Save The Blue Frog

Tag: business

  • The Emergence Of Catalytic Capital

    Are you a general impact investor or a catalytic capital investor?

    Have you noticed the new labels that are being attached to established sectors of the sustainability field? Resilience, for instance, now refers to risk management operations in the environmental sustainability sector. And Inclusion and Diversity (ID) is now a streamlined term for what was previously a major portion of Diversity, Equity, and Inclusion (DEI) programs.

    In the capital investment space, many are now utilizing the phrase catalytic capital to refer to a branch of the market. The word catalytic refers to the goal of employing investment capital to “catalyze” (or initiate) meaningful change. 

    But isn’t meaningful change the goal of all impact investments? Yes, and to a certain extent, catalytic capital simply refers to a rebranding of a longstanding branch of impact capital. While relatively risk-cautious impact investors tend to seek market-level returns that are commensurate with market-level risks, catalytic capital investors tend to accept below-market returns and greater levels of risk.

    Why would any one be attracted to lower returns and higher risk? It’s because catalytic capital investors tend to be more interested in jump-starting significant improvements in our environment, our society, and our economy. For instance, whereas a general impact investor may be content to allocate funds to a well-established utility company that offers generic renewable energy contracts, a catalytic capital investor may be more willing to invest in new transportation technologies that rely on miniaturized solar panels.

    Investors who require technical information about the catalytic capital market may wish to begin their research activities by perusing the general guidance of the Catalytic Capital Consortium (CCC). Interestingly, the CCC defines the mission of catalytic capital investors as the achievement of the United Nations Sustainable Development Goals (SDGs). Many traditional impact investors, of course, adopt precisely the same mission.

    For more advanced technical information, investors may need to review white papers and other specialized guidance. The Impact Finance Research Consortium of The Wharton School of the University of Pennsylvania, Harvard Business School, and the Booth School of Business of the University of Chicago, for example, has published a concise set of guidance titled Catalytic Capital in Impact Investing: Forms, Features, and Functions.

    Investors who fit the profile of today’s catalytic capital community have always existed within the impact investment market. Now that a new label is being attached to this community, financial professionals must become familiar with its evolving terms, definitions, standards, and other professional guidance.

  • Public Accounting Firms: The Impact Of Alternative Practice Structures On The Career Paths Of Young Professionals

    Following A Rotation Path

    Many sources are reporting that the Graduating Class of 2025 is confronting an uncertain employment outlook in the public accounting sector. Some sources are noting, for instance, that firms are expanding their use of AI to complete tasks that were previously assigned to entry level staff accountants.

    There are other explanatory factors, though, that may be contributing to the challenging nature of the current employment outlook. One such factor may be the continuing growth of private capital investments in public accounting firms. Many of these firms are adopting alternative (dual) practice structures, with one business entity focusing on traditional attestation (audit) work, and the other focusing on newer and more profitable advisory (consulting) work. The bulk of the private capital is often invested in the latter entity.

    That may create a potential misalignment between the firms and their newly hired staff accountants. On the one hand, staff auditing and tax positions have traditionally served as the basic training positions for recent accounting graduates to enter the profession. But on the other hand, because the new investment capital is focused on consulting activities, these traditional entry points do not necessarily prepare new hires for long term career paths in advisory services.

    What approach can address this concern? One solution may involve the development of career paths that initially place recent accounting graduates in attestation and tax positions, and that later rotate the young professionals into advisory positions. This policy would maintain the traditional role of staff audit and tax work as the primary entry point into the profession, while providing a subsequent career path into the growth areas of the sector.

    This rotational approach should also prove attractive to young professionals who are inclined to agree with the sentiment that “I only have to prepare a tax return 15 times to know how to do it. I don’t need to do it 15,000 times.” Indeed, an acknowledgement of the need for basic training is embedded in this sentiment. Nevertheless, an acknowledgement of the need for a more value-focused long term career path is embedded therein too.

    Are there concerns about this approach? Certainly, given that firms would be tasked with the burdensome responsibility of developing such employment programs. Likewise, student applicants who seek career paths in the profession would be expected to develop resumes that contain (both) assurance and advisory service expertise.

    Nevertheless, the approach does eliminate the potential misalignment between potential employers and prospective employees. As long as public accounting firms and young professionals can look beyond their short term employment needs, it should be possible to create such long term solutions to these career development challenges.