ES 739 Sustainable Finance: Impact Investment An Asset Class Review
Course Description
Evidence suggests that many institutions around the globe are experimenting with new forms of
"impact" investment designed to generate both market rate returns and positive social and
environmental impact. The idea of using profit-seeking investment for this dual purpose is moving from
the periphery of activist investors to the core of mainstream financial institutions. This course intends
to explore the progress of and challenges to this trend within the context of institutional portfolio
management. Investment strategies that create both market rate returns and positive social and
environmental impact will be reviewed, as will strategies at different stages of development in their
progress towards placement in institutional investor portfolios. Selected topics include renewable
energy project finance, clean tech venture capital, energy efficiency project finance, micro-finance, and
carbon and environmental service investment strategies. Each week, investment professionals executing
these investment strategies will 1) discuss their process for evaluating, valuing and structuring deals and
2) review the challenges they face or progress they have made attracting institutional investors while
integrating financial return with social and environmental impact. Critical questions to be explored:
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Can an investment strategy focused on generating superior financial return also create positive
change in the environment and society?
How are investment grade financial instruments and solutions being developed to address
challenges and opportunities within climate change, natural resource constraints, and Base of
the Economic Pyramid demographics?
How do investors evaluate, value and structure deals for renewable energy projects, clean tech
venture capital, energy efficiency projects, micro-finance, and carbon and environmental service
investment strategies?
Are institutional investors incorporating financial instruments designed to generate market rate
returns and positive social / environmental impact into their portfolios? Why or why not?
What additional development needs to take place in order to have broader adoption by
investors?
Enrollment and Prerequisites
Because this course is project-based with class participation, the enrollment cap is 40 students, with 10
groups of three to five students each. Students who take this course may want to have a background in
environmental science and finance with some thematic knowledge of civil society and public policy
trends. There are no specific prerequisites for this course, although students are expected to have some
understanding of environmental science, ecosystem services and finance.
Class Project
Students working in groups of four to five students present final class projects by PowerPoint to the
class. Students will be expected to wear business formal for their presentations. Each presentation will
be a maximum of 20 minutes, formatted and edited to professional standards. Top presentations /
papers may be distributed online within the greater business community globally.
The themes for the student groups will be:
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Cleantech venture capital
Forest carbon
Energy efficiency finance
Renewable energy project finance
Microfinance
Students will organize themselves into groups the first day of class. Preferably there will be two student
groups per theme.
Two Options (select one):
1) In a PowerPoint presented to the class, provide a critique of two investment strategies of two
different investment intermediaries that seek to generate market financial return and social /
environmental impact. The two intermediaries should be in different asset classes. Particular
attention should be paid to the following:
 Market opportunity
 Target investment criteria
 Investment hypothesis
 Process by which financial return will be generated
 Process by which environmental/social impact is created
 Due diligence process
 Critical risks
 Deal selection process
 Monitoring protocols for environmental and social impact
2) Create a financial vehicle (e.g. private equity fund, debt instrument, etc) capable of fitting within
an asset allocation of institutional investor portfolios (e.g. venture capital, timber, private
equity, real estate, fixed income, public equities, etc) while delivering social / environmental
impact. Choose from one of the following:
 Water / wastewater
 Green affordable housing
 SME lending for the BOP
 Waste
 Forest carbon
 Your topic of choice
Students will be expected to present the following in a PowerPoint to the class:
 What asset class the vehicle fits in
 Clear definition of market opportunity
 Target investment criteria
 Investment hypothesis
o Process by which financial return will be generated
o Process by which environmental/social impact is created
 Due diligence process
 Financial modeling to substantiate investment hypothesis
 Identification of critical risks
 Deal selection process
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Monitoring protocols for environmental and social impact
Grading
Students will be graded based in the following format:
 30%
Class participation and required reading
 25%
One five-page (well written with sourcing using an accepted academic sourcing style)
GROUP paper, font 12, 1 inch margins, Times New Roman that details the risk / return model for
the fund / financial instrument you are building or the intermediaries you are reviewing. You
need to:
o identify the contemplated return for the fund (s) and explain how it is created
o identify & discuss the risks/issues associated with generating that return
o identify & discuss mitigants/solutions to the risks/issues This is due at the beginning of
the fifth class in hardcopy and online.
 45%
Final project PPT / group paper
 Please note specific punctuality, absence, and telephony policy which may seriously impact your
grade
Class Expectations
In addition to the final deliverable, the coursework involves an extensive reading syllabus and active
class participation. Students will be allowed one class absence. Greater than one absence will result in
failing the class with no exceptions. Classes will start on time precisely at the time listed in the schedule.
Students who are late will be penalized by decreasing their grades. Grace period will be five minutes.
No internet, blackberry, or cell phones will be allowed to be used in the room during class time. Each
class will have one coffee break.
Credits:
Time:
Instructors:
Office Hours:
1.5
3 hours, meets seven times
Gabriel Thoumi, Project Developer, Forest Carbon Offsets, LLC
Kipp Baratoff, Principal, Equilibrium Capital Group, LLC
Mike Hokenson, Managing Director, Minlam Asset Management LLC
Jon Koch, Managing Director, US Renewables Group
Ryan Waddington, Director, ZBI Ventures
Monday and Friday afternoons each week upon request.
Course Schedule Overview
Week 1
Week 2
Theme
Intro
Clean
tech
VC
Lecturer
Baratoff / Waddingt
Thoumi
on
/
Thoumi
Thursday
Mar 11
Mar 18
Homework Reading
Reading
and cases
Groups
decided
Week 3
Energy
Efficiency
Finance
Baratoff
/ Thoumi
Week 4
RE
Project
Finance
Koch
/ Thoumi
Mar 25
Reading
Apr 1
Reading
Week 5
Forest
Carbon
Week 6
Microfina
nce
Thoumi
Hokenson
/ Thoumi
Week 7
Portfolio
Students
/ Thoumi
/ Others
Apr 8
Apr 15
Apr 22
Reading
Reading
Reading
and
5- PPT
/ PPT
/
page
Paper
Paper to
paper
rough
instructor
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upon
with
theme
approved
by
instructor
one day
before
class by
email
due
draft to one day
instructor before
by email
class by
email
Week #1: Overview and framework
Instructed by Kipp Baratoff and Gabriel Thoumi, visited by Ryan Waddington.
Attended by Laura Berdish so as to introduce her role as research librarian and for student teams to
meet with her between class 1 and class 2.
Objectives
 To define impact investing and portfolio management
 To frame the investment continuum of opportunities in impact investment
 To understand the challenges and opportunities of impact investing
 To understand sustainability in the context of today’s investment vehicles and capital markets
 To provide an overview of the financial products / asset classes that will be discussed in each of
the remaining courses
Reading
 Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, by
David Swenson – Chapter 4: Asset Allocation
 Investing for Social & Environmental Impact, by the Monitor Institute. 2009
 Handbook on Responsible Investment Across Asset Classes, Boston College Institute for
Responsible Investment. 2007.
 Aggregating Impact: A Funder’s Guide to Mission Investment Intermediaries. FSG Social Impact
Advisors, 2007.
 Solutions for Impact Investors (2009 - RPA)
 Fortifying the Foundation: State of the Voluntary Carbon Markets 2009 (co-author Allison
Shapiro Erb ’12) http://www.forest-trends.org/documents/files/doc_2343.pdf (review)
 Forest Carbon Portal http://www.forestcarbonportal.com/ (review)
 Little REDD Book http://www.globalcanopy.org/themedia/file/PDFs/LRB_lowres/lrb_en.pdf
(read)
 Little Climate Finance Book http://www.globalcanopy.org/main.php?m=117&sm=224&t=1
(read)
Week #2: Clean tech / venture capital
Instructed by Ryan Waddington.
Objectives
Through class readings, discussion and a exploration of a series of case studies, students will investigate
the following questions, among others:
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How do venture capitalists decide what companies to invest in?
What makes cleantech a compelling sector for investment? What will drive cleantech in the
future?
How do investors integrate sustainability criteria into their decision-making process? Are
cleantech investors “sustainability” investors?
Are the most successful cleantech companies also the most sustainable?
Reading
Each of the following reports/articles should be read and students should be prepared to discuss in
class.
 Venture Impact Report and Venture Capital 101 (2009), IHS Global Insight
 US Venture Capital Index and Selected Benchmark Statistics (2009), NVCA and Cambridge
Associates
 Toward a Model of Venture Capital Investment Decision Making (1994), Vance Fried and Robert
Hisrich, Financial Management
 Clean Energy Trends 2004, Clean Edge
 Clean Energy Trends 2009, Clean Edge
 Clean Tech: Profits and Potential (2001), Clean Edge
 Earth, Wind and Fire: A Cleantech Perspective (2007), SVB Alliant
Case Studies
Case study materials will be made available a couple weeks before the class. Note that the list of
companies below is tentative.
 Altra Biofuels
 EnerNOC
 FirstSolar
 GreenFuel
 Mascoma
 Tesla
Websites
Please at least scan these websites and familiarize yourself with what is happening in cleantech.
 Bloomberg New Energy Finance – www.newenergymatters.com
 CleanEdge – www.cleanedge.com
 Cleantech Group – www.cleantech.com
 Greentech Media – www.greentechmedia.com
Cleantech Venture Funds
Please review the websites of these leading cleantech VCs, including their investment strategies and
portfolio of investments.
 Advanced Technology Ventures – www.atvcapital.com
 Altira Group – www.altiragroup.com
 Angeleno Group – www.angelenogroup.com
 @Ventures – www.ventures.com
 Battery Ventures – www.battery.com
 Braemar Energy Ventures – www.braemarenergy.com
 CMEA Capital – www.cmea.com
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Element Partners – www.elementpartners.com
EnerTech Capital – www.enertechcapital.com
Globespan Capital Partners – www.globespancapital.com
Good Energies – www.goodenergies.com
Khosla Ventures – www.khoslaventures.com
KleinerPerkins – www.kpcb.com
Lightspeed Ventures Partners – www.lightspeedvp.com
Mohr Davidow Ventures – www.mdv.com
NGEN Partners - www.ngenpartners.com
Nth Power – www.nthpower.com
RockPort Capital – www.rockportcap.com
Technology Partners – www.technologypartners.com
VantagePoint Venture Partners – www.vpvp.com
Week #3: Financing Energy Efficiency
Instructed by Kipp Baratoff and assisted by Gabriel Thoumi.
Objectives
 To provide overview of energy efficiency opportunity in the US
 To understand four financing mechanisms for energy efficiency
o Property Assessment Clean Energy (PACE)
o On-bill financing
o Performance Contracting
o energy efficiency Power Purchase Agreements
 To explore how to create a financial product for the mainstream capital markets capable of
scaling energy efficiency to its full market potential
 To understand energy efficiency in the context of impact investment
Reading
 Berkeley First program: http://www.ci.berkeley.ca.us/ContentDisplay.aspx?id=26580
 Property Assessed Clean Energy: http://www.renewfund.com/
 Unlocking Energy Efficiency in the US Economy, by McKinsey & Co. 2009 – (the Executive
Summary)
 Rebuilding America: A National Policy Framework for Investment in Energy Efficiency Retrofits,
by Center For American Progress. 2009
 A Survey of the U.S. ESCO Industry: Market Growth and Development from 2000 to 2006, by
Hopper, et al. Lawrence Berkeley National Laboratory. 2007.
 City of Portland’s Energy Efficiency Conservation Block Grant (EECBG) Application – 2009
 eePPA – [will be white paper if published by then or PPT] 2010
Week #4: Renewable Energy Project Finance
Instructed by Jon Koch and assisted by Gabriel Thoumi.
Objectives
 Provide overview of private equity market landscape focused on renewable energy
a. Market Drives
b. Funds
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c. Limited Partners
Project Development Process
Renewable Energy Project Finance
Deal Process and Agreements
Case Studies
Readings
Links to reading assignment to be provided in advance of class.
Week #5: Forests and climate
Instructed by Gabriel Thoumi.
Objectives
This class is an introduction to the forest carbon markets instructed by Gabriel Thoumi. Students will
need to come to class having read the materials and with a deliverable of a financial model assessing the
internal rate of return on the Tasmania project including non-timber forest products, timber, hunting,
carbon, water quality rights, grazing, and feed. It is expected that the students will incorporate the
financial accounting analysis of the Thoumi / Haller paper in their financial models. From this point,
students will be introduced to the forest carbon offset asset value chain. Other topics such as forest
carbon offset asset insurance, biodiversity offsets, nutrient trading rights, and species banking will also
be discussed.
Given that this is a growing sector, exceptional and dedicated students may be assisted with obtaining
industry relevant internships and publishing opportunities.
Readings
 Voluntary Carbon Standard AFOLU Guidance (http://v-c-s.org/docs/Guidance for AFOLU
Projects.pdf)
 http://www.markitenvironmental.com/market.php
 Bank
of
New
York
Mellon
Global
Environmental
Markets
platform
(http://www.bankofny.com/CpTrust/data/GEMinsert.pdf)
 Climate,
Community,
Biodiversity
Standards
(http://www.climatestandards.org/standards/pdf/ccb_standards_second_edition_december_2008.pdf)
 Reducing Carbon Emissions by Protecting a Native Forest in Tasmania project design document
(http://www.climatestandards.org/projects/files/tasmania/REDD_Forests_CCB_PDD_FINAL_071609.pdf) (partially
written
by
Thoumi)
and
validation
report
(http://www.climatestandards.org/projects/files/tasmania/CCB_REDDForests_RPT_ValidationReport_071709.pdf)
 Financial accounting for forest carbon offsets asset research paper by Talitha Haller (MAcc ’09)
and Thoumi (http://news.mongabay.com/2009/1116-haller-thoumi_forest_carbon.html)
 http://www.scscertified.com/nrc/index.php
 http://www.rainforest-alliance.org/climate.cfm?id=international_standards
 Species Banking http://speciesbanking.com/
 Nutrient Trading Rights http://www.nutrientnet.org/trading.cfm
 Ecosystem Marketplace http://www.ecosystemmarketplace.com/
 Mongabay http://www.mongabay.com/
 Business and Biodiversity Offsets Program http://bbop.forest-trends.org/
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ForestRe, insurance and reinsurance for forest carbon and tree crops
http://www.forestre.com/main.php
State of the Forest Carbon Markets 2009: Taking Root & Branching Out
http://www.ecosystemmarketplace.com/pages/dynamic/article.page.php?page_id=7415&secti
on=news_articles&eod=1
Additional resources (many more than those listed)
 Easy Steps to Developing a Forestry Carbon Project with Gabriel Thoumi, Senior Business
Development Manager Global Forestry Director, MGM International (http://netimpactissues.org/issues/?p=182)
 Emeralds on the Equator: An Avoided Deforestation Carbon Markets Strategy Manual by
Thoumi
–
in
English,
French,
Indonesian,
Portuguese,
and
Spanish
(http://news.mongabay.com/2009/0122-thumi_avoided_deforestation.html)
 Climate Change and Forests: Emerging Policy and Market Opportunities by Toby Janson-Smith,
Ross MBA ’96 and others (on reserve)
 Stabenow Amendment
 Climate
Action
Reserve
Forest
Protocol
(http://www.climateactionreserve.org/how/protocols/adopted/forest/current/)
 Forests and Climate (http://environment.yale.edu/tfd/dialogues/forests-and-climate/)
 BioCarbon
Fund
(http://wbcarbonfinance.org/Router.cfm?Page=BioCF&ItemID=9708&FID=9708)
 Forest Carbon Partnership Facility (http://www.forestcarbonpartnership.org/fcp/)
 UN REDD (http://www.un-redd.org/)
 United Nations Forum on Forests (http://www.un.org/esa/forests/)
 Carbon
Fix
Standard
(http://www.carbonfix.info/chameleon//outbox//public/55/CFS_Brochure_PDF.pdf)
 Voluntary Carbon Markets: An International Business Guide to What They Are and How They
Work by Ricardo Bayon et al. (on reserve)
 Strategic Innovation: New Game Strategies for Competitive Advantage by Allan Afuah, Ross
School of Business (on reserve)
 A Field Guide to Conservation Finance by Story Clark (on reserve)
 Walden to Wall Street: Frontiers of Conservation Finance by James Levitt (on reserve)
 Conservation Finance Handbook by Kim Hopper & Ernest Cook (on reserve)
 Investing in Nature by William Ginn (on reserve)
Week #6: Microfinance and Its Development as an Institutional Investment Opportunity
Instructed by Michael Hokenson and assisted by Gabriel Thoumi.
Objectives
 To grasp the financial and extra-financial characteristics of microfinance and BoP investment
activity;
 To comprehend the arc of development and the spectrum of financing in microfinance from
subsidized to commercial investment;
 To understand how microfinance investment vehicles (MIVs) can fit into modern portfolios; and
 To explore the future of microfinance investment activity.
Reading
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Read Commercial Returns at the Base of the Pyramid by Michael Chu, Harvard University, 2007
Read The Time Is Right for U.S. Institutional Investors, Susan Salerno and Clara Lipson,
Microfinance Insights, Aug 2009
Read Microfinance Investment Funds: Analysis of Portfolio Impact, O. Oehri and J. Fausch,
Hochschuelle Liechtenstein, World Microfinance Forum Geneva, October 2008
Web research on Impact Investing and new developments in microfinance
Week #7: Integration into a portfolio - final presentations and research papers submitted
Instructed by Kipp Baratoff and Gabriel Thoumi, may be visited by other instructors.
Students present final class projects by PowerPoint to the class. Students will be expected to wear
business formal for their presentations. Each presentation will be a maximum of 20 minutes, edited for
English, formatted professionally, and 20 minutes long. If presentations are shorter than 18 minutes and
longer than 21 minutes, the presentations will have their grades decreased.
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Biographies
Ryan Waddington, Director, ZBI Ventures, Erb MBA / MSc ‘99
Ryan is a Director at ZBI Ventures, the private equity arm of Ziff Brothers Investments, LLC
(ZBI). ZBI is a multi-billion dollar private investment firm that manages the assets of the Ziff
family, formerly of Ziff-Davis publishing. ZBI Ventures invests in energy assets and
technology companies with a primary focus on unconventional oil and gas, biofuels, solar
and other carbon-favored energy sources. Before joining ZBI, Ryan was Director of Venture
Services for NextEnergy, a non-profit corporation founded to advance the alternative energy technology
industry in the State of Michigan . There he developed and managed Michigan's only business
accelerator program and seed fund focused exclusively on alternative and clean energy technologies.
Prior to joining NextEnergy, Ryan spent over six years at DTE Energy Company (NYSE: DTE) where he
identified, evaluated and managed clean energy technology investments in DTE Energy's $100 million
corporate venture capital fund (DTE Energy Ventures), as well as managed several advanced energy
technology demonstration projects. Ryan has also worked as an environmental engineer, and cofounded a start-up company, GetOutdoors.com. Ryan earned a B.S. in Aerospace Engineering from the
University of Michigan and an M.S. in Civil and Environmental Engineering from the University of
Wisconsin. He also earned an MBA from the Ross School of Business at the University of Michigan,
where he participated in the Erb Institute for Global Sustainable Enterprise. Ryan currently serves on the
Board of ZBI Ventures' portfolio company Advent Solar and the External Advisory Board for the Erb
Institute. Ryan has lectured and taught courses on energy and energy technology at the University of
Michigan.
Jonathan Koch, Managing Director, US Renewables Group, Erb MBA / MSc ‘96
Jonathan is a Managing Director and co-founder of the Firm, and is based in New York. Prior
to joining USRG, Mr. Koch was COO for Visible Path, a Kleiner, Perkins, Caufield & Byers
funded application service provider. He was the founder and CEO of Sundial, a leader in
provisioning utility services online. Sundial was acquired by Essential.com, an early entrant
into retail power marketing and telecommunications, and later sold to InPhonic (NASDAQ:
INPC). Prior to founding Sundial, Mr. Koch was a Business Development Manager at General
Electric Power Systems (“GEPS”). Prior to GEPS, Mr. Koch spent more than five years with Booz, Allen &
Hamilton consulting on large M&A transactions in the energy and life sciences sectors and advising the
Environmental Protection Agency (“EPA“) on policy issues in the Superfund, Clean Air and Drinking
Water divisions. Mr. Koch holds a joint MBA and MS in Resource Policy from the University of Michigan
and a BA from Tufts University.
Kipp Baratoff, Principal & Founding Member, Equilibrium Capital Group, Erb MBA / MSc ‘07
Kipp has charted a professional career at the intersection of finance and sustainability for
over a decade. He joined Equilibrium Capital Group in late 2007 to help establish the
investment firm focused on growth equity investing and financial product innovation in
sustainability. Currently working in an operating role, Kipp serves as President of Gerding
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Edlen Sustainable Solutions (GESS), a wholly owned subsidiary of the Equilibrium portfolio company,
Gerding Edlen Development, Inc. – the leading green building developer in the United States. GESS is a
resource efficiency company that provides comprehensive retrofit services to large institutional public
and private real estate portfolio owners. Prior to Equilibrium, Kipp worked at two leading emerging
market public purpose investment funds (Acumen Fund and E+Co) pioneering innovative debt and
equity financings to achieve sustainability and poverty alleviation in developing countries. At Cambridge
Associates, LLC, in addition to specializing in all aspects of portfolio monitoring, planning and investing
for several large universities and pension plans’ dedicated private equity programs, Kipp spearheaded
the firm’s initial research in clean energy venture capital in 2004 and helped advise a large U.S. pension
fund with a $250 million allocation to clean technology. Kipp is a CFA charter holder, earned his B.A.
from Wesleyan University, and attended the University of Michigan where he earned an M.B.A. from the
Ross School of Business and an M.S. Environmental Science from the School of Natural Resources &
Environment.
Michael Hokenson, Managing Director, Minlam Asset Management, Erb MBA / MS ‘05
Michael Hokenson is Managing Director - Marketing and Co-Founder of Minlam Asset
Management. Mr. Hokenson has been involved with emerging market entrepreneurial
ventures and the microfinance industry since 1997. He has been published on the
profitability of microfinance institutions in The Fortune at the Bottom of the Pyramid by C.K.
Prahalad. Mr. Hokenson graduated from the Erb Institute of Global Sustainable Enterprise at
the University of Michigan, earning an M.B.A. at the Stephen M. Ross School of Business and a M.S. in
Environmental Science at the School of Natural Resources and Environment. He received his B.A. in
Mathematics and Philosophy from St. John's College in Santa Fe, New Mexico.
Gabriel, Thoumi, Project Developer, Forest Carbon Offsets, LLC, Erb MBA / MSc ‘08
Gabriel provides global technical and commercial forestry carbon offset asset business
development consulting in the compliance and voluntary carbon markets, specializing in
forestry carbon credit design, implementation, and commercialization. He frequently
presents at conferences such as Copenhagen COP 15, International Emissions Trading
Association, Stewardship Network, and others. He also regularly publishes on technical and
business market developments in the forest carbon space. He is a member of The Forests
Dialogue (www.theforestsdialogue.org) having participated onsite in meetings in the Balkans, Nepal, and
Switzerland. He is also a trained forest auditor for Forest 3.1 and Urban Forest Protocols for the Climate
Action Reserve. He is on the Peat Rewetting and Conservation Voluntary Carbon Standard technical
review team and on the Jui Zhou China Panda Standard AFOLU technical review team. He has conducted
technical reviews of the climate changes bills in the U.S. Congress and was previously Global Forest
Director at MGM International, a subsidiary of Morgan Stanley. Gabriel has also worked at American
Express, Wells Fargo Institutional Brokerage and Sales and Correspondent Banking, and Intel
Corporation. He has a Graduate Certificate in Real Estate Development from the Taubman College of
Architecture and Urban Planning at the University of Michigan and speaks Indonesian and Spanish.
Gabriel graduated Phi Beta Kappa from the University of Maryland.
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