AMDP Proposal Final

To: Clark Hansen, CEO, AMDP

From: Diana Zhao, R&D, AMDP

Date: March 1, 2019

Subject: Recommendation to invest in ResponsAbility

My suggestion for our next investment is ResponsAbility Investments, a Swiss financial enterprise that focuses on managing funds in microfinance and impact investing. The firm aims to support local communities by funding small businesses in developing markets while generating a return for investors. After extensive research, I have concluded that ResponsAbility's social values and performance make it a worthy consideration for our portfolio. In this memo you will find the following:

·      Definitions for our standards of investment evaluation

·      The background, financials, and ethics of ResponsAbility

·      Critical appraisals of ResponsAbility from industry sources

·      My final recommendation

Definitions

Triple Bottom Line (TBL)

TBL is a non-traditional framework for evaluating business performance through the three P’s:

·     People describes the human capital impact of the company, particularly within its labor practices and its interactions with local communities. The bottom line is that the firm maintains a mutually beneficial relationship with its consumers and stakeholders.

·     Planet refers to the environmental impact of the firm. A TBL company strives to preserve the natural environment through sustainable business practices.

·     Profit as defined under a sustainability framework is different from traditional financial profit. In conjunction with internal earnings, TBL profit also factors in the overall economic benefit the firm creates within society (Slaper).

Corporate Social Responsibility (CSR)

CSR can be described as a corporate ethic strategy (N. Malhotra). It is comprised of internal company policies that are intended to self-regulate and to evaluate the social, economic, and environmental impact of the business (Sheehy).

Social Enterprise

A social enterprise is an organization that is dedicated to maximizing their benefit to society through social, economic, and environmental impact—while producing a financial profit for stakeholders (Mathew). This structure creates sustainability by incentivizing social impact.

Carbon Footprint

Carbon footprint measures the total greenhouse gas emissions of an organization.

·     It cannot be exactly calculated due to data limitations, but is usually expressed as total amount of methane (CH4) or carbon dioxide (CO2) in a designated population (Wright).

·     It is important for corporations to reduce their carbon footprint because carbon emissions contribute to global warming and environmental imbalance.

·     Corporations can reduce their carbon footprint through energy efficiency and waste reduction, which also optimizes their supply chain.

Overview of ResponsAbility

Company Background

ResponsAbility was founded in 2003 and is one the world’s leading asset managers in the field of development investments. Their philosophy focuses on “mobilizing capital to invest in development and thus promote greater prosperity around the globe” (Company Profile). Their business model is similar to AMDP’s, but they provide an expertise in evaluating risk within developing countries. As an addition to our portfolio, they would give us access to new markets while diversifying our risk.

ResponsAbility is headquartered in Zurich but also has offices in Bangkok, Geneva, Hong Kong, Lima, Luxembourg, Mumbai, Nairobi, Oslo and Paris. They employ 240 people worldwide and manage $3 billion in assets, and they use these resources to drive economic development in three main business lines—agriculture, finance, and energy (Company Profile).

·      Agriculture—$249 million debt, $4 million equity invested

Billions of people around the world are dependent on agriculture, making this industry ideal for creating high investment impact. Financing agribusiness not only furnishes food and sustenance for developing communities, but also impacts productivity, sustainability, and local exports. Furthermore, agriculture is the largest sector within emerging economies and has a high potential for generating returns. ResponsAbility has a target net IRR of 15% for this business line.

·      Finance—$2 billion debt, $5 million equity invested

Developing markets are more likely to experience a lack of financial access. ResponsAbility attempts to address this issue by providing financial resources to establish scalable banking models within these markets. Since financial infrastructure is critical for economic growth potential, investing in this business line would create high social returns. ResponsAbility has a target return of 12-15% for this business line.

·      Energy—$348 million debt, $155 million equity invested

As underdeveloped markets are growing rapidly, they will create a substantial need for sustainable energy solutions. In fact, global energy needs will grow by over 30% by 2040, so energy efficiency and renewable energy is essential for our future. Green lending is the practice of issuing debt based on environmental criteria, and it is paving the way for this future. ResponsAbility has a target return of 12% for this business line.

Financials

ResponsAbility has demonstrated a high proficiency at hedging risk and uncovering opportunities, as evidenced by their strong financial performance. Their net income has increased from $13 million in 2010, to $38 million in 2017 (Audited Annual Report 2010, 2017)—almost tripling their profit within 7 years. That demonstrates a compounded annual growth rate of over 16.5%. Of course, profit is only one of their performance metrics. ResponsAbility has also consistently been increasing their invested capital by maintaining a low cash strategy, which means more invested impact. In 2017, they produced a 32% increase in debt and equity transactions from the previous year (Impact Report). Additionally, their funds have won multiple awards in recent years, which will be addressed later in the memo.

Ethics

In evaluating the ethics and values of ResponsAbility, I will refer to our previously mentioned investment standards. Their business model—which focuses on improving development in the agricultural, financial, and energy sectors of emerging markets—characterizes ResponsAbility as a social enterprise. They have generated significant returns for their investors while adhering to their mission of improving global prosperity. They measure their impact through the six Sustainable Development Goals (SDGs) promoted by the United Nations: basic needs, well-being, decent work, healthy ecosystem/resource security, climate stability, and markets/infrastructure/innovation. ResponsAbility has directed 100% of their invested capital into SDG-oriented projects (Impact Report), thus improving their Triple Bottom Line. They have also offset 100% of their carbon footprint emissions by sponsoring a forestry protection initiative in Congo, and an off-grid energy project in rural Burundi (Impact Report). I have had the pleasure of learning about emerging markets from ResponsAbility’s Head of Impact, Paul Bailey, who works hard to meet these impressive goals by maintaining and measuring the firm’s Corporate Social Responsibility.

Critical Sources

Neue Zürcher Zeitung

NZZ is a leading Swiss financial newspaper. Their “investment funds” supplement included a comprehensive performance review for Swiss retail funds in 2018. ResponsAbility earned a 1^st place in Commodities – Agriculture, a 2^nd place in Absolute Return Funds CHF, and a 3^rd place in Absolute Return USD Low (Mommartz).

Lipper Fund Awards

ResponsAbility was a 2019 winner of the Lipper Fund Awards for “Best Fund Over 5 Years” in the Absolute Return USD Low category. This award was received by one of their private debt funds focused on inclusive financing (ResponsAbility Manages).

Final Recommendation

I strongly recommend investing in ResponsAbility. Not only do they adhere to our investment standards, but they will also generate healthy returns that we could reinvest into other impactful projects. ResponsAbility boasts a variety of product offerings, so we have options in selecting our desired level of impact and risk exposure. This is a great opportunity for us to expand our social impact into global markets, while limiting the risks that come with working in developing countries. Most importantly, ResponsAbility is a company that shares our goals and vision for the future.

Works Cited

Mathew, P. M. "Social Enterprises in the Competitive Era". Economic and Political Weekly, 2018. 43 (38): 22–24.

Mommartz, Rochus. “Trend Barometer 2019.” ResponsAbility, ResponsAbility Investments AG, 2019, www.responsability.com/en/trend-barometer-2019. Accessed 8 Mar. 2019.

Sheehy, Benedict. "Understanding CSR: An Empirical Study of Private Regulation" (PDF). Monash University Law Review, 2012. 38: 103–127.

Slaper, Timothy F. and Hall, Tanya J. "The Triple Bottom Line: What Is It and How Does It Work?" Indiana Business Review, 2011. Spring 2011, Volume 86, No. 1.

ResponsAbility. Company Profile. Zurich, Switzerland: ResponsAbility Investments AG, 2018. https://www.responsability.com/sites/default/files/2018-01/responsAbility_Company_profile_2.pdf. Web. March 8 2019.

ResponsAbility. Impact Report. Zurich, Switzerland: ResponsAbility Investments AG, 2017. https://www.responsability.com/en/media/3015/download?delta=0#page=30. Web. Accessed 8 Mar. 2019.

“ResponsAbility Manages ‘Best Fund Over 5 Years.’” ResponsAbility, 2019, www.responsability.com/en/responsability-manages-best-fund-over-5-years.

ResponsAbility SICAV (Lux). Audited Annual Report, 31 Dec. 2010. Web. Accessed 8 Mar. 2019.

ResponsAbility SICAV (Lux). Audited Annual Report, 31 Dec. 2017. https://www.responsability.com/sites/default/files/2018-05/Annual_Report_esponsAbility_SICAV_31.12.17_EN.pdf. Web. Accessed 8 Mar. 2019.

N. Malhotra (of Stanford GSB); J. Dann. "Business Ethics Integral to Corporate Strategy, says Stanford's Malhotra". CBS News: 1 Jul. 2009. Archived from the original on March 18, 2017. 

Wright, L.; Kemp, S.; Williams, I. "'Carbon footprinting': towards a universally accepted definition". Carbon Management, 2011. 2 (1): 61–72. doi:10.4155/CMT.10.39.