Volume 2: Issue 5

In this newsletter, we have covered the how of governance, the how of goal setting, and the how of decision-making. Now let's explore how we finance the investments we want to make. For large corporates, there are typically three ways to finance investments:

Let’s break these out. For startups, equity is the only way to fund an innovation. In the ESG world, one should seek out funds that are ESG-specific, as traditional sources of capital are not likely to see the upside. Seek an investor or VC who sees the long-term benefit of the innovation, how it helps us be either at one with nature (environmental funds) or oriented to improving DEI (social funds). Here is a list of socially responsible venture funds.

 

Debt is normally available for companies who have positive cash flow and positive earnings, as even the most enlightened lenders need to get paid back. However, there are multiple forms of debt: venture debt (for startups), traditional long-term or short-term debt, lines of credit, project finance, and bonds. Look for a bank, such as BNP Paribas, with Bank of the West, that focuses on ESG projects. Keep an eye out for lenders who will lend at a lower rate or provide better payment terms because of ESG. Another interesting financing mechanism is something called Net Interest Margin, or NIM for short. We will cover this approach in detail at the INTEGRATE conference, but in essence, it is a way to invest in an ESG innovation that is self-liquidating.

 

For larger entities, cash flow is the most common project finance mechanism. Larger businesses are often raising debt and equity to strengthen their balance sheets. However, projects that are internally financed should look at ESG innovation over a longer timeframe and lower the risk factor, beta, in the CAPM model. This will allow you to finance more projects that meet the IRR and NPV requirements set by the capital committee of the Board of Directors or the CFO.  

 

There is much more to cover on this topic (Pillar 4 of our framework) and we will do so in-depth during our workshops at the INTEGRATE 2022 conference November 29, 30, and December 1 at Fordham University in New York City.

 

 

 

 

Hughey Newsome is the CFO of Wayne County, Michigan. He is a renowned executive in the public sector space with a proven track record in finance, administration, programming support and technology implementation. Newsome also has the capability to understand finance and technology in additional sectors, including financial services and manufacturing. He is working to help define how environmental, Sscial & governance (ESG) data and reporting will materialize in local and state governments. He has positioned himself to be “at the table” as ESG standards and norms are being developed for local and state governments in order to provide his perspective on such an important matter. Newsome also volunteers for causes he believes in, including nature conservation, environmental leadership, and establishing best practices in public sector finance.

ESG factors are integral to Thornburg’s investment process. Thornburg’s fundamental research framework fully integrates material ESG factors that can influence investment return and risk. In constructing portfolios our high-conviction approach is clearly demonstrated in the intense review of proprietary ESG criteria we employ on each security. Thornburg believes that environmental, social and governance (ESG) issues influence investment risk and return, and, therefore, we seek to incorporate ESG factors that materially impact the investment outcome within our proprietary fundamental investment process. 

 

To learn more about Thornburg, please click here.

 

Thank you to Thornburg for helping us put on this great event.