Yale has Sorted it Out
Written by Kylee Chang (MEM’19)
I am Kylee Chang, a second-year MEM candidate expecting to graduate in May. At F&ES, I am studying industrial ecology and business and the environment. This year, I have learned immensely from my collaboration with both F&ES and SOM students on participating in the Kellogg-Morgan Stanley Sustainable Investing Challenge.
Since 2010, Northwestern University Kellogg School of Management and Morgan Stanley Institute for Sustainable Investing have been inviting graduate students from around the world to create innovative financial instruments that address critical social and environmental issues. This year’s competition received the most applicants yet: from 109 teams across 80 graduate schools in 50 countries. My team was chosen as one of the top 12 teams to fly to Hong Kong and present our idea to various impact-focused investors and Morgan Stanley’s clients.
Two years ago, I came to F&ES with a goal to communicate climate change to a broad audience, including policymakers and business people who are investing in more sustainable ideas. Therefore, as soon as I heard about the Kellogg-Morgan Stanley Sustainable Investing Challenge, I decided to participate in it and found a diverse team of four from F&ES and SOM, including Aaron Feng (MEM’20), Sonya Shen (MBA’20), and Clive Ye (MBA’19).
When my team was brainstorming ideas, I proposed to focus our investment prospectus on turning waste into a resource. We started conducting research and discovered that China’s Waste Ban was dramatically shifting the global recycling industry. Starting in early 2018, China banned the import of foreign waste to focus on its own recycling challenges. Prior to 2018, large amounts of recyclable material in China were imported from the U.S., Japan, and other developed countries. In China, the domestic recycling rate was only 48%. The policy change brought tremendous opportunities but we realized the industry was constrained due to a major bottleneck – sorting centers (supply chain figure below). My team was determined to propose a proven financial instrument – supply chain finance – to address the issue.
We started designing a fund aimed to release the bottleneck by providing loans to sorting centers that were capital constrained. We researched different types of investors, market rates and risks by reaching out to investors and professors both at F&ES and SOM. We received mentorship from professors, such as Dan Gross who teaches Renewable Energy Project Finance and helped us develop a tiered risk profile for different entrants for the fund. Kellogg and Morgan Stanley connected us with practitioners, such as Jason Mitchell, Co-Head of Responsible Investment at the Man Group in London, who helped us identify each investors’ concessionary to market return profiles. We also interviewed experts in waste management in China, industrial ecology, and environmental impact. The true work was when my team synthesized this knowledge into our final prospectus – the Sort It Out Recycling Fund.
Months of refining our prospectus were only the beginning. Julie Vance, one of the most helpful resources at F&ES, provided us multiple training sessions, teaching us how to present our ideas clearly and concisely. I realized in the startup and investment world, communicating ideas in a simple and digestible way is the most important skill. I have honed my presentation and public speaking skills in a way that classes could not prepare me for by participating in a high-stakes case competition like this.
Finally, the day of the competition arrived. At the Morgan Stanley office in Hong Kong, we met graduate students from all over the world from Chicago Booth School of Business to ESADE Business School in Barcelona to Singapore Management University. We also met over 50 investors and fund managers from The Rockefeller Foundation, the Asian Development Bank, and many more. The whole day was centered around impact investing and I was excited to be part of a community that was passionate about using finance to create environmental and social good.
That day, we gave our pitch to investors and other participating teams. Even though we were jetlagged from a 12-hour time change from New Haven to Hong Kong, we were ecstatic to present our fund that we had spent months of hard work on. During lunch, we waited to hear the results from the judges. Mid-bite into my Peking duck wrap, it was announced that my team had made it to the final four! Later that afternoon, we presented our pitch again in front of over 50 investors. In the final round, we received tough questions both around impact and financial returns. The final round showed us the rigor expected for the financial tools in this competition. Ultimately, we did not win the first place. We were deeply impressed with the hard work from winning team from Kellogg School of Management, who had already launched the first round of their fund.
Despite not winning, there were many invaluable lessons learned. Impacting investing requires the proper due diligence to prove real impact is generated while simultaneously meeting financial expectations for investors. My team was able to make it to the final four because we took an interdisciplinary approach to find a solution. We had diverse backgrounds and had different approaches and different solutions. Sharing our perspectives and listening to each other was necessary for us to reach the best solution. Coming out of this competition, I now have a finer eye for designing financial tools for impact. Additionally, participating in a global challenge gave me a broader perspective of international issues. I gained a deeper understanding of China and how it plays a role in the global economy. With graduation around the corner and as I move into my career, I know that I can rely on a global network of investors and students enthusiastic about using finance to make the world a better place.