• Institute for Sustainable Investing

A Challenge Worth Taking

Passionate about finding financial solutions to social and environmental problems? Morgan Stanley and the Kellogg School of Management invite you to join the 2016 Sustainable Investing Challenge.

Imagine landing a job straight out of business school that’s intellectually challenging, potentially lucrative and helps save the planet. Sounds like a dream? Four graduates from the University California-Berkeley are intent on living it.

Zach Knight, Chad Reed, Leigh Madeira and Nick Wobbrock have just formed their own startup, after their team, Blue Forest, won the Morgan Stanley Sustainable Investing Challenge last year. The competition helped them break into the world of conservation finance.

“Winning the Challenge was a huge credibility builder for us,” says Knight. “The environmental investing space is a small club, and the Morgan Stanley Sustainable Investing Challenge gave us what we needed to get our foot in the door.”

Apply for the 2016 Challenge

Morgan Stanley, which partners with the Kellogg School of Management every year to hold the Challenge, is now inviting MBA students to pitch for the 2016 competition. This year, international partners also include INSEAD and the Hong Kong University of Science and Technology. The deadline for applications is Feb. 24, 2016. Ten finalist teams will gather in Hong Kong in April, 2016, to pitch their financial investment proposals for specific social or environmental projects.

The Challenge recognizes that sustainable investing requires a pipeline of innovative thinkers, and seeks to identify and nurture the next generation of business leaders by giving them a showcase for their creative ideas for investors to finance projects with positive social and/or environmental impact while seeking competitive returns.

Studies show there’s a groundswell of investment money being earmarked for sustainable investing, and these investors aren’t looking to give their money away,” says Audrey Choi, CEO of Morgan Stanley’s Institute for Sustainable Investing. “They want to make competitive returns, and the challenge is developing financial structures for social and environmental projects that have that potential.”

Twin Benefits

The 2015 Challenge had a record number of applications, with 380 students forming 127 teams, and representing 78 schools from 20 countries. Food shortages, access to health care, and resource conservation were among their pitches.

Blue Forest’s winning idea is the Forest Resilience Bond, which would raise funds for the U.S. Department of Agriculture’s Forest Service to better manage overly dense forests across California, and eventually more broadly across the western US. The program will have the twin benefits of reducing the risk of severe wildfires while protecting water quality and enhancing reserves in treated watersheds. Today, the Forest Service struggles to keep up with the rising costs of fighting forest fires, which can cost 40 times more than the forest restoration program it increasingly can’t afford.

Blue Forest’s financial mechanism is designed to attract both debt and equity investors, by including annual fixed-rate interest and amortized principal payments. These recurring cash flows would come from water and electric utilities, based on the water quantity and quality benefits they receive from the restoration program, and the shared savings that the Forest Service can achieve from having to fight fewer fires.

A Hard But Satisfying Slog

According to Knight, it’ll take at least a year to develop performance metrics and measurement methodology, as well as contracts for the water and electric utilities and the Forest Service. Once this work has been completed, the next step will be to design and initiate a pilot before bringing in investors for a market rate transaction.

It’s a hard slog, but three members of the team, including Knight, have opted to turn down lucrative full-time job offers to bring it to fruition.

“I used to work in structured finance and as a bond trader on Wall Street, which was exciting and provided great experience, but I decided that if I was going to spend so much of my life working, then I want it to have a purpose and be aligned with my values.” says Knight. “That’s why I went back to grad school at Berkeley-Haas and that’s why we as a team are so fortunate to have been able to be a part of this incredible competition.”
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