Since we published the first edition of this report in 2018, there has been a widespread increase in the general public’s awareness about structural racism and the many ways people of color have been systematically denied access to social and economic opportunity since the earliest days of European arrival to what is now the United States.

The COVID-19 pandemic has exposed alarming weaknesses in the systems we depend on upon in everyday life in the U.S. – healthcare, education, and economic systems, to name just a few. It has cast a harsh light on the disproportionate impacts of these weaknesses on people of color, whose health and wealth have been decimated at far greater rates than those experienced by whites.

Moreover, there has been a dramatic growth in awareness of how the financial system has functionally been closed off to people of color, starting with the largest companies, most of which pay lip-service (at best) to racial equity and many of which do not address the issue at all.

Investors can contribute to the narrowing of economic disparities by investing in communities of color. In this report, we update the findings of our original work in 2018. We also offer fresh insights into how both the #MeToo and Black Lives Matter movements have galvanized shareholder engagement initiatives, with investors increasingly pressing companies to be more transparent and accountable regarding their policies, practices and cultures. We have added a section as well regarding support for diverse asset managers with strong track records who are often overlooked. Lastly, we are pleased to note that over the past two years there has been growth in the number of investment solutions that seek to address racial and ethnic economic disparities.

Download Investing to Advance Racial Equity.

We recently held a video panel discussion with experts in the field of education and educational technology, to further explore the topic we first raised in our report Investing in the Future of Work. The Cornerstone team was joined by:

The discussion centered on the need for ongoing, lifelong learning, and the different forms that may need to take in order to better enable the workforce of tomorrow (and today, in fact) to better adapt as technology changes and new skills become key to success.

On May 5th, Cornerstone Capital hosted a webinar about Covid-19 and its disproportionate impact on some communities. Race, income, ZIP Code – all are factors that influence one’s chances of making it through the crisis personally and financially. In New York City, black and Hispanic/Latinx residents are twice as likely as white residents to die from the disease caused by the novel coronavirus. This fact is directly related to the lack of economic opportunity in some communities, especially communities of color anywhere in the US, as well as other structural issues including who has access to investment capital.

How can investors address the inequitable impact of COVID-19?

Katherine Pease, Managing Director, Head of Impact Investing at Cornerstone moderated our call with three investors and entrepreneurs with expertise in venture capital and investing for impact for women, communities of color and social justice:

NATHALIE MOLINA NIÑO is an entrepreneur, an investor (at O cubed) and tech globalization veteran focused on high-growth businesses that benefit women and the planet. She is the author of LEAPFROG, The New Revolution for Women Entrepreneurs (Penguin Random House, Tarcher Perigee) and serves as a Venture Partner at Connectivity Capital Partners. Molina Niño launched her first tech startup at the age of twenty and is the co-founder of Entrepreneurs@Athena at the Athena Center for Leadership Studies of Barnard College at Columbia University.

PRIYA PARRISH is the Managing Partner of Private Equity at Impact Engine. Prior to joining Impact Engine, she served as Chief Investment Officer at Schwartz Capital Group, a single-family office investing across global markets. Priya currently serves as Adjunct Assistant Professor of Strategy and Impact Investor in Residence at the University of Chicago Booth School of Business.

MORGAN SIMON is co-founder of Candide Group. She has close to two decades of experience making finance a tool for social justice. Morgan has influenced over $150B in investments and is a regularly sought out expert on impact investing. Her first book, Real Impact: The New Economics of Social Change, has been featured widely.  Prior to Candide Group, Morgan was the founding CEO of Toniic, a global impact investment network.

The link between health and the economy

Nathalie began the webinar by noting that the existential danger facing black and brown businesses is directly correlated to their communities’ economy and health. She noted that banks have a long history of rejecting people of color for loans. They are often asked for more qualifying material compared to white borrowers. If loans are received, they are typically issued at higher interest rates that whites obtain. As a result, Nathalie was not surprised that $559 billion in PPP (paycheck protection program) loan money which was deployed through banks went to borrowers with whom the banks already had existing relationships vs. black and brown business owners. As a further barrier, the program excluded people with prison records, which disproportionately impacts entrepreneurs of color.

Morgan noted that $30 billion of the PPP has been designated to be disseminated through Community Development Financial Institutions (CDFIs) and smaller community banks (under $10 billion in asset size). She is angry that this relatively small amount is dwarfed by the $500 billion-plus being targeted at large companies, including $17 billion to Boeing. She believes that this policy failure should be addressed by investors and noted that her organization, Candide, publicly makes political contributions to advocate for broader access to capital for all. Candide has 75 women-owned companies in its portfolio, of which 18 successfully applied and were approved for PPP, in part because they had investors that advocated for them. Candide leveraged its financial connections to help business owners, including some who are not in their portfolio, to gain access to funds.

Priya voiced a somewhat optimistic outlook on the economy. She noted that PPP is not an economic stimulus plan per se but rather a relief package. She sees a long road ahead with actual fiscal stimulus and investor tax incentives. She expects a larger amount of capital to be deployed going forward.

Access to capital a challenge to black and brown communities

But with regards to access to capital, networks or key.  Those who have access to a managing director at a venture capital (VC) firm are typically people from privilege, not just a particular race or gender. Priya noted that VC is a high risk/reward asset class and most who invest in venture can afford to take those risks. If you do not come from money, you’re an outsider. The VC firms tend to look for larger, high tech firms that can have big returns. Those firms’ founders/owners tend to be white and male (as are most VC partners).

Priya also noted that venture firms with female and diverse partners may be open to a variety of investments, not just the high-risk, high-reward kind. As an example, the firm invests in a telemedicine company that provides mental health services to 50% of the counties in the U.S. that do not have access to a mental facility. That is impact, in Priya’s estimation.

Nathalie said it’s likely that half of businesses owned by people of color will be gone soon. She believes there must be policy solutions at the municipal and state level. She hopes some policies will be initiated quickly by both the public and private sectors to try to save some of these businesses. Nathalie notes that the needs of both black and brown main street and high-growth companies should be addressed. With people of color a growing US demographic, the needs of main street companies need to be addressed to support near term and future economic health of the US. High growth companies with Black and Brown founders also need access to capital. The challenge is that there are few asset managers of color running funds. Nathalie proposed that governments, corporations and limited partnerships should allocate 30% of money to managers who are people of color to address the growing need for capital by companies run by people of color.  Priya agreed but went further by suggesting that managers and investors need to look at who the company is serving and to invest in companies whose products and services support underserved communities.

Finally, during the discussion, both panelists and attendees shared a variety of articles and links to additional resources regarding small business relief, impacts on communities of color, and philanthropic opportunities:

www.BuilderCapitalist.org

https://www.theimpactengine.com/

https://iff.org/nonprofits-the-payroll-protection-program-you-can-now-apply-through-us/

https://movement.vote/

https://act.colorofchange.org/sign/blackbusiness-coronavirus/

https://refugeeinvestments.org

https://www.caminofinancial.com/

https://capitalgoodfund.org/en/

National Federation of Independent Businesses

www.leapfroghacks.com

http://www.ccminvests.com/wp-content/uploads/2020/05/CCM-COVID-19-Relief-Initiative.pdf

https://www.forbes.com/sites/morgansimon/2020/05/05/the-stimulus-bill-didnt-save-us-10-ways-it-actually-hurt-us/#3790989e40c6

https://www.forbes.com/sites/morgansimon/2020/04/22/get-ready-for-round-2-now-new-small-business-relief-is-coming/#7840cf116901

https://www.forbes.com/sites/morgansimon/2020/04/14/covid-19-giving-guide-how-to-donate-to-reach-the-most-marginalized/#75815c5d1a72

https://www.newsweek.com/black-brown-businesses-next-relief-bill-could-lifeline-assault-opinion-1497757

https://www.bostonglobe.com/2020/04/30/opinion/planning-post-coronavirus-economy-must-focus-racial-inequities/

https://youtu.be/Wq0SLwdDkSY

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:

In preparation for our call, Karl provided a written assessment of the questions we used to shape our discussion. Below are his responses.

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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.

 

 

As a firm dedicated to a vision of a more inclusive and regenerative world, we at Cornerstone wonder, will humanity look back at this season of fear and be proud of how we responded?   Will we appreciate those who gave more than their fair share to fight the pandemic?  Will we recognize the synchronicity in which much of humanity comes together to observe traditions marking rebirth, recommitment to faith, family and community, and humble recognition of our role in healing the world?

As we observe the holidays of Passover, Easter, and Ramadan this month, there is another notable eternal connection between us.  Abraham Lincoln’s death, marked in the Hebrew calendar, coincides with Passover every year.  And Lincoln said, as if to us today, that “My great concern is not whether you have failed, but whether you are content with your failure.”  Have we learned the lessons from past disasters?  Have we mitigated the destruction that this virus without borders has caused? Have we eased the spiritual and financial hardship descending upon so many people around the world? Can we move forward?

I am not content with failure. While we know we are in a global health crisis, and we are certainly in an economic crisis, we are also in a crisis of confidence … confidence in our governmental institutions, confidence in our financial institutions, confidence in our capitalist institutions.  I am not content to stand by in this very special season and allow confidence to be forever lost. So, right now we need to use our traditions to begin to heal ourselves and our institutions, and to move forward.

So much of the symbolism and tradition across the three major religions describes the same events, just from different points of view.  Passover is the story of freedom. It is the story of the liberation of body and spirit. With the storytelling come lessons of humility — the belief in something larger than ourselves. Passover marks our move from slavery to liberation. We commemorate the hardships and the miracles, and we move forward, celebrating our freedom with family and food.

Easter is closely linked to Passover, of course, not just by the (presumed) historical concurrence of the Last Supper with a Passover seder, by also by ancient symbols.  As the Seder plate holds an egg to symbolize the cycle of life, rebirth, and renewal, in Christianity the egg became associated with the resurrection.  And across the centuries, these stories have never lost the power to inspire the imagination of generations of humankind as we move forward.

And with Ramadan, we have another holy time for families. Ramadan is a time of rededication to core values.  It balances the deep introspection of the long day’s fast with gatherings to strengthen the bonds of family and friendship. And what could society need more right now than the pillars of Islam, among them charity and philanthropy, tolerance, justice and honesty?

So, in this very important season, in these very dark days, we move forward.  And to Cornerstone Capital Group, moving forward means maintaining our belief that confidence in the capital markets can be restored.  That good governance is a proxy for quality. That a long-term commitment to sustainable and impact investing can provide positive social impact as well as strong returns over time.  And most importantly, that investments must create solutions to the world’s greatest challenges, must drive innovative, resilient and inclusive growth. And we move forward.

On behalf of the Cornerstone family I wish you peace, health and a renewed sense of hope and determination,

Erika Karp, Founder and CEO, Cornerstone Capital Group

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.

9827671-UFD-3/23/2020

Gender lens investment approaches have expanded in recent years. All asset classes have seen a tremendous increase in the number of funds and assets under management since 2014. Fund strategies range from empowering women and funding women-run businesses to reducing gender violence and poverty for women and children.

At the same time, investors have also been seeking ways in align their activities in support of the United Nations Sustainable Development Goals (SDGs). Cornerstone Capital Group has contributed to this effort by introducing the Access Impact FrameworkTM, which illustrates the alignment of investment strategies to each of the SDGs. We identified the concept of access — the ability of individuals and societies to achieve desired social, economic and environmental outcomes — as a key common denominator of the SDGs and identified 11 “access themes” that translate the SDGs into investable opportunities.

SDG 5 is “Achieve gender equality and empower all women and girls.” For investments to have an impact related to achieving gender equality and empowering women and girls, investors do not have to invest solely in gender lens funds. Our approach to gender lens investing incorporates traditional gender lens themes with an analysis of the access themes that align most closely to SDG 5.

In this report we discuss each of the access themes that underpin SDG 5 in some depth. We also offer examples of investment vehicles that bolster access to these themes for women, their families and communities. Download the full report here.

We recently hosted a live video webinar to discuss ways in which investors can contribute to the narrowing of economic disparities through a dedicated emphasis on investing in underserved minority communities. Our panel, moderated by Randall Strickland, Cornerstone’s Director of Client Relationship Management, featured Pat Miguel Tomaino, Director of Socially Responsible Investing for Zevin Asset Management, and Julianne Zimmerman, Managing Director of Reinventure Capital.

 

 

 

In today’s economy, the goods we consume are often produced far from where they are purchased, successively changing hands along complex and opaque corporate supply chains. The International Labour Organization estimates that across these supply chains, there are approximately 24.9 million victims of forced labor in the world.

Where forced labor risks are not addressed, they can result in serious legal, reputational, and financial repercussions for companies. Investors are uniquely positioned to help companies recognize the importance of managing this risk, and are increasingly using their voice to do so.

KnowTheChain is a resource for companies and investors to understand and address forced labor risks. We believe that companies and investors can be a powerful force for improving the lives of people who labor in their global supply chains.

Through benchmarking current corporate practices and providing practical resources that enable companies to operate more transparently and responsibly, we aim to drive corporate action while also providing considerations for investor action. KnowTheChain recently evaluated  38 of the largest global food and beverage companies on their forced labor policies and practices.

The 2018 Food and Beverage Benchmark Findings Report finds that while many of the companies evaluated may have policies and commitments in place, the majority do not provide evidence that their policies and practices are being effectively implemented. Without evidence of implementation of these policies, companies may be unprepared to respond to an egregious abuse uncovered in their supply chain by an NGO, trade union, or reporter.

Agriculture workers are particularly vulnerable

Human Rights Watch tells the story of Saw Win, a Burmese migrant worker smuggled into Thailand on the promise of a food processing job for US$4.50 a day. He was sold to brokers who were controlling work crews at fishing piers in a Thai port town. Initially, he worked on a trawler with no pay for three months. Upon returning to the port town, he was locked in a room for three days before being sold again to another boat. Eventually, Saw Win escaped by jumping overboard near the Malaysian coast and returned to land for the first time in two years.

Men and women seeking gainful employment in the agriculture industry are particularly vulnerable to exploitation – whether through force, fraud or coercion – and are often made to work for little or no pay, cut off from their homes or families. As the food and beverage sector increasingly pushes agricultural work into more rural areas to accommodate its land-intensive activities, it’s exacerbating the remote nature of the work and putting workers at greater risk.

How are companies scoring?

Unilever, which was the top scoring company in KnowTheChain’s first food and beverage sector benchmark in 2016, remains at the top with a score of 69 out of 100. Kellogg took second place with a score of 66.

Five companies score below 10 out of 100. None of them have a publicly available supplier code of conduct, nor do they take any action on worker voice and recruitment.

Scores by theme

The average score across the benchmark remains low, at just 30 out of 100, indicating that companies need to take further action to address forced labor risks across all tiers of their supply chains.

Overall, companies scored the lowest on indicators of worker voice and recruitment, suggesting that little or no action is being taken to listen to, engage with, or empower laborers across supply chains. These themes have the most direct impact on the lives of workers, and concerned investors can ask companies about their practices.

Improvements are (slowly) being made

Comparing the 2018 benchmark to its 2016 counterpart, we can see that more companies now have policies prohibiting recruitment fees, and in general, companies are providing more substantive examples of how their policies are used in practice. Of the 19 companies benchmarked in both 2016 and 2018, 17 disclosed additional steps taken to address forced labor risks.

It’s encouraging to see some companies making additional commitments since the 2016 benchmark, but progress for workers is not moving fast enough. Companies across the board must do better to make demonstrable improvements for workers.

Investors are taking action

In addition to scoring and ranking companies, this report provides good practice examples and recommendations for companies as well as considerations for investor action.

Investors representing more than $3 trillion in assets have signed the KnowTheChain Investor Statement, which lays out expectations for how companies should address forced labor risks, in-line with international standards and existing human rights due diligence tools.

Investors may wish to integrate KnowTheChain’s findings into their investment decision-making and active ownership practices. Shareholder advocacy organization As You Sow introduced a resolution on behalf of Monster Beverage shareholders, citing its 0/100 score in our 2016 benchmark report and asking the company to address the lack of transparency regarding slavery and human trafficking in its supply chain. (Monster scored 4/100 this year.)

Through responsible purchasing practices, strategic collaborations, and extended standards on issues such as ethical recruitment to lower-tier suppliers, companies can positively impact working conditions across their supply chains.

Investors who hold any of the companies KnowTheChain has benchmarked can use KnowTheChain to engage their portfolio. For each company in the benchmark, KnowTheChain has created a two-page summary identifying what steps the company can take. These company scorecards can provide a clear path for engagement for investors. Investors can further ask how companies are working to ensure migrant workers are not exploited, and how they engage with workers in their supply chains to empower them to exercise their labor rights, while ensuring that an early warning system is in place for when abuses occur.

KnowTheChain will be releasing a similar benchmark report on the apparel and footwear industry in the very near future, and we hope the audience for this research continues to grow.

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.

Download Creativity & The Arts: An Emerging Impact Investing Theme

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[1]. 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.

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.

Looking Ahead

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.

[1] https://thegiin.org/assets/2018_GIIN_Annual_Impact_Investor_Survey_webfile.pdf

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:

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.

 

Media consumption is passive. At least, that’s been the dominant paradigm for the last century or more. Under this unidirectional model, a small number of people control both production and distribution, deciding in the process whose stories are told and whose are silenced.

In recent years, however, the internet has lowered—and sometimes demolished—barriers of access, unleashing an explosion of meaningful creation, an increase in both the quantity and quality of work by amateur creatives, and an increasingly blurred line between consumer and creator.

Silicon Valley has largely failed to adapt to this emerging paradigm shift, choosing instead to continue pursuing maximum-growth-at-any-cost via the relentless commoditization of content. At the same time, existing models of impact investing in the arts have tended to follow a quasi-philanthropic model, emphasizing arts and community development, studio and performance spaces, and nonprofit arts organizations.

There’s nothing inherently wrong with either of those approaches, but at Exponential Creativity Ventures, we have a different philosophy that offers an alternative model for investors.

We’re in the midst of an historic moment for value creation in human-centered creativity platforms, thanks to the democratization of technological infrastructure and the disintermediation between artists and audiences (think YouTube, Etsy, Kickstarter, and many others). Fractured Atlas, our nonprofit parent organization, was an important player in the first wave of this trend: the DIY and indie arts movements. Its software platforms have come to provide 1.5 million artists across North America with essential back-office business infrastructure, freeing their time and energy for creative work. By leveling the industry playing field, Fractured Atlas has given independent artists and underrepresented voices opportunities to be heard.

In the continuing democratization of arts and media tech, Fractured Atlas saw both a danger and also an opportunity. The danger was in allowing those technologies’ development to be driven and guided exclusively by profit-maximizing investors whose interest in appealing to the broadest possible audiences tends to lead to the commoditization of content. Allowing that to happen threatens one of our most cherished values: that creativity and self-expression are human rights. Allowing that to happen also marginalizes minority voices, fosters dangerous echo chambers, and leads to a global homogenization of culture, expression, and representation.

The flipside of this threat, however, was an opportunity. Fractured Atlas realized that it could pull up an alternative seat at the table, one committed to supporting an ecosystem of human-centered, creativity-enabling tech; to helping the entrepreneurs and innovators who are driving the paradigm shift toward creation; and to nudging the continued progress of these technologies in an inclusive, humanistic direction. We sensed we could provide that seat while also capturing some of the extraordinary economic value being created.

So, with an initial $2 million commitment from Fractured Atlas at the start of this year, we officially launched Exponential Creativity Ventures, a $20 million evergreen fund investing in human-centered creativity platforms, global networks for developing creative voices, and the underlying frontier tech innovation that makes it all possible.

Before re-entering the creative tech space as venture capitalists, we first had to ask: Would there be sufficient deal flow to achieve both the social and financial returns we were targeting? Very quickly, we determined the answer was a resounding yes. By leveraging Fractured Atlas’s existing network, we found ourselves with an extraordinary pipeline of opportunities straight out of the gate. Within our first month, we met with hundreds of great companies in their earliest stages. The founders who came to us included accomplished artists and casual creatives alike, and we were also pleasantly surprised by the diversity of this community.

The biggest challenge we’ve faced has been in explaining our model to investors. Exponential Creativity Ventures has an unapologetic mission orientation that prompts skepticism from “pure money” investors. At the same time, our focus on technology startups and market-rate returns means we don’t fit the traditional “impact investor” mold either. This straddling of silos led to some frustrating initial conversations with potential backers.

We eventually hit our stride, however, when we launched an “Ambassador Round,” targeting small investments from arts and creative industry thought leaders and influencers. From March to July 2018, we raised $300,000 (exceeding our $250,000 target) from an extraordinary mix of people—a Broadway producer, the CEO of a leading digital arts marketing firm, the founder of Creative Capital, a Google executive, a slow food movement entrepreneur, and a music industry data scientist, to name a few. None of these individuals are traditional LPs, but they deeply understand the markets, use cases, and constituents we’re serving. They also have some context for understanding Fractured Atlas’s track record and our credibility as investors.

As an evergreen fund, we can invest and raise in parallel, and to date we have made initial investments of a combined $1,085,000 in 11 companies. More often than not, we’ve been the first institutional investors on their cap tables, positioning us to help them raise much larger amounts in later rounds. These portfolio companies are working on projects ranging from augmented reality and artificial intelligence to new musical instruments and a global market for culturally iconic indigenous art. A complete list of these exceptional companies can be found on our website.

Among our bedrock values is the belief that a healthy foundation for creativity must be maximally inclusive. To that end, we are proud to report that 70% of our investments to date have gone to founders of color and 60% have gone to women founders.

Each of these creative technologies represents the kind of impact that Exponential Creativity Ventures aims to make: lowered barriers of access, the continued democratization of creativity and tech, and financial competitiveness, both for communities of artists and creatives and for underrepresented and underestimated founders, entrepreneurs, and communities writ large.

This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.

Photo: ECV portfolio company Roots Studio digitizes the work and stories of traditional artists in the developing world, then licenses and produces prints, apparel, and stationery. ©Roots Studio, Inc.

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.

LISC’s newly launched NYC Inclusive Creative Economy Fund marks both a bold, new direction for our organization and a natural extension of our long track record of bringing technical and financing resources to low- and moderate-income communities.

Over our four decades as a Community Development Financial Institution (CDFI), LISC has been an impact investing pioneer, raising and blending capital and then deploying that capital with a social purpose, making loans to borrowers in low- and moderate-income communities where typical financial institutions don’t reach. While LISC’s financing activities may be best known for affordable housing, our diverse loan portfolio has historically included a significant commitment to arts, culture, and creativity. As part of our partner Upstart Co-Lab’s 2017 report study, “Creative Places and Businesses: Catalyzing Growth in Communities,” LISC reviewed its lending activity since 1980 and found that we have financed 98 projects related to arts, culture, and creativity representing $139 million in direct lending volume and over $900 million in total development costs.

Thus, to some degree the NYC Inclusive Creative Economy Fund builds on LISC’s established tradition of financing the creative economy. Yet our new initiative signals a deepening of LISC’s commitment to arts and culture and a more intentional strategic approach. Working with Upstart Co-Lab, LISC has been applying a “creativity lens” to our core impact investing activities, which is having dynamic implications for our overall strategy, expanding our market niche as a provider of capital for arts and creativity and broadening our investor relationships. As Upstart Co-Lab founder Laura Callanan is fond of saying, “A lens is a view finder; it helps you to see, and it brings things into focus. Creative places and businesses have always been part of comprehensive community development. But it’s been flying under the radar.”

Solving for Today’s Challenges

LISC NYC was born in 1980 to solve for the problem of disinvestment in “redlined” neighborhoods like the South Bronx, helping reverse the city’s decline by investing in abandoned housing stock and bringing residents back to these communities. Today, by contrast, New York City is booming. The city’s population is growing, and private investment is flowing, even to neighborhoods that historically have been underinvested. The problem we are solving for today, then, is the danger of displacement for low- and moderate-income New Yorkers who are squeezed by the combination of high real estate costs and flat wage growth due to structural changes in the economy.

Historically, LISC NYC had focused on the affordable housing side of that equation. When Upstart Co-Lab and LISC began talking about teaming up to launch an impact investment opportunity, LISC NYC was in the process of reframing its local strategy to be more responsive to contemporary conditions. In 2016, with significant philanthropic investment from Citi Foundation’s Community Progress Makers Fund, we invested in staff and expertise to develop a strategy to apply our lending expertise to equitable economic development, with a focus on creating and preserving middle-skill jobs for New Yorkers.

With Upstart Co-Lab as a strategic partner, LISC NYC began to view its equitable economic development activities through a creativity lens. We began to build a pipeline of loans to a range of new partners that were building and stewarding spaces for enterprises that provide middle-skill jobs: supporting affordable artist studios, spaces for artisans and light manufacturers, and cultural venues that enable creative endeavors that would otherwise not find space to work or perform in New York City. ArtBuilt NYC, for example, has developed 50,000 square feet at the city-owned Brooklyn Army Terminal in Sunset Park, providing affordable work spaces with long-term leases to artists, artisans, and creative entrepreneurs.

We are also lending to partners like the Brooklyn Navy Yard Development Corporation and the nonprofit developer Greenpoint Manufacturing & Design Center. Both of these nonprofits are providing affordable space to high-value, small-batch manufacturing firms that bridge so-called “knowledge workers” (the “design” side of design-build) with fabricators, machine operators, and craftspeople (on the “build” side). And our initiative includes loans to vibrant arts organizations like La Mama on the Lower East Side, whose mission is to provide performing space for artistic voices that otherwise might not be heard in this city. The lending activities emerging from this pipeline have not only adhered to LISC’s rigorous credit standards but also fit squarely in our mission to catalyze opportunities for low- and moderate-income people.

Applying a creativity lens to LISC NYC’s lending work has also opened an opportunity for us to attract new forms of impact capital. Like most CDFIs, our lending capital has come largely from financial institutions motivated by regulatory obligations under the Community Reinvestment Act (CRA) to lend and invest in low-income neighborhoods, leveraging equity-like investments from the US Treasury’s CDFI Fund. While LISC has successfully attracted program-related investments (typically from some larger national foundations), LISC has only rarely gained traction with impact investors such as high net worth individuals, family offices and endowed institutions.

We have just begun formally marketing our NYC Inclusive Creative Economy Fund and gaining traction with impact investors who find the impact, risk, and return profile of this opportunity compelling. LISC is issuing notes with an 8-year maturity that pay interest of 2.75% per annum. While proceeds from the notes will be used to fund loans supporting the inclusive creative economy, the notes are a general obligation of LISC, with recourse to the organization’s diversified balance sheet. In other words, purchasers of the notes do not take on project risk and can underwrite to LISC, which has been rated AA by Standard & Poor’s and has, for 40 years, repaid all of its borrowers on time and in full.

We are hopeful that LISC NYC’s initiative will be replicated across LISC’s national platform of 31 sites, and further, that the Fund will help make the case for a broader adoption of a creativity lens across impact investment capital. To accomplish this replication, LISC and its fellow impact investment practitioners could do the following: advance more locally driven intentional strategies to cultivate arts, culture, and creativity; and advocate for a more robust policy and subsidy support, to create a better enabling environment for inclusive creative economy real estate, making it a more central part of the public discourse.

This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.

Photo: A creative business housed at a building owned and operated by Greenpoint Manufacturing and Design Center in Crown Heights, Brooklyn. ©Tim Soter courtesty of LISC NYC.

Note: Information regarding the NYC Inclusive Economy Fund is provided for informational purposes only, and is being shown to illustrate the growing variety of impact investment opportunities creativity and the arts. It should not be construed as an endorsement or recommendation of the fund by Cornerstone Capital Inc.

 

One of the most significant legacies of the housing collapse, which triggered the Great Recession of 2008-11, was the undermining of confidence Americans had in the venerable single-family home.  For generations, owning a single-family suburban home was a linchpin of most Americans’ retirement and savings strategies. The fracturing of that doctrine coincided with the demographic rise of the millennials into the housing market.  These factors combined to shift capital flows to center-city rental housing at a pace city planners could only fantasize about for decades.

While this newfound prosperity in our urban centers is exciting news for policymakers long frustrated by the post-World War II decline of these downtowns, it has brought some unintended consequences. The pace of investment in these neighborhoods has driven up the cost of space for all property types at extraordinary rates. This has been good news for those of us in real estate with significant exposure to the affected markets; however, there is another side to that coin.  For many residents and institutions that have historically been located in or near center-city neighborhoods, the market is now pushing them aside at alarming rates.

Continuum was formed in 1997 around the belief that the failed urban development policies of post-war America had caused intolerable long-term stresses on our center cities, their citizens and the broader regional environments.  By the early 1990s, the complex set of regulations, tax subsidies and design doctrine that accumulated to drive the great American suburb had resulted in a systemic shift of investment capital away from center cities and their historic infrastructures to the green fields of these new suburban regional centers. Since 2010, however, center-city neighborhoods in all 30 of the largest U.S. metropolitan areas gained significant market share over their suburban counterparts[1]. Gentrification is now the new crisis city leaders are urgently mobilizing resources around.  Metro areas from Los Angeles to Denver are rushing to raise new tax dollars to provide more housing assistance to low- and median-income residents.

This abrupt shift in prosperity is having a broad range of unintended consequences. One particularly unexpected effect has been the backlash against artists and cultural enterprise spaces (such as art studios and galleries), which are now seen by some vulnerable communities as the tip of the spear for fresh waves of gentrification.

It is an ironic consequence given that during the decades of decline in American urban centers, employers moved out, retailers abandoned their downtown flagships, and even the churches relocated to new mega facilities on the urban edge, but artists and the institutions that support them steadfastly remained committed to the urban cores.  In many situations the leadership of the signature art museums and performing arts organizations became essential drivers of the booster network for these center cities.  Their employees also found reasonably priced housing in city neighborhoods and were engaged in neighborhood activism.  Over the years Continuum has been a significant supporter of these institutions—and we are now confronting the realization that our business success is severely hampering their ability to continue to prosper.

Supporting the Link Between Culture and Neighborhood Stability

From our early days as a mission-focused development firm, we saw an essential link between a robust cultural economy, neighborhood stability, and real estate value.  One of our earliest projects included a new Museum of Contemporary Art for the City of Denver.  My wife and I donated a piece of land to the Museum in an up-and-coming neighborhood, around which Continuum went on to develop multiple projects.  In the early 2000s we funded a new contemporary art space called the Lab at Belmar, embedded in the center of a 100-acre neighborhood we transformed from a broken regional shopping mall to a new 30-block precinct in Lakewood, Colorado.

As an organization we continue to find ways to support our local arts communities; for example, we recently opened the new Hotel Born at Union Station in Denver and commissioned more than 700 original works of art from Denver artists for the building.

None of these efforts is enough, however, to stem the generation-long effects which will result if we as a society allow the diasporization of these important creative thinkers and enterprises within our communities.  We at Continuum think of ourselves as human ecologists and understand the value that diverse and politically courageous voices bring to the governance of our center cities.  We are committed as an enterprise to working towards more equitable housing solutions for all constituencies in our society, but we see the challenge for artists as becoming particularly complex.  Over the last couple of years, this issue hit a flash point in the Boyle Heights neighborhood in Los Angeles, where artists and gallerists were aggressively harassed when they entered that neighborhood in pursuit of more affordable spaces.  Some members of this historically Latino working-class neighborhood decided they needed to send a clear message to the artists, some of whom ultimately closed their studios and galleries.

The link between neighborhoods rich in cultural enterprise and rising real estate values has become a foundational principle of real estate investing.  New arts districts spring up in rural towns from Oregon to Georgia; suburban communities in Kansas City are onto the trend as well.  The strategy has become a key economic revitalization tool for any aspirational community in search of a marketing message.  The challenge for center cities is that the romantic notion of the bohemian creative seeking out a cheap space in an overlooked ghetto is a trite memory of an era gone by.   Maintaining a healthy population of creatives is something no big city mayor or civic booster can take for granted.  And now, instead of the artists living peacefully amongst an underserved population linked in common neighborhood advocacy, they are viewed by those same communities as the leading edge of the bourgeoisie who will follow.

Finding New Solutions for Coexistence

Over the past 18 months, Continuum has been doing research on new ownership vehicles for real estate projects that are designed to create long-term rent security for their occupants.  We are interested in establishing a new capital platform that can bring a more holistic solution to these complex societal challenges.  We believe the existing capital and ownership vehicles driving this current transformation of our communities need to be reconsidered in a manner which allows more of the wealth created by the escalating values of these neighborhoods to remain in the local communities.  It is our hope that through these new vehicles we can offer long-term neighborhood stability both to the artists and to the historical residents.

We expect to launch our first projects under this model in early 2019.  Inherent in this model is a mechanism which would slow the rate of rent growth in high-value areas in perpetuity.  The enterprises will be funded with tax-exempt debt instruments and include investments by a network of social impact investors.  While our initial focus will be for members of our creative communities, over time we expect this vehicle can be extended to address other key populations such as teachers and other essential service providers in our cities.

Cities are dynamic ecologies.  Stresses and opportunities shift constantly.  The physical framework of our cities has deep impact, not only on the environmental footprint of our habitat but also on the social cohesion of our populations.  We believe it is essential that our settlements are conceived and regulated in ways that ensure all its residents have reasonable access to jobs, education and cultural enrichment in order to maintain a healthy and durable community.  It is our belief that the private sector should lead the path to these outcomes–after all, our investments depend on healthy and resilient neighborhoods to grow in value.

Photo: ©Shifting Narrative/Shutterstock

[1] Foot Traffic Ahead 2016 – The Center for Real Estate and Urban Analysis at George Washington University.

This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.

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.

Newark is the largest and most populous city in the most densely populated state in the U.S. It has a rich history dating to colonial days, a highly diverse population that has fostered a vibrant mix of cultural traditions, and sits in the heart of the broader New York metropolitan area. It has also seen more than its share of challenges, offering a classic example of the economic decline and blight that affected many large cities in the latter decades of the 20th century.

Today, Newark is experiencing a renaissance. Poets, musicians, actors, artists and intellectuals are moving from New York City and around the world to converge and collaborate with long-time local creative residents. The City of Newark is pushing the limits of its new narrative—to be known as a competing “livable city.” This urban cultural rebirth is gaining national attention, as evidenced by our joining the list of potential locations for Amazon’s second headquarters. Talented creatives, young professionals, entrepreneurs and real estate developers are capitalizing on the revitalization of Newark—but this attention brings risk to the multiple struggling populations that call Newark home.

The Newark Community Economic Development Corporation (NCEDC) is the primary economic development catalyst for the city. It is organized to retain, attract and grow businesses, enhance small and minority business capacity, and spur real estate development throughout the city’s 20 diverse neighborhoods. One of the NCEDC’s key current focus areas is to plan real estate developments that continue to serve the makers, creatives and artists who fuel the city’s unique culture. We know the classic story: Once a city’s market shows signs of economic and cultural reawakening, populations with deeper resources from neighboring areas engage as “urban pioneers.” The creative populations are then priced out of the same city they helped to make desirable. The NCEDC is working in partnership with the Mayor and the City of Newark’s EHD, and private developers, to prevent this from happening as Newark continues its resurgence.

For the emerging buildable market, the availability of funding sources makes it extremely challenging for property owners or developers to adequately rehabilitate properties to serve the valuable makers and creative population. Here is where the City of Newark, through the NCEDC, is playing a key role.

To illustrate how the city is working with private partners, we highlight two flagship developments, well underway in the planning phases, that will focus on affordable spaces intended to support and retain Newark’s creative resources.

Makers Village

Seaview Development Corp, a private real estate development firm based in New York, is proposing to build an 81-unit mixed-income, mixed-use project in Newark’s Central Ward, titled Makers Village.

The project centers on the restoration of the Krueger-Scott Mansion, which has been vacant for at least 30 years. The mansion was built in the late 1800s by a German immigrant who became a highly successful local beer merchant; it was later home to Louise Scott, founder of the Scott School of Beauty and one of the first African-American woman millionaires in the city. The legacy of the Krueger-Scott mansion as a home to entrepreneurs has inspired the idea of creating a nonprofit center serving the residents of Newark.

The proposed plan is to build an entrepreneurship center utilizing the mansion along with affordable loft commercial shops for makers. The development will also maintain an urban greenhouse farm and a commercial kitchen for chefs, which will be available to the public to rent or for chefs to host open events. A maker will be able to lease an apartment plus loft space for $1800 per month, enabling a start-up to affordably conduct light manufacturing within the space. The redevelopment plan entailed rezoning to allow for light manufacturing, residential and mixed uses specific to the Krueger-Scott project.

The total development cost will be approximately $30 million; the city is subsidizing the development with $9 million in support via sources such as a new market tax; historic tax credits, a redevelopment area bond, and affordable housing trust funds. Since the Makers Village project was announced, other developments within the immediate area with significant social and economic impact have sprouted up. It is important to note that these projects require deep subsidy by the City of Newark, the State of New Jersey and Federal funding. The projects must create a feasible return on investment in order for investors and the City of Newark to fund.

505 Clinton Avenue

The City of Newark is sponsoring another arts-focused development project along the Clinton Avenue artist corridor. The 27 live/work lofts mixed-use project will maintain another 2,000 square feet of retail and performance space for artists, poets and the community.

The development site is the former Clinton Trust Company, a stately building that also sat abandoned for decades. The building’s historic facade will be saved for this project with modern construction attached. Phase II of the project will contain performance studios and a gallery space at the cellar level. The total project cost is $8.5 million, which is being totally funded by the City of Newark and the Newark Community Economic Development Corporation as redeveloper. The project, conceived by Mayor Ras J. Baraka, is intended to revitalize the South Ward neighborhood and serve as an anchor of culture and the community. The project will also maintain a Trust ownership for the local creative population. Most developments that provide an economic good to the low- to moderate-income populations require at least 10-15% subsidy within the capital stack in order to make these projects financially feasible.

The City of Newark has faced the challenge of standard affordable housing development policies not adequately addressing creative low- and moderate-income populations. To obtain the city’s and NCEDC’s support, development proposals must leverage the unique talents of the creative class, as they were the original stabilizers of the “Newark Renaissance.” This is a space whereby investments can generate reasonable returns. Subsidies provided by local, State and Federal governments are leveraged as funding sources that decrease risk to investment institutions and individuals to support the dual goals of financial feasibility and economic and social vitality.

Photo: Conceptual rendering of the Makers Village project. ©Makerhoods.org.

This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.

The heart of CultureBank is this:

Communities that have been traditionally understood as “poor” are not. They hold assets of value, opportunity, and inspiration. Undeveloped assets in marginalized communities—assets like music, dance, cultural tradition, diverse language skills, natural green spaces, oral narratives, and people themselves—are extremely valuable in achieving long-term health and shared prosperity. Identifying and unleashing the potential of these assets will help communities thrive.

But developing these assets requires a new model for investment and for assessing returns on investment. CultureBank is an entirely different investment platform, seeking to trigger a cultural shift in social impact investing and community development so that assets of all kinds can be understood, leveraged, valued, and shared. In its very early stages of development, CultureBank is founded on three critical concepts:

  1. CultureBank believes that artist-driven enterprises are essential to nurturing and revealing community value because of their demonstrated ability to identify and lift assets in communities; we therefore seek to develop our ecosystem of artist-driven enterprises.
  2. Rather than return on investment, CultureBank seeks a “ripple of investment” through imaginative structures that create value that can be commonly experienced, and where everyone is an investor—the artist, the financier, the community members.
  3. By leveraging unique investment structures, CultureBank aims to feed a rich but underinvested ecosystem of artists and connect them to growing movements to incorporate health outcomes into broader equity efforts.

What Is CultureBank, and How Will It Work?

CultureBank began as a series of conversations between Deborah Cullinan, CEO of Yerba Buena Center for the Arts (YBCA), and Penelope Douglas, a longtime community investment and social enterprise leader.

YBCA is pioneering a new model for an arts organization, one that builds the ecosystem of artist entrepreneurs and creates the conditions for diverse thinkers, inventors, innovators, and artists to come together around the critical questions in our communities and our society. CultureBank is a leading example of the kind of big idea that YBCA is interested in bringing into the world. We focus on a process of inquiry and then investment, empowering artists to become truly important early-stage investors in communities.

The concept behind CultureBank is best illustrated through our first pilot community, in Dallas.

The initial work establishes new forms of collaboration among academia (Southern Methodist University and its Meadows School), community arts and culture intermediary organizations (Texas Arts and Culture Alliance), civic engagement leadership (Ignite Arts/Dallas), formal and informal community leaders (social activists, citizens of all kinds, private wealth holders and entrepreneurs), and artists.

These collaborators participate in conversations led by artists who are working in Dallas’s underserved communities. The conversation focuses on critical questions about community assets. Inquiry might look like this:

For CultureBank, these conversations are the part of investment. Mainstream impact investors go through a due diligence process; CultureBank follows a model using a process of inquiry initiated by artists and their community. In the CultureBank model this core function is called Asset Discovery and Development.

In the next step of the Dallas pilot, philanthropic capital will be raised through Donor Advised Funds and invested in a radically different manner. Decisions regarding investments (likely to be grants in the first several cases)—who will receive them and what results will be targeted—will be made by and through a gifting circle. For CultureBank, everyone in the circle is considered an investor, and investments focus on supporting artists who are lifting and celebrating assets in the community. Assets in a community might include language skills, knowledge of local geography, natural green spaces, creative approaches to food security, or the factual narratives of communities. Investments are successful if the collaborators are able to identify and plan to further develop these assets. Within the first year of the pilot, our aim is to make between two and four grants for such development.

Later stages of investment will further these goals, so that pilot communities develop their shared vision for their future, focused on stewardship of value built within the community. Debt, non-controlling equity, and equity for shared ownership investment forms will be refined and put to use, based upon the learning from the pilot. As value is built, CultureBank will collect and share the early indicators of impact to build the next phases and collaborations. CultureBank is based on a long-term theory of change, as its goal is to effect outcomes that are enduring.

In addition to processes of Asset Discovery and Development and Investment, CultureBank is also focused on building a rich knowledge base by collecting stories and cases of artists and their community-changing enterprises around the country.

The Development of CultureBank to Date

There have been several milestones in the development of CultureBank to date:

2017

2018

Current Funding and Structure

CultureBank has its home and is being incubated at YBCA in San Francisco. It is designed to be replicable in other communities. Culture Bank is built on a series of somewhat radical collaborations among unlikely partners and will continue to form partnerships for pilot initiatives in local communities.

Funding for the early phases of CultureBank has come from two major funders, the Surdna and Kenneth Rainin Foundations. These funds have been invaluable, and now CultureBank is at the stage where new and talented people need to be hired.

The Pilot Phase, late 2018 – 2020

For each pilot initiative, CultureBank and its local partners will raise approximately $2 million of donor funds for investments, and $2 million for operating expenses for CultureBank at YBCA. In addition, CultureBank is exploring the use of art assets as part of the inflow of resources to be invested in communities. There is an important opportunity for CultureBank investors to reimagine the use of their own assets as part of a transformation in communities. Art assets held by investors might be pledged, for example, as a means of providing credit enhancement or risk mitigation for loans and other investments by CultureBank in artists’ enterprises.

Each pilot will demonstrate the four core functions of the CultureBank business model. These are:

  1. Asset Development and Discovery Services
  1. Funds Development and Demonstration Investments
  1. Knowledge and Storytelling
  1. Education and Convening

For the pilot phase, donor capital is the most important financial support mechanism. These early donor/investors will be inspired to experience the initial steps in a model of community investment for shared prosperity and greater well-being. CultureBank seeks to build value within communities and does not aim for any sort of traditional ROI during its pilot phase.

At the next phase, CultureBank will source capital from impact investors seeking an “evergreen” investment model, with return of principal as well as the direct experience of a community’s cultural assets as a participant in the CultureBank Commons.

For any individual or institution considering how to rethink the design of a community investment system, or how to transform hidden value in marginalized communities into shared inspiration, CultureBank offers a new model.

Photo: Black Women Rock at the YBCA Transform Festival. Hunter Franks, ©Tommy Lau.

This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.

A New Orleans second line parade—led by the Free Agents Brass Band and including masked Mardi Gras Indians from the Washitaw Nation and Creole Wild West tribes—looped and twisted their way through a crowd of hundreds. The Roots of Music, a youth marching band, kicked off the music performances on the lawn; while the Bell All Stars, a brass band comprised of Bell School alumni, took to one of two stages for an exclusive, one-night-only performance. Kids—and even adults—stopped in their tracks, entranced by puppeteer Sierra Kay. Three visual art exhibits spanned three buildings, all put together by local curators; while a Miami Art Basel-featured performance artist regaled crowds on the lawn. A nationally known muralist spent hours capturing the scene.

Most the multi-disciplinary artists presenting their skills that April day are residents of the newly minted Bell Artspace Campus in the historic Tremé neighborhood of New Orleans. A decade in development, festivities celebrated the Grand Opening of the revitalized site.

Five extraordinary buildings had anchored the neighborhood for more than a century but sat abandoned since Hurricane Katrina—until Artspace and partners committed to the campus and transformed the three largest. Nonprofits like Junebug Productions, a theater company that presents work exploring inequities that impact the African-American community, found their home with below-market-rate commercial space. Nearly 80 units of affordable live/work housing for low- to moderate-income artists and their families were created, with myriad local Tremé artists moving in. Residents such as social practice artist Journey Allen and her two sons, who had secretly been living in her art studio for the past four months, found space to be a family. Today, the once vacant site is an arts hub.

While incredibly special in its own right, the Bell Artspace Campus is just one of some 50 real estate developments that Artspace has spearheaded across the country over the course of 30 years—with even more projects in the capital pipeline.

Catalyzing Healthy Communities

Founded in 1979, Artspace is a nonprofit organization whose mission is to create, foster, and preserve affordable and sustainable space for artists and arts organizations. All of Artspace’s properties, including both historic renovations and new construction, are designed to provide stability to low-income, vulnerable, and/or culturally distinct creative communities: artists and their families who face marginalization and cycles of displacement as unintended consequences of positive changes they inspire in their neighborhoods.

Artspace buildings not only benefit the families who reside within them but are also recognized as catalytic places that support healthy communities anchored in existing community assets. Artspace also owns and operates its buildings in perpetuity to ensure that they remain high quality and permanently affordable for the artists, their families, and arts and cultural organizations who add so much to their communities.

The 1990 opening of the Northern Warehouse Artist Lofts in Saint Paul, Minnesota, was Artspace’s first real estate development project—and also the first in the nation to use Low Income Housing Tax Credits for artist housing. The Northern offers 52 affordable live/work units for artists and their families on its upper four floors, while the lower two provide space for a gallery, nonprofit arts organizations, a coffeehouse, and other creative businesses. A precursor to the Bell campus, this six-story historic property was also a stimulus for the economic and cultural growth of a struggling neighborhood. It proved to be a replicable model that launched Artspace’s real estate portfolio.

To create these arts spaces, Artspace works with communities to identify creative sector needs, including marginalized arts groups. Often invited in, Artspace’s process begins with a preliminary feasibility study in which the Artspace team conducts outreach and gathers information by meeting with artists, local funders, businesses, civic leaders, and stakeholders; and holds public meetings to solicit feedback. The team typically then returns to launch an online arts market study, which quantifies the overall demand for arts and creative spaces. Once the data is in, Artspace is able to develop a vision for an arts and cultural facility that will serve the specific needs of the community it is working in. This most often includes live/work housing for artists and their families, in addition to commercial space for creative businesses.

Artspace then begins a three-phased predevelopment process which includes identifying and purchasing a site, working with an architect on the design, deepening community connections and forming cultural partnerships, and developing budgets. To finance a project, Artspace applies for tax credits and other resources, bringing together a variety of public and private dollars including social impact investments and more traditional debt and equity models. All of these steps lead to construction and, ultimately, lease-up of a new arts space like the Northern or the Bell School—both indicative of Artspace’s organizational commitment to providing long-term, sustainable, and affordable artist housing.

The Bell School project provides 79 units of affordable live/work space for low-income individuals and their families; 45,000 square feet of community green space to be shared by the entire community; and 10,000 square feet of affordable nonprofit space that allows opportunity-creating arts and community programming. The funding package for this project represents a typical structure, including Program-Related Investments from the Ford Foundation; a blend of Historic and Low Income Housing Tax Credits; and conventional philanthropy including capital grants and gifts made by funders: The Kresge Foundation, the Stavros Niarchos Foundation, Gibbs Construction, ArtPlace America, The Greater New Orleans Foundation, and JPMorgan Chase Foundation.

Collectively, Artspace properties provide include more than 1,500 live/work units; serve nearly 500 creative commercial tenants; give back more than $3 million in rent subsidies; and host hundreds of arts events with thousands of visitors in areas both rural and urban.

While Artspace and partners have made much progress in supporting America’s cultural communities, there remains a big need, with much work ahead. The Artspace team is excited to discover where we will be invited next and looks forward to continuing to learn from and build with community partners and artists coast to coast.

Photo: Bell Artspace Campus, Michael Palumbo.

This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.

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.

The availability of affordable creative workspace has been declining sharply in London. A 2014 study forecast a loss of 30% of artists’ workspace —up to 3,500 studios—in just a five-year period to 2019. This disheartening prediction is coming to fruition, with 67% of at-risk studios having already been lost by the end of 2017. Affordable workspaces are vital incubators for London’s creative and cultural industries, which contribute an estimated £47 billion (US$60 billion) to London’s economy each year and form an important part of the local community fabric.

The historic model of artists locating property in cheaper parts of the city, fitting it out as studios and housing vibrant artistic activity, has often resulted in a cycle of regeneration, through which these artists are priced out of the very areas they helped to regenerate. In this situation, the workspace providers and communities are left vulnerable—on short-term leases, unprotected and exposed to the broader dynamics of the property development process.

The stark reality is that in London, out of over 300 buildings housing affordable creative workspace, only 17 are owned by their occupants. The challenge we seek to address at the Creative Land Trust is to ensure that London continues to benefit from creative production in the city, which drives successful creative industries, in the context of increasing pressure on property.

The Vision

The Creative Land Trust is a newly formed, innovative solution to address the vulnerability of the sector by offering a source of finance for affordable creative workspace in London. The Creative Land Trust has been developed with public and private sector partners and stakeholders, including developers, local authorities, artists and affordable workspace providers, in response to their collective needs.

The Creative Land Trust intends to stabilize the market by supporting the acquisition or long-term leasing of creative workspaces that are at risk, thereby building a network of sustainable, permanent spaces that will remain affordable for artists and creative producers in perpetuity. The Creative Land Trust ensures the provision of affordable rents in those properties it secures, embedded as a specific condition of the financing being extended (set at an average of £15 per square foot per annum but no higher than £19 square foot per year). The use of the term ‘trust’ is deliberate to denote the long-term stewardship on behalf of creatives, rather than in a specific legal sense. The Creative Land Trust has applied for charitable status, with corporate articles that further enshrine its mission and goals.

London has an effective ecosystem of studio providers, small businesses, often themselves charities, that are experienced in managing and operating creative workspaces on an affordable basis. The Creative Land Trust will engage with these partners on acquisition opportunities and appoint them to run the buildings via long-term leases. These providers can also be seen as beneficiaries of the Creative Land Trust, with the hope that they are able to stabilize their own position through leases offering greater security and the possibility of acquiring the buildings they own over time.

Research has shown that these kinds of spaces have a wider economic and social value, contributing to local business growth, attracting people and investment to an area and supporting communities. The Creative Land Trust has identified indicators associated with medium- and long-term outcomes to evaluate its ongoing impact, locally and more widely in London across creatives, workspace providers and communities.

A Blended Funding Model

The Creative Land Trust will pursue a blended capital model by leveraging grant funding to attract impact investment at scale. For the growing number of impact investors, who seek a blend of financial and social returns in areas of direct thematic or geographic alignment, vehicles that fund creative workspaces represent potential investment opportunities. The investment will be structured as debt, offering a fixed rate of return to investors over an initial term, expected to be between 5 and 7 years. The interest level will incorporate a concessionary element to reflect the social value being created.

Finding the Right Cultural Fit

No direct equivalent of the Creative Land Trust currently exists, to our knowledge. One of the challenges, operationally and culturally, has been to bridge the underlying needs of the sector, respecting the values and practice of creatives, with the idea that external public and private finance could provide a supportive new model in a way that doesn’t compromise or compete against existing workspace providers in the sector. In addition, it is clear that every opportunity has unique characteristics, which makes it hard to design common investment criteria. One issue the steering group has had to grapple with, for instance, is the proportion of commercial activity that should be permissible in a property in order to cross-subsidize affordable rents for creatives. Such issues can only be determined on a case-by-case basis, although it will be important to set a minimum baseline for affordability.

What Next?

The Creative Land Trust is in the process of being established and an independent board of trustees is being recruited. Current efforts are led by a steering group comprising Outset Contemporary Art Fund, Arts Council England, the Mayor of London’s Culture & Creative Industries Unit, and leading authorities in this area Naomi Dines and Pru Robey. I, together with my colleagues at Investing for Good CIC, a dedicated impact investment practice in the UK, have supported the group by profiling the financing and operational model, and structuring the vehicle together with the law firm Dechert LLP. Shortly we will start reaching out to prospective investors.

Potential to Scale

The Creative Land Trust has the potential to transform the landscape of affordable workspace provision through an intervention at scale. By raising a scaled fund and securing a portion of the creative workspace required in London, the Creative Land Trust will raise the profile of affordable workspace provision and its benefits to the city. This will support a better understanding of the social impact of studio buildings; a better understanding of the needs of developers; and increased access to social impact investment for the creative sector. Operating at scale will facilitate better access to strategic funds, loan funding and property funds in support of this sector, and will build resilience.

The loss of creative workspace has been recognized as a global issue for large cities.  The London-led World Cities Culture Forum, a network of 35 cities working to position culture as a core contributor to urban growth, has reported on the issues of creative and production space in global cities, and a number of member cities have contributed to debates, as well as developed responses to this challenge. For example, in San Francisco, the Community Arts Stabilization Trust (CAST) was set up in 2013 in partnership with the city and the Kenneth Rainin Foundation to purchase and lease space for nonprofit arts organizations. This has served as a reference point for the Creative Land Trust. CAST has now secured four buildings in perpetuity for cultural use that are home to iconic arts organizations and seeks to preserve 100,000 square feet of creative workspace by the end of 2018.  Similar to CAST, the Creative Land Trust is driven by key stakeholders—city government and private sector—coming together to address a crisis which cannot be solved by one party alone.

Photo: A workshop in London’s Hatton Gardens complex. ©Philipp Ebeling.

This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.

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.