PHBS team at the finals in Hong Kong. Raphael Thomas (left), Gianni De Bruyn (center left), Ann Tseng (center right), Seohee Choi (right)
On April 12, an investment innovation team from Peking University HSBC Business School (PHBS) took to the global stage at the finals of the Kellogg-Morgan Stanley Sustainable Investing Challenge in Hong Kong. Since the first competition in 2012, the challenge has quickly become the world’s premier graduate student contest for sustainable investing.
Each year, over 100 teams—all from the world’s top universities—conceive of an innovative investment instrument that would drive profits and sustainable development. Only 12 of the proposals are selected in the end. These finalists then present their investment vehicle to the judges in person for a chance to win the top honors.
The four team members, Gianni De Bruyn, Seohee Choi, Raphael Thomas, and Ann Tseng, understood the difficulty of earning recognition from the judges. Regardless, they were ready for the pivot from absorbing information in the classroom to real-world innovation and creation. The team consisted of mostly first-year MA students who hadn’t even completed the first semester of their studies. They knew they had much to learn and wondered what it would take to stand out.
Perhaps, their first competitive advantage was how global the team is. Gianni is from Belgium, Seohee is from South Korea, and Raphael and Ann are from America. Plus, of course, they are all now studying in China. Not surprisingly, diverse cultural backgrounds and the integration of a wide range of experiences and knowledge elevated their creativity.
Rising above the competition demanded an idea that the judges would immediately recognize as cutting-edge with positive impacts that would spread from a community throughout the world.
Living in China, then, became a second competitive advantage. There is no better place for a project to combine financial innovation and sustainability efforts to make a global impact. But, clearly, the language and relatively scarce amount of available research and information are barriers to overcome. As one team member, Gianni De Bruyn, put it, “If you can learn something about China, it makes it much more marketable.”
They already had committed themselves to put in the extra effort to learn something about China when they made it a new home. Now they could utilize the resources around them to overcome any barriers.
On January 8, PHBS held the Conference on Sustainable Finance. The international conference gathered leaders of the finance industry, distinguished researchers, and policymakers together for a series of keynote speeches and discussion panels.
The team was eager to understand recent innovations in sustainable finance and knew this was a golden opportunity. There was one guest in particular who seemed to speak directly to them.
Gianni recounted, “One of the speakers was the mayor of Bayannur in Inner Mongolia. He was promoting his city and what they are doing in regards to sustainable finance.” After hearing about the city’s desire to make sustainable infrastructure and industry advancements, along with their need for additional financial resources, the team saw a great opportunity. “We thought this is what we are looking for,” remarked Gianni.
After the talk, the team was slightly nervous and uncertain about how to approach a person like the mayor in such an informal manner. “We only have one member who speaks Chinese. She wasn’t sure if she should talk to the mayor,” Gianni explained. Seohee stepped in at that moment by literally pushing Ann into the mayor’s vicinity. It was the “simple push” the team needed laughed Gianni.
The mayor and the rest of the officials were extremely enthusiastic about working with a group of students from PHBS on their idea. Upon receiving the positive response from the mayor at the conference, the team knew Bayannur was the right target city for their initial investment plan. The next step was working together to draft the specific proposal for the city.
In February, while the rest of PKU students were enjoying the Spring Festival holiday, the team was hard at work. The proposal they were developing was a tax equity fund to support a cyclical economy and investment in biomass plants in Bayannur.
Their idea targeted the multi-national companies with especially high revenue which could be treated as taxable income. The team proposed setting up a tax equity fund set up by the city of Bayannur. If an individual or corporation invested in this fund they would receive multiple tax benefits, lowering their taxable income while also providing future returns. Through the investments, the city would get the added funds they need to build carbon-reducing biomass plants.
A tax equity fund was so innovative it had not been done in China before. Gianni explained, “We took that (tax equity) concept and modified it to fit the Chinese market. We used Chinese tax credits, the Chinese legal system, as well as changing some of the provisions in the contracts.”
The research required a massive time investment in both translating and interpreting mainland China’s tax laws and precisely detailing implementation in the local context of Bayannur. But if the research was accurate and the idea feasible they calculated huge potential impacts.
With a total investment size of around 13million USD, the plan would reduce CO2 emissions by 50,000 tons/year, the equivalent of over 11,000 cars being taken off the road. At the same time, the investment would be driving profits. They calculated target returns for the investment at 7%.
The team reached out to professors at PHBS and STL for their expertise on several key points. Gianni said they received unbelievable support. PHBS Dean Wen Hai acknowledged that their project was “a great opportunity” and Professor Chia-Shang J. Chu affirmed that PHBS “would do anything it can to help.” Dean Wen Hai and Professor Chu even helped arrange a trip to Bayannur so the team could get the information on the local context they needed. In addition, they also received guidance from Professor Chang Y. Ha and Professor Srinivasan Selvam, who acted as advisors and industry experts. The team remarked that their critical questions and grilling really pushed them to conduct more and more research to finally develop a well-rounded, working financial vehicle.
While in Bayannur, the team met with the mayor, city planners, and municipal officials to discuss developments in their proposal. The interest and cooperation they received amazed them. “I thought we would be lucky for a 20-minute conversation,” said Gianni. “But he (the mayor) spent more than 2 hours with us.” He expressed great appreciation for the opportunity: “We got to see how negotiations happen…We got to know the Chinese business model a lot better. It is valuable knowledge.” The details and understanding of the local context they received from the trip went into refining their prospectus for the final round of the competition in April.
The team was proud to be selected as finalists. Unfortunately, their trip to Hong Kong to compete for the top prize did not end in triumph. Even so, the team is confident they created a viable idea and presented it to many experts in the industry who validated it.
Gianni did not rule out that someone may implement the tax equity fund they outlined in the near future. It’s possible that millions in investments, the construction of biomass plants, and a huge reduction in carbon emissions results from their hard work. But, even if all of this doesn’t come to life, the experience itself was rewarding. “What we’ve learned through this competition in regards to finance in China… I don’t think we could have gotten it from a textbook,” he said. “What we learned in the classroom, we were able to apply that.”
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