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For Anna Pinedo, a partner in Morrison & Foerster’s capital markets group, using her skills to structure a new social-impact security for non-profits was particularly rewarding. “I spend my time coming up with financial products for investment banks. And these days no one associates financial products with social welfare,” she says. “So it was very gratifying to apply financial engineering to something that does good.”
Litigation attorneys have long undertaken pro-bono work to fight injustices such as human rights breaches, but projects that harness the financial and transactional skills of corporate lawyers are rarer. As organisations tackling social and environmental problems embrace market-based tools such as green bonds and impact investing, this is changing.
Creating innovative financing mechanisms that help protect the environment or alleviate poverty demands the same skills lawyers use in their commercial work.
Ms Pinedo’s firm worked with NPX Advisors, an organisation established to find new ways of financing the activities of the non-profit sector. She points to one mechanism that already exists to tackle problems ranging from recidivism to poor school performance — the social impact bond, in which investors receive a return once social programmes have achieved their goals and generated savings. However, social impact bonds are structured as contracts rather than bonds. Only institutional investors can use them and they are tailored to individual social challenges, making them hard to replicate.
By contrast, the innovative instrument developed by Morrison & Foerster is a debt security that has interest and principal payments along with a pay-for-performance element, says Ms Pinedo. Donors that provide the funds — philanthropic institutions or government entities — agree to make payments when certain social or environmental goals are met.
This allows donors to see the effect of their investments and gives non-profits a more efficient way of accessing capital. “Everyone has incentives that are aligned,” says Ms Pinedo.
Another type of financial instrument created to serve a social purpose is the solar debt security that Hogan Lovells developed to help finance renewable energy companies providing affordable off-grid power products to people in rural areas of Africa. The security uses as collateral a pool of low-risk contracts: the service agreements of families using the products of BBOXX, a UK solar start-up.
In structure, it is similar to securitisation deals used in the US or Europe. However, implementing this in an emerging market added a layer of complexity. “It was taking classic securitisation that’s routine in the west and fitting it into the Kenyan legal context,” says Christopher Aidun, managing director of Persistent Energy Capital, an investor in early stage off-grid energy companies, which worked with Hogan Lovells on the debt security structure.
Corporate lawyers are well equipped to navigate legal complexity. “What’s great about a project like this is that this is what we do all the time,” says Emil Arca, a partner at Hogan Lovells who specialises in financial transactions in emerging markets.
However, as the social sector turns more often to market-based models, the lines are blurring between for-profit and non-profit activities. “What’s challenging for law firms is that the ABA [American Bar Association] definition of what’s pro-bono doesn’t fit a social enterprise that’s organised as a for-profit enterprise,” says Carl Valenstein, a partner at law firm Morgan, Lewis & Bockius. “There’s a lot of discussion around adapting [the ABA definition] to deal with impact investing, microfinance and things of that sort.”
As part of its social impact work, Morgan Lewis has advised on a housing microfinance fund for Habitat for Humanity, a non-profit home builder. The MicroBuild fund will provide loans to families to build or improve homes.
But while Mr Valenstein sees a need for more guidance on which entities can be considered for pro-bono aid, he believes social impact projects will become more prominent in law firm work: “These are big and sophisticated transactions . . . and they’re getting a lot of interest.”
US military: Challenges over roles of Sikh soldiers
As an American Sikh, Amandeep Sidhu, a partner at McDermott Will & Emery, has a personal interest working on a pro-bono engagement to stop the US Army subjecting Sikhs to special safety tests because of their beards and turbans.
“This issue was a dinner table conversation,” says Mr Sidhu, whose parents had always stressed the importance of public service. “That’s an important part of what it means to be an American, so to have that door closed to our entire community was always a point of contention.”
Mr Sidhu co-founded Sikh Coalition in response to the post-9/11 backlash against Sikhs, who were mistakenly associated with Islamist terrorism. The body has since aimed to prove that unshorn hair, beards and turbans do not have a negative effect on these soldiers’ performance.
The McDermott team decided lawsuits alone would not prove the most effective way to change the system. Instead, it embarked in 2009 on a campaign that has spanned Congressional testimony, lobbying, gathering letters of support and representing clients who could make the best test cases.
While the battle is not over, the US military recently introduced religious accommodations for those who serve. “It establishes a rule where, if an accommodation has been granted, it stays with them for the entirety of their career,” says Mr Sidhu.
He sees the work as contributing to a military in which everyone including women and transgender people can play a role.
He says: “It’s part of that continued trajectory to have a military where young American Sikhs coming out of school have an opportunity to serve their country without compromising their religious practice.”
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