Hello, and welcome to the Legal Executive Institute Podcast. Today, we’re going to be talking about Impact Financing — How it works and how law firms can be involved. We’re speaking with Perry Teicher, a corporate attorney that serves on the leadership of the Global Impact Finance and Investment Group at Orrick, Herrington & Sutcliffe.
Legal Executive Institute: Welcome, Perry. Could you explain a bit what impact finance is and how it works?
Perry Teicher: Yes, I’d be glad to. The idea of impact finance is working with investors or companies that are particularly concerned about environmental and social impact as a core part of their investment strategy, so those that are intentionally trying to create that positive environmental or social impact, in addition to some type of financial return.
Legal Executive Institute: Is this an area that’s getting a lot of attention now, that we’re seeing some growth?
Perry Teicher: It is. The area has seen a lot of growth. There’s a number of different reasons for that. One is the idea of transfer of wealth from the older generation to millennials and associated generations. That’s anticipated to be one of the largest wealth transfers in history, if not the largest. As a number of studies have indicated, millennials have a particular concern for social and environmental impact, thinking about how can they use capital in a way that’s going to transform the world in a positive way, that’s going to address issues of inequality, issues of injustice?
I think there’s also a sense that traditional structures may not have solved many of the social problems or many of the environmental problems that the world is facing. You look at nonprofits, government programs, and business, and individually there’s still obviously lots of challenges in the world and thinking about what are new models to solve really difficult structural issues, impact finances, one tool to address that?
Legal Executive Institute: Given there’s such a personal commitment on the part of investors towards social justice and the environment, I would assume that the client selection process, who you’re looking at as investors and who’s becoming involved with these impact finance projects, that selection process is probably very key to success, how does that work? How does that selection process come about?
Perry Teicher: That’s a great question. Many of our institutional clients are interested in this space, and then there’s many nonprofits that are interested, and many new initiatives that are springing up. As we look at how and who we represent in this space, I think the idea is how can we support through this practice those investors that are looking at these really complex challenges and really complex problems and apply what we do as a firm, in general, but particularly target that at this space, at addressing what does a bond structure instead of a traditional municipal finance bond… how do you integrate the environmental aspects to that? That’s an example of the transaction that we did, and it requires thinking about some of these factors a little differently, adding on some considerations for integrating the environmental considerations into a payment structure, for instance.
Legal Executive Institute: Given the presence of social justice and the environment, I would guess this area’s also attractive for pro bono work. I know a lot of law firms like to use pro bono work. Is that true? Is that part of this impact finance picture, as well?
Perry Teicher: Pro bono is obviously really important in this space, in that, I think, particularly when nonprofits are starting new investment vehicles, are intentionally looking for below market returns as helping move forward this space or are choosing to build a company, where the founders are taking a below market salary or the investors are coming in at a concessionary rate, there’s a real role for pro bono there. I think nonprofits are exploring, what are alternative ways to be sustainable for their own internal operations? That’s not necessarily pro bono, but I think, in many cases, working with established nonprofit clients, who are doing really quality work, there’s definitely a pro bono role in their area.
Legal Executive Institute: If you look at law firms that may be looking at the impact finance area, whether to become involved or even to start up an impact finance group, as Orrick obviously has, what are the benefits for a law firm in this area right now?
Perry Teicher: I think one is firms want to be working with clients who are doing interesting things at scale, is my sense at least, and what’s happening in the impact finance space is meeting that directly, thinking about the massive amounts of resources and energy that’s going into climate adaptation and climate resilience funding, thinking about how to better address issues of systemic inequality; how to address issues of job training, retention, particularly for marginalized communities; how to engage and sell to and provide energy to consumers who are at the base of the pyramid, those who are making less than a dollar a day. These are really difficult challenges that require, in some cases, really complex structures, and require complex tax considerations and cross border issues. That’s compelling.
I think another piece is — I addressed this earlier — Millennials want to be involved with things that are meaningful, and not just millennials. I think people of all ages want to be involved with things that are meaningful, but in thinking about younger attorneys, they want to be involved with things that they, I think, can get their hands on and say, “I helped, even if in a little way, contributed to solving or helping move forward these issues.” Being involved in impact finance, impact investing, is one way that firms can, I think, market themselves to younger attorneys and demonstrate being a high-quality place to work, in a way that is genuine and that’s authentic, and that’s an important part of what makes up someone’s time at work. I think that both of those pieces are really important in why to do this.
Legal Executive Institute: Well, that makes sense. Certainly, firms making themselves more attractive to younger attorneys is a big issue. It’s a big issue, I think, a lot of law firms are dealing with now and how to best manage the challenges and the opportunities that millennial age attorneys present. As you described what you had just talked about, you mentioned several areas of law: private investment, structured finance, intellectual property. I could see all of those being touched on by impact finance projects and investments at a law firm, and a law firm having all these areas touching on impact finance. Is there a level of collaboration or cooperation that’s needed at law firms to be able to best serve these impact finance clients?
Perry Teicher: I think, similar to any other matter where that requires a cross-practice group or cross disciplinary set of skills, impact finance also requires that. It requires thinking about, in some cases, the charitable purpose of the investor or of the sponsor, thinking about the task considerations, looking at how to structure an appropriate capital stack for the type of investment, dealing with cross border issues. Then, also, and I think very importantly, being in the mindset to think about what are those intended environmental outcomes, or what are those intended social outcomes, and carving that into the transaction and not having that be secondary, but having that be something that’s really important for defining what success looks like for these investors.
Legal Executive Institute: If you’re a law firm considering entering into this area, in your opinion, what does the future of impact finance look like? What do you see happening, going forward in this area, especially for maybe a law firm or a legal service that’s maybe looking at this as a new entry? Where do you see this area going?
Perry Teicher: I’m really excited about what the future holds for this space, and I think that, increasingly, there’s going to be a convergence between what’s considered impact finance and impact investing in more traditional markets. You look at … BlackRock has a large sustainability practice. You look at many of the private equity funds that have a carved-out impact portfolio or that is distinct from but overlaps with emerging markets work. You look at just, I think, the awareness that new ways of thinking about capital to really achieve long-term sustainable financial outcomes in a changing world, and the introspection of that with what now is considered impact finance. I think there is just going to be increasing convergence, which is important in thinking about and providing good training and opportunities for people to be engaged in this space now.
Legal Executive Institute: It seems like an exciting sector to keep your eye on, going forward. I appreciate the chance to talk to you about this. Thank you so much for your time today.
Perry Teicher: It was my pleasure. Thanks for the opportunity.
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