fears AI and robotics, Europe, Asia and other countries broadly embrace the technology. China, India, Southeast Asia and Mexico are investing heavily in robot technology.
Panel members noted that China has been investing heavily in AI in recent years versus a relatively small investment just a few years ago. One panel member opined that the Chinese are investing five times as much in AI today compared to the U.S. China’s goal is to be on par with the U.S. by 2020 and to dominate the technology by 2030. While most Chinese investments are in China, some are in Silicon Valley and other places outside of China. China has a huge amount of data and more users of the data versus the West, which adds up to enormous revenue potential.
China and Europe step up STEM Education Investment while the U.S. falls behind
According to Raffaello D’Andrea, Professor at ETH Zurich and Co-founder of Kiva Systems (Amazon Robotics), China is investing heavily in STEM education – emphasizing computational analysis. The takeaway is that the U.S. is likely missing a big opportunity, especially when it comes to investing in educating the next generation; in comparison, China and Europe are trying to give students a leg up regardless of their socioeconomic class. As measured by standardized test scores, it’s no secret that many public schools in the U.S. fail to educate students adequately in the STEM subjects. If the U.S. neglects to properly educate a broader swath of students, it may miss out on a huge technological opportunity in the decades to come. The panel also noted that education must be life-long, instead of ending with four years of college, because technology is constantly changing and the pace of change is accelerating.
The catalyst for change
With regards to AI, Professor Newman noted that massive uses of data are still to come. Companies are collecting a huge amount of data but don’t know what to do with it yet. When data and AI connect, there will be a big explosion of innovation.
According to the panel, some potential catalysts for change in the AI industry include a China/U.S. trade war resolution and companies such as Apple getting on board with robotics and AI. Apple and other companies will need to invest massively in AI/automation/robotics ahead of the innovation wave, as Netflix did five years ago to create content.
This is just the beginning of a massive technological wave
Most aptly, in the marketing piece for its ETF, ROBO quotes technologist Pete Trainer regarding the next wave of AI, big data and robotics: “We are at the precipice of one of the most significant discoveries since we learnt how to light a fire.”
When we at Cornerstone Capital Group first discussed the idea of exploring arts and creativity as an impact investing theme, our greatest challenge was narrowing the scope. To our thinking, creativity fuels every successful human enterprise. Creativity, to form something new and valuable based upon a different perspective, is essential for economic development and capital formation. In fact, in the ancient world the concept of creativity was simply seen as “discovery.” In truth, it is. And there is no better time than now to put this capacity to work. If we are to address to world’s pressing challenges ranging from climate change, the extinction of species, and the poisoning of our seas, to advancing gender and racial equity, and access to nutrition, healthcare and education, then we need to deploy all the resources at our disposal to discover and scale solutions. After all, as Sharon Percy Rockefeller has stated, “Art is the conscience of a nation.”
And there are compelling reasons to consider “creativity and the arts” as an investment theme in its own right. Cornerstone’s Head of Research and Corporate Governance, John Wilson, lays out the case for investing in the “creative economy” as one way to counter the negative effects of widening income and wealth inequality, and the opportunity gaps, that have resulted from the “knowledge economy.” Laura Callanan, a Founding Partner of the field-building organization Upstart Co-Lab, cites creative enterprises as “an on-ramp to wealth-building for entrepreneurs including women, people of color and others who benefit from lower barriers to entry to a sector of the economy more interested in merit than advanced degrees and pedigrees.”
As for the historical tendency to view “the arts” as the purview of nonprofit organizations and grant-making, Gary Steuer of Bonfils-Stanton offers a compelling argument for eliminating the “artificial distinctions between enterprises rooted in what are often arbitrary or historical decisions on legal corporate structure,” instead finding the best mix of funding, whether philanthropic, concessionary lending or market-rate equity or debt, to invest in creative enterprise. His unique perspective as a leading philanthropic voice whose career has spanned a variety of roles in the for-profit, government and nonprofit worlds has led him to see the “enormous opportunity to drive economic growth and employment through coherent, broad-based strategies to invest in this space.”
This report is intended to provide a window into the rich array of opportunity to make meaningful and profitable investments that empower entire communities both economically and culturally. We thank all of our contributors for their enthusiastic support in bringing these stories together. We would like to offer special thanks to Laura Callanan and Upstart Co-Lab for their tireless efforts to build awareness of creative enterprise as a distinct impact investing theme, and for introducing us to a number of the organizations and individuals who made this report possible.
Individual contributor posts:
Investing to Sustain Innovation, John K.S. Wilson, Cornerstone Capital Group
A Creativity Lens for Impact Investing, Laura Callanan, Upstart Co-Lab
From “The Arts” to “Creative Enterprise”: Perspective from the Philanthropic Sector, Gary P. Steuer, Bonfils-Stanton Foundation
Creating a Seat at the Table, Adam Huttler, Exponential Creativity Ventures
The Creativity Lens in Practice: LISC’s NYC Inclusive Creative Economy Fund, Sam Marks, LISC NYC
Artists, Cultural Enterprises and the Affordability Crisis, Mark Falcone, Continuum Partners LLC
Public/Private Partnerships Fueling a Renaissance, Franklyn Ore, The Newark Community Economic Development Corp
Unlocking Embedded Community Assets, Deborah Cullinan, Penelope Douglas, CultureBank
An Exceptional Model: The Bell Artspace Campus, Greg Handberg, Artspace
Investing for Good: A Creative Land Trust for London, Will Close-Brooks, Investing for Good
Everyone Together, All Forward, Christopher Johnson, Danika Padilla, Drew Tulchin, Meow Wolf
Gaming on a Mission, Amy Fredeen, Alan Gershenfeld, E-Line Media
Make Local Work: The Story of an Artist Entrepreneur, Mary Stuart Masterson, Actress, Filmmaker and Entrepreneur
Why and How Impact Investing in the Creative Economy Fosters Innovation, Todd Siler, Ph.D., Visual Artist and Educator
How Consciousness and Creativity Amplify Impact, Robyn Ziebell, Resolve4Life
Creativity and the Arts: Integral to Impact, Phil Kirshman, CFA, CFP, Cornerstone Capital Group
Note: Certain contributors to this report may represent asset managers or specific investment opportunities. Their inclusion is not intended to be, nor should it be construed, as a recommendation or endorsement of their products or services by Cornerstone Capital Inc. The views expressed by external contributors do not necessarily reflect those of Cornerstone Capital Inc.
Do we invest enough in creativity? The question may seem absurd in an era dominated by the “knowledge economy,” in which companies create value through ingenuity and expertise, while many of our most important emerging product lines enable the advance and communication of knowledge. But a casual review of the business press reveals that some companies that market themselves as innovators also suffer from toxic workplace cultures and dysfunctional corporate governance. These problems suggest that it is not enough to invest in “knowledge” while neglecting the people who create this knowledge. The contributions to this report offer impact investors a roadmap for investing directly in the individuals and communities that make creative enterprises possible.
Challenges of Today’s “Knowledge Economy”
Why have so many companies dependent on a motivated and engaged workforce become so toxic for employees? Finance may be part of the problem. The need to deliver financial returns pressures companies to bring products to the broadest possible market in the shortest amount of time. Achieving scale rapidly allows companies to dominate their market and generate outsized returns to investors, while companies that fail to deliver scale in a short timeframe often get left behind. The pressure to focus solely on growing revenues, market share and company valuations can distract from critical, but less tangible, imperatives such as developing constructive corporate cultures in which creativity can thrive over time.
This model of growth fuels expanding inequality as a few companies come to dominate the market. The six largest U.S. technology companies make up almost 18% of the S&P 500 by market capitalization. Despite their size, these companies employ few workers relative to the industrial giants of the past—General Motors employed about 10 times as many people in 1979 as Alphabet does in 2018.
While those who work at top companies enjoy generous pay and benefits, incomes for the most families have stagnated as middle-class manufacturing jobs have been replaced by lower-paying service jobs. By 2017, median household income in the United States had grown only 2% since 1999. During this time the typical household had suffered through two substantial downturns in median income (2000 and 2008), both of which exacerbated inequality as top incomes recovered quickly and continued to grow.
Inequality may insulate top corporate executives and professionals from the communities that are impacted by their actions. They may forget that their companies can do harm as well as good, and may come to tolerate inappropriate and unacceptable workplace behaviors. Their product offerings may cater to the elite audience that is familiar to them, neglecting the needs of the broad population that may have very different needs and interests.
Employees may hesitate to bring concerns for fear of seeming disloyal or insufficiently committed to the goals of the company. Customers may feel powerless to challenge companies with near monopolies over services that seem essential to modern life. Many traditionally marginalized social groups, including women, people of color, and rural communities, find that barriers to inclusion in the “knowledge economy” remain as high as ever.
As numerous examples (e.g., Uber, SoFi, Weinstein Co.) demonstrate, the resulting tensions and resentments may undermine the company’s ability to continue to innovate. This is bad news not only for investors, but also for employees and a public that hopes for a continual flow of new products and services that improve lives.
An Alternative Approach
An alternative is to invest directly in enabling and nurturing creativity itself. Each of the business models described in this report exists to develop the human capital embedded in every community, especially those marginalized groups who struggle to compete in the economy because of a lack of resources or because the existing knowledge economy does not sufficiently value their unique capabilities. The role of these entities is to empower people to transform local artistic, design and cultural resources into sustainable businesses that serve their communities and create engaging work opportunities that will not be lost to outsourcing or automation.
Scale is achieved not by dominating markets with commoditized products but by replicating successful local models in ways that are tailored to the needs of each individual community. While financial capital is an important resource for these companies, the interests of the community, not the demands of capital, drive business strategy. Market returns are delivered by unlocking talent untapped by the market and by the creation of sustainable businesses that are deeply embedded in local culture and traditions.
There may be many strategies for accomplishing these goals. The organizations represented in this report are each involved in one or more of four “enabling technologies” that provide access to resources that are critical to the success of local, sustainable, and replicable cultural production.
Access to Affordable Spaces: The concentration of U.S. economic activity into a relatively small number of urban centers has created an affordability crisis for many artists and creative professionals who live there. In many cases, the appeal of these cities is in part the presence of art and cultural institutions that moved in and preserved these communities when industrial and retail companies abandoned them. Artspace and Continuum are now in the process of developing affordable living and working spaces that will nurture artistic communities and allow them to continue to serve their surrounding areas, network and collaborate with one another, and serve as a platform that amplifies their work. Over in the U.K., where London’s notorious real estate prices have created a similar squeeze on artists, impact investing firm Investing for Good has formed The Creative Land Trust, which intends to build a network of sustainable, permanent spaces that will remain affordable for artists and creative producers in perpetuity.
With projects such as these, government entities often have a role to play, as illustrated by the work of the Newark Community Economic Development Corporation to close funding gaps for private development projects that bring specific benefits to the arts and creative communities; in representing the city of Newark, New Jersey, the NCEDC’s goal is to foster economic revitalization while preserving that city’s vibrant identity as a cultural melting pot.
The actor Mary Stuart Masterson is taking a slightly different approach with her nonprofit organization Stockade Works and intention to launch a for-profit production facility, Upriver Studios. These organizations are intended to build a television and film production industry in the Hudson Valley of New York, which not only offers a beautiful backdrop for the creation of content, but also a high quality of life and reasonable cost of living, making it attractive to the thousands of professionals who work in the film and television industry.
Access to ownership and influence: Core to the philosophy of the creative economy is inclusive decision-making and common ownership of resources. CultureBank and Meow Wolf are exploring new models of inclusive ownership that give creative professionals a stake in the organization and ensure that the organizations serve the interests of their stakeholders. Meow Wolf is expanding on the initial success of its business model in the Santa Fe area by constructing and operating arts and entertainment spaces that are in part owned by the artists who will display and perform their work there. In exchange, the artists donate their time to building and maintaining the space itself, which ensures that the properties will themselves be entertaining works of art.
CultureBank seeks to unlock the “assets of value, opportunity and inspiration” held by communities “traditionally understood as poor.” It seeks to create businesses where all stakeholders are considered investors. Founded in collaboration with the Yerba Buena Center for the Arts, CultureBank plans to include local academics and cultural institutions to perform due diligence on possible investment recipients and to invest through collaborative “gifting circles” that unlock community assets such as language skills, natural green spaces, or creative approaches to food security.
Access to Expertise: Local communities, such as indigenous communities or communities of color, are often rich in history, tradition and capability but may not possess the technical skills to bring their narratives to a wide audience. Creative economy companies can connect this needed expertise with local cultural assets to reach a wider audience.
E-Line Media offers a compelling case study of the possibilities. What began as an idea of Alaska’s Cook Inlet Tribal Council—to use gaming as a way to connect Alaska Native individuals to their culture and to increase self-sufficiency—grew into a highly profitable partnership that is now extending to other creative initiatives. E-Line media made this venture possible by connecting the community to experienced game designers who could make their vision a reality.
Stockade Works, mentioned above, is training local people in the Hudson Valley for well-paying jobs in the film production industry.
More broadly, Think Like a Genius® makes use of some proven, arts-based learning methods and tools for catalyzing and cultivating innovative thinking, while creative entrepreneur Robyn Ziebell uses her unique methodology to help clients from a variety of backgrounds tap their innate creativity to see solutions and opportunities.
Access to Capital: Often, creative enterprises lack access to finance, which flows more readily to technologies that scale. Fortunately, there are companies exploring ways to provide essential financing to distinctive cultural products that can sustainably serve niche markets and maintain market diversity.
Exponential Creativity Ventures believes “creativity and self-expression are human rights.” It makes market rate investments in “human centered creativity platforms, global networks for developing creative voices, and frontier innovation.”
LISC (Local Initiatives Support Corp) has a long history of serving as an intermediary connecting funding sources with hard-to-reach communities. The LISC NYC branch of this community development organization is launching a fund specifically targeting investments to support creative businesses in the city.
Our present era of inequality of opportunity brings with it previously unimagined new products and services that enrich lives. It also brings abuse, exclusion, and inequality. By investing in creativity and the arts, investors can contribute to sustainable innovation that nurtures talent, empowers communities and brings diversity of thought to the market.
This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.
The creative economy is large and growing. But until now impact investing has not focused on the creative economy in a significant way.
Defining the Creative Economy
The term creative economy was introduced in an article by Peter Coy in 2000 about the impending transformation of the world’s economy from an Industrial Economy to an economy where the most important force is “the growing power of ideas.” John Howkins elaborated in his 2001 book, The Creative Economy: How People Make Money from Ideas, calling it a new way of thinking and doing that revitalizes manufacturing, services, retailing, and entertainment industries with a focus on individual talent or skill, and art, culture, design, and innovation.
Today, creative economy definitions are typically tied to efforts to measure economic activity in a specific geography. A relevant set of art, culture, design, and innovation industries is determined, and the economic contribution of those industries is assessed within a region. A unique set of industries defines each local creative economy reflecting the culture, traditions and heritage of that place.
Based on research by the Creative Economy Coalition (CEC), a working group of the National Creativity Network; the National Endowment for the Arts and the Bureau of Economic Analysis; Americans for the Arts; the U.K. Department for Culture, Media and Sports; Nesta, a U.K.-based innovation foundation; and the United Nations Educational, Scientific and Cultural Organization (UNESCO), Upstart Co-Lab identified a set of industries comprising the creative economy using the North American Industry Classification System (NAICS). Available here, these NAICS codes describe businesses engaged in the inputs, production, and distribution of creative products.
Impact Investing and the Creative Economy
The creative economy in the U.S. represents more than 10 million jobs and $763 billion of economic activity, or 4.2% of U.S. GDP. The creative economy is growing at 9% annually around the globe, and even faster—at 12%—in the developing world.
Despite the growing significance of the creative economy, in 2018, the Global Impact Investing Network’s (GIIN) Annual Impact Investor Survey reported Arts & Culture as 0.3% of the $228 billion worth of impact assets under management by its 226 global members. This conclusion overlooks the likelihood that investments in the creative economy are counted in the survey’s other categories such as Microfinance, Food & Agriculture, Manufacturing, ICT and Other.
A narrow framing of “Arts & Culture” misses the significance of creativity and culture as targets aligned with four of the Sustainable Development Goals. It overlooks the creative economy as a source of 21st century quality jobs. It fails to recognize the creative economy as an on-ramp to wealth building for entrepreneurs including women, people of color and others who benefit from lower barriers to entry to a sector of the economy more interested in merit than advanced degrees and pedigrees.
The creative economy has been flying under the radar of impact investing. In low-income communities, creativity and culture have been part of comprehensive community development for decades. But only this year is the first dedicated investment opportunity—the LISC NYC Inclusive Creative Economy Fund—available to investors looking to direct their capital to support creative workspaces and quality jobs in the creative economy for low-income workers.
Although Upstart Co-Lab has identified 100 examples of impact funds that have included fashion, food, media and other creative businesses as part of their portfolios, when impact wealth advisors are asked by their clients for opportunities aligned with art, design, culture, heritage and creativity they typically—and erroneously—answer that no such opportunities exist.
Introducing a Creativity Lens
The creative economy’s lack of visibility within impact investing is why Upstart Co-Lab borrowed from the lessons of gender lens investing to introduce a Creativity Lens. A lens brings things into focus, magnifying what may be hard to see with the naked eye, and allows viewers to spot what’s approaching on the horizon. Upstart Co-Lab proposes a Creativity Lens to help see the impact investment potential of creative places and creative businesses, to reveal opportunities that up until now have not been fully recognized but are becoming more significant as the creative economy grows.
- Businesses in the creative economy make markets by informing and educating consumers about products that are organic, sustainable and ethical. These fashion, food and design businesses create demand throughout the supply chain, completing the work made possible by impact investors who support sustainable fisheries and organic farming.
- Media businesses producing video games, film, television, apps and other content harness the power of creativity and culture to educate our youth, help patients manage their chronic disease, teach tolerance and empathy, and catalyze positive action for the planet. These are high-leverage opportunities that can have a big impact on attitudes, individual behavior and even government policy.
- Real estate developers in places like Denver, Chicago, Nashville and Los Angeles are incorporating creativity and culture into large-scale mixed-use, mixed-income projects, adding value to their assets and to the surrounding communities.
A Creativity Lens gives investors the chance to spot these types of opportunities, and to help shape a creative economy that is inclusive, equitable, and sustainable.
Why Impact Investors Should Invest in the Creative Economy
There are three key reasons for impact investors to embrace a Creativity Lens:
More prospective investment opportunities and portfolio diversification: As impact investing goes mainstream, there need to be more quality opportunities to absorb the additional capital; including the creative economy puts new high-potential companies in scope. Adding another segment of the economy to the impact investing universe also offers investors a chance to diversify their market exposure. It offers diversification from an impact perspective as well, bringing cognitive diversity by including creatives as problem-solvers and getting more eyeballs on the issues.
More ways to get social impact: Investors can further their current impact goals by including creative businesses in their portfolio. Businesses in creative industries are delivering impact for the environment, health, and education, among other priorities. Investors aligning with the Sustainable Development Goals will find synergy as well. And the impact that creativity and culture contribute to low-income communities has already been well documented.
Build a sustainable creative economy now; no need to fix it later: The presence of capital that values inclusion, equity, and sustainability can ensure companies in the creative economy are providing quality jobs, acting positively for the environment, and strengthening their communities. Entrepreneurs leading companies in creative industries want to deliver impact and need impact investors to stand with them. The creative economy is growing. Let’s help shape the creative economy now so as grows, it grows the right way.
Upstart Co-Lab has identified a current pipeline of 125 investable opportunities in the creative economy that will drive impact. In aggregate, they are seeking more than $3 billion in impact capital. One-third of the opportunities are funds. Two-thirds are direct company and real estate investments, many of which are seeking a lead investor.
In the U.S., museums, performing arts centers, art and design schools, performing arts conservatories, artist-endowed foundations and other institutions connected to art, design, culture, heritage and creativity—with an aggregate $50 billion-plus in assets under management—have been sitting on the sidelines of impact investing. The creative economy can be the door to welcome these institutions into a larger conversation about aligning their financial assets with their missions and values.
This report demonstrates that the time is right to make a market connecting viable businesses in the creative economy that seek values-aligned capital with investors who understand the power of creativity to drive economic opportunity, offer quality jobs, strengthen communities, and improve social well-being and our quality of life.
This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.
Photo: Upstart Co-Lab meeting on definiting the Inclusive Creative Economy. ©Upstart Co-Lab.
I have been thinking about and working in and around the role of capital in arts and creative enterprise for over 40 years. I have watched the rise of the terms creative economy, impact investing and creative placemaking. We may finally now be reaching a critical place where we can do away with the artificial distinctions between enterprises rooted in what often are arbitrary or historical decisions on legal corporate structure—nonprofit, for-profit, independent artist—and consider creative enterprise as a sector that encompasses all these structures. And we can then look at sources of capital — equity, debt, philanthropy—based on their appropriateness for the project or organization.
The arts sector is filled with many for-profit activities. Broadway and dinner theatre; most community dance schools; many music venues (and related music businesses such as producers, recording studios, music publishing, promotion); art dealers, galleries, framers and art handlers; lighting and sound supply companies; literary publishers and agencies—just to name a few.
It has long concerned me that in both the government and philanthropic arenas we have treated “the arts” as consisting purely of nonprofit arts organizations. The truth is that the arts is a fluid ecosystem that includes individual artists and for-profit creative enterprises. By focusing on only one segment of the sector, funders and policy-makers miss significant opportunities to build a holistic, thriving creative community and industry, at both local and national levels.
The U.S. Bureau of Economic Analysis in 2017 reported that the arts and “cultural production” contributed $764 billion to the U.S. economy, representing 4.2% of GDP (based on 2015 data), more than such other industries as construction, transportation/warehousing, travel/tourism, and agriculture. The analysis includes both nonprofit arts enterprises as well as such for-profit industry areas as advertising; interior design; landscape design; “arts support services” like lighting and sound rental, framing and art handling, etc.; publishing; motion pictures and broadcasting; and musical instrument manufacturing, just to name a few. In some states and localities the percentages can be much higher. Clearly there is enormous opportunity to drive economic growth and employment through coherent, broad-based strategies to invest in this space.
An Evolution in Thinking
Perhaps my perspective on this issue is shaped by having moved fluidly during my 40-year career in the arts between the for-profit side and nonprofit side, government and private philanthropy, actively producing and presenting art, and working more behind the scenes on advocacy and policy.
My jobs included serving as an aide to a US Congressman, managing a cabaret/musical theatre program at a nonprofit theater (that was actually structured as a largely earned income supported enterprise), directing programs for an arts service organization, producing commercial theater, serving as managing director of an Off Broadway theatre, running a facilities grant program for a state arts agency, leading a nonprofit theatre on Broadway, and then for over ten years serving as CEO of the Arts & Business Council in New York, up to and through its eventual merger with Americans for the Arts.
In 2008 my growing belief that we needed to change the paradigm of “arts = only 501c3 arts organizations” led me to take a position as the first Chief Cultural Officer for the City of Philadelphia, directing a newly created Office of Arts, Culture and the Creative Economy. While exact statistics are hard to come by, I believe that made me the first major city “arts agency” head to report directly to the Mayor and be part of the Mayor’s cabinet, AND the first to head an agency with an explicit creative economy focus. We commissioned a Creative Vitality Index study over a three-year period, which was the first time Philadelphia had looked at its “creative sector” including both for-profit and nonprofit businesses. The study methodology was not perfect, but it helped advance the conversation. We also used case studies that helped “tell the story” of creative entrepreneurs—including a maker space, an individual artist who worked in both nonprofit and commercial settings, a commercial manufacturing and cultural hub operating out of a former textile factory, and an innovative partnership between a commercial music club and a public radio station.
At one point we were able to access a significant allocation of the City’s Community Development Block Grant funding (CDBG) to support the creative economy in lower-income neighborhoods, and we created a program to invest in creative workspace facilities projects. This was open to both for-profit and nonprofit projects. That seemingly small detail made it groundbreaking. We did away with the artificial distinction and looked at our underlying objective: securing affordable space for artists and creative enterprises. Why should it matter that this was being executed by a business or entrepreneur marrying our capital with other sources, such as bank loans and tax credits, versus a nonprofit perhaps using entirely philanthropic capital?
The Challenge for Foundations
And now here I am in Denver, serving as President of the Bonfils-Stanton Foundation, which has a philanthropic focus on the arts in our local community. How do I bring this more expansive definition of creative enterprise to the work we do? As a private foundation we cannot make grants to for-profit creative enterprises, but we can explore utilizing impact investing with our corpus as a vehicle for helping to foster a robust creative sector. And this is what has led me to explore the role of impact investing in the arts and creative enterprise. My interest is on behalf of my own foundation, but is also based on my conviction that there are investment opportunities in this area and many other investors like us eager to deploy capital in pursuit of both reasonable financial returns and an arts and creative economy mission return.
While we have engaged in Program Related Investments within the arts—significantly below-market loans that from an accounting standpoint count as grants even though they are returned (one anticipates) with modest interest—we have yet to implement an impact investing program. Why, given our keen interest? Here are the questions we need answered:
- As a foundation with a mission focus on the arts, how do we do impact investing just in creative enterprise? There are targeted vehicles for other sectors like affordable housing or the environment, but not yet for the arts.
- Like most funders (and even many individual impact investors), we have a specific local focus —how do we do creative enterprise impact investing that is targeted to a locality or region?
- Again, like most foundations, virtually all our investment portfolio is deployed in funds or other investment vehicles that spread risk across a wide array of investments in companies within their investment category (emerging markets, mid-cap, etc.). We do not have the scale to do the due diligence of investing in individual companies. Can funds be created with a creative enterprise sector focus, one that will allow investors to make a single investment which is then aggregated with capital from other investors to support a diversified array of investment opportunities?
- And if such dedicated funds are not available, but are in fact part of a larger impact investing fund that includes creative enterprise, or if a creative enterprise fund is created but is only national in scope, how do we persuade boards and investment committees that a partial mission return is better than none?
It is my hope that research and education efforts like this publication can lead to greater understanding and awareness, the creation of new creative enterprise investment vehicles that meet what I believe IS a significant enough market demand, and ultimately the deployment of capital into creative enterprises that will help fuel creativity, innovation and vibrancy in our communities while also generating market returns that can satisfy boards and investment committees. Interest in impact investing in general is growing, and evidence of its efficacy now exists. What we need is the cultivation of comparable interest, tools, and evidence in the creative enterprise space. We, and many others, are poised to act.
This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.
Photo: Gary Steuer at the Museum of Contemporary Art Denver, where a Bonfils-Stanton Foundation-led PRI was part of a package of capital that resulted in dramatic debt service savings. ©Kelly Shoads.