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Impact Investing Offers Opportunity to Wealth Managers

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by Robert Rubinstein, Chairman & Founder of TBLI Group.

I have had many conversations with private bankers who manage wealth portfolios, and they all lamented the difficulty of getting HNW clients interested in Impact Investing. They all recount to me the challenges they face in getting HNW clients to become interested in Impact Investing. I have heard this excuse hundreds of times. It is getting boring. This is what I tell them now.

“The reason you can’t seem to convince your client about ESG or Impact Investing, is because you are not good at getting buy in”.” It is hard to convince clients of a new product when you were selling them past products that were the new wonder middle. CDO’s.” “With that track record, it is hard to win back trust and it appears to the client that Wealth Managers are not fully committed. The Private Bankers all seem to live in fear of their clients. They don’t lead them but follow them. How can you engage with your clients, if you are afraid of them (afraid them leaving), you don’t understand values based investing, and you don’t engage with clients on Impact Investing (illiquid investments with a story) that would provide a sense of fulfilment, and you still operate in a ghetto of limited information. The best part is when Private Bankers all tell me “Clients are not interested in Impact Investing”. I laugh my head off. One even went so far as saying “none of our clients (100%) are interested in sustainable investments”. I never encountered anything that has 100% success or failure rate.

Client Engagement

Asset owners who meet with their wealth managers are often confronted with the comment “sorry your portfolio is down, because interest rates are so low”. That conversation is a dead conversation.

It is not inspiring, joyful, or interesting. The liquid part of the portfolio often represents 80-90% of the portfolio. So hearing that 80-90% of your portfolio is down because of low interest rates won’t put a spring in your step.

The part that represents a very small percentage of the portfolio, alternative investments or illiquid investments is the part where wealth managers can really engage, particularly the part called Impact Investment. If you look at the 10-20% of a client’s portfolio and within that you might find a razor thin part that could be considered “impact investing”. It is that tiny part of the portfolio that wealth managers can really engage with the client, and get clients passionate, excited, and most of all a feeling that the wealth managers made the client’s day. Isn’t that something to which to aspire.

It is refreshing to see that most Wealth managers are in one form or another starting to introduce clients to Impact Investing Product. Now instead of saying that the client is not interested, the excuse is there are no quality products at scale. Another fallacy. There are plenty of quality impact investing product at scale. Just need to start exploring other neighbourhoods, and not only your Bloomberg terminal.

You can’t find 100% of anything anywhere who believe the same, unless you are a private banker. How about waking up, smell the roses, engage with your client, gain some fulfilment, and get your bonus?

For the number crunchers who still need convincing.


Robert RubinsteinRobert Rubinstein, Chairman & Founder of TBLI Group.

TBLI-Building A Global Community of Values Based Investors

For the past twenty years, Robert Rubinstein, through the TBLI Group, has been instrumental in integrating Values Based Investing (VBI) into the culture and strategy of international corporate business and investment companies. He has worked tirelessly in raising awareness and creating money flows into ESG (liquid assets in Environmental, Social and Governance investments and Impact (illiquid assets in sustainability). The work is akin to farming and not hunting. Using what he calls the Shawshank Redemption approach vs the Wolf of Wall Street. Continuously chipping away at the system for 20 years to break through.

20,000 Investment Funds Rated for Sustainability

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Morningstar Head of Sustainability Steven Smit (right with glasses) and Morningstar Chairman and CEO Joe Mansueto. (Screengrab from video courtesy Morningstar)

By Sunny Lewis,

CHICAGO, Illinois, March 3, 2016 (Maximpact.com News) – Evaluating mutual funds and exchange-traded funds based on how well the companies they hold manage their environmental, social, and governance (ESG) risks and opportunities just became easier.

Based in Chicago, the publicly-traded provider of independent investment research, Morningstar, Inc., has just introduced the Morningstar Sustainability Rating™ for some 20,000 funds around the world.

“Given the widespread and growing interest in sustainable investing around the world, investors need better tools to help them determine whether the funds they own or are considering adding to their portfolios reflect best sustainability practices,” said Steven Smit, CEO of Morningstar Benelux.

Smit has been named Morningstar’s head of sustainability. He will be responsible for leading the company’s initiative to bring the new ratings and metrics to investors globally.

He says the goal is to create transparency and get to one global measure – a global sustainability standard for funds worldwide.

“Creating more insight into sustainability investing is a passion of mine and many others at Morningstar,” Smit shared. This initiative will help us better serve investors who place particular importance on incorporating ESG factors into their investment decisions.”

Morningstar has operations in 27 countries in North America, Europe, Australia, and Asia. The company offers investment management services through its subsidiaries, with more than US$180 billion in assets currently under advisement and management.

“Our Sustainability Rating and related metrics will provide investors with an ESG lens they can use to evaluate funds and, eventually, other managed products,” said Smit. “It’s not so much about what the fund says it does, but what it actually holds.”

Sustainable investing goes beyond the exclusionary approach of socially responsible investment, or SRI, strategies, say Morningstar executives. Sustainable investing is a long-term approach that incorporates ESG factors into the investment process.

Jon Hale, PhD, CFA, former head of manager research for North America, has been named head of sustainability research.

“Many investors are interested in sustainable investing but unsure how to put it into practice,” Hale said. “Our new rating makes it easier to compare funds based on their ESG attributes.”

“In that way, investors can better determine how to incorporate sustainable investing into their portfolios, or assess the extent to which their fund investments are upholding best sustainability practices,” said Hale.

Morningstar calculates the ratings based on the underlying fund holdings and company-level ESG research as well as ratings from Sustainalytics, an independent provider of ESG and corporate governance ratings and research.

Sustainalytics has been analyzing companies’ ESG performance and impact since its origin as Janzi Research in Canada in 1992. The company has since joined with other analytics groups around the world and now has offices in North America, Europe, Australia and Singapore.

To help investors compile a low-carbon portfolio, Sustainalytics offers an expanded suite of Carbon Solutions, which includes portfolio analytics, data and research. Increasingly, investors are aiming to better understand their portfolio exposure to carbon, to reduce this exposure and to implement low-carbon mandates.

The new Morningstar Sustainability Rating calculation is a two-step process.

First, each fund with at least 50 percent of assets covered by a company-level ESG score from Sustainalytics receives a Morningstar®Portfolio Sustainability Score™.

The Portfolio Sustainability Score is an asset-weighted average of normalized company-level ESG scores with deductions for companies involved in controversies over such activities as environmental accidents, fraud, or discriminatory behavior.

The Morningstar Sustainability Rating is the Portfolio Sustainability Score compared with at least 10 category peers, assigned in a bell curve distribution.

 

SustainabilityRating

Sustainability is indicated with globe icons. Funds can receive any of five Sustainability Ratings – Low, Below Average, Average, Above Average, and High. Low equals one globe and High equals five globes.

 

 

 

 

 

Funds can receive any of five Sustainability Ratings – Low, Below Average, Average, Above Average, and High. Ratings are indicated by globe icons. Low equals one globe and High equals five globes.

Of the 20,000 funds with Morningstar Sustainability Ratings, 10 percent received five globes, 22.5 percent received four globes, 35 percent received three globes, 22.5 percent received two globes, and 10 percent received just one globe.

“Some firms say that they invest according to sustainability principles, but it’s been hard to verify,” Hale explained. “Now investors can draw their own conclusions, using an independent, robust check of that claim that’s based on comprehensive analysis of a fund’s holdings.”

Morningstar will update Portfolio Sustainability Scores when it receives new fund holdings data and will base them on the latest company scores from Sustainalytics.

Morningstar will update the Sustainability Rating each month using the most recent Portfolio Sustainability Scores.

Morningstar’s first analysis of the ratings shows that funds with explicit sustainable or responsible mandates are generally practicing what they preach. But Morningstar notes that such funds make up only about two percent of the fund universe.

Two out of three funds with explicit sustainable or responsible mandates received the highest ratings, more than double the percentage of all funds with Sustainability Ratings.

Morningstar Chairman and CEO Joe Mansueto said, “Sustainability research is the next big initiative at Morningstar. We’re incredibly excited about it. … We believe our new sustainability research will be good, not just for investors, but also for society.”


Award-winning journalist Sunny Lewis is founding editor in chief of the Environment News Service (ENS), the original daily wire service of the environment, publishing since 1990.

Fossil Fuels: To Invest or Divest – That Is the Question

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By Sunny Lewis

WASHINGTON, DC, January 21, 2016 (ENS) – The year 2015 was Earth’s hottest by widest margin on record, and in December 2015 the temperature was the highest for any month in the 136-year record, according to scientists with the U.S. space agency, NASA, and the U.S. oceanic and atmospheric agency NOAA.

Those who blame the burning of coal, oil and gas for this unprecedented warming are urging investors to pull their money out of fossil fuel companies and urging fossil fuel companies to reconsider their business activities.

This week, a group of investors led by New York State Comptroller Thomas P. DiNapoli and the Church of England demanded that ExxonMobil, the world’s largest publicly traded international oil and gas company, disclose the climate resilience of its business model.

The group of investors, including co-filers the Vermont State Employees’ Retirement System, the University of California Retirement Plan and The Brainerd Foundation, represents nearly $300 billion in assets under management and more than $1 billion in Exxon shares.

Their demand follows the Paris Agreement on climate change reached by 195 nations in December.

“The unprecedented Paris agreement to rein in global warming may significantly affect Exxon’s operations,” said DiNapoli, who is Trustee of the New York State Common Retirement Fund, the third largest public pension fund in the United States, with $184.5 billion in assets under management as of March 31, 2015.

The Fund holds and invests the assets of the New York State and Local Retirement System on behalf of more than one million state and local government employees and retirees and their beneficiaries. The Fund has a diversified portfolio of public and private equities, fixed income, real estate and alternative instruments.

“As shareholders, we want to know that Exxon is doing what is needed to prepare for a future with lower carbon emissions,” said DiNapoli. “The future success of the company, and its investors, requires Exxon to assess how it will perform as the world changes.”

The Church of England’s investment fund, the Church Commissioners, manages a fund of some £6.7 billion, held in a diversified portfolio including equities, real estate and alternative investment strategies.

“Climate change presents major challenges to corporate governance, sustainability and ultimately profitability at ExxonMobil,” said Edward Mason, the Head of Responsible Investment for the Church of England’s investment fund.

“As responsible investors we are committed to supporting the transition to a low carbon economy,” said Mason. “We need more transparency and reporting from ExxonMobil to be able to assess how they are responding to the risks and opportunities presented by the low carbon transition.”

ExxonMobil says “Society faces a dual energy challenge: We need to expand energy supplies to support economic growth and improve living standards, and we must do so in a way that is environmentally responsible.”

The oil and gas giant says it is relying on developing new technologies to reduce greenhouse gas emissions.

“We believe that carbon emissions will plateau and start to decrease starting around 2030 as energy efficiency spreads and as various carbon-reduction policies are enacted around the world,” ExxonMobil says in a position statement on its website.

“ExxonMobil leads in one of the most important next-generation technologies: carbon capture and sequestration (CCS). CCS is the process by which carbon dioxide gas that would otherwise be released into the atmosphere is separated, compressed and injected into underground geologic formations for permanent storage.

In addition, ExxonMobil says it continues to fund and conduct research on advanced biofuels. “This work is part of our many investments in new technologies with the transformative potential to increase energy supplies, reduce emissions, and improve operational efficiencies.”

Across Europe, the year 2015 was the second hottest on record, with mean annual temperatures just above the 2007 average and below the record set in 2014, according to an analysis by one of the World Meteorological Organization’s regional climate centers. Much of eastern Europe was exceptionally warm, with temperatures higher than in 2014.

The negative climate trend is expected to continue for at least the coming five decades, says WMO Secretary-General Petteri Taalas, who took office at the start of the year. He predicted a growing number of weather-related disasters and a continuing increase in sea level rise.

In the first global effort to avert the worst impacts of climate change, under the Paris Climate Agreement world leaders committed to holding the rise in global temperatures well below two degrees Celsius and to seek to restrict warming to 1.5 degrees.

The shareholder proposal filed by Comptroller DiNapoli and the Church of England’s investment fund asks ExxonMobil to publish an assessment of how its portfolio would be affected by a two degree target through, and beyond, 2040.

Specifically, the assessment should include an analysis of the impacts of a two-degree scenario on the company’s oil and gas reserves and resources, assuming a reduction in demand resulting from carbon restrictions.

Exxon’s peers, Shell and BP, have already agreed to disclose how they will be impacted by efforts to lower greenhouse gas emissions in response to similar shareholder proposals co-filed in 2015 by the Church of England and other investors and endorsed by the boards of both companies.

More recently, 10 global oil and gas companies, including Shell and BP, announced their support for lowering greenhouse gas emissions to help meet the 2 degree goal.

In addition, the global movement seeking to encourage investor divestment of fossil fuel stocks is gathering strength, says Brett Fleishman of the global climate action group Fossil Free, a project of the nonprofit 350.org.

“If it is wrong to wreck the climate, it is wrong to profit from that wreckage,” declares Fossil Free.

Fleishman cites a recent report (CISL_Report) by the University of Cambridge that details the material risk of climate change to investment portfolios. The report found that, “Short-term shifts in market sentiment induced by awareness of future climate risks could lead to economic shocks and losses of up to 45 percent in an equity investment portfolio value.”

The University of Cambridge report was not alone. The growing risk to the economy and investment funds because of climate change has been reported by the financial giants of the world – HSBC, Deutsche Bank, Standard and Poor’s, CitiBank and The Bank of England, among others.

The dire forecasts are already affecting investors. California’s pensions systems lost more than $5 billion on their fossil fuel holdings last year. The Massachusetts state pension fund lost $521 million in value from their fossil fuel stocks over the past year, a 28 percent decline.

Those major losses are advancing the divestment dialogue this year.

“While each [Fossil Free divestment] campaign is independently run and may bring different emphases and asks depending on their local context,” says Fleishman, the majority of campaigns are asking institutions to “immediately freeze any new investment in fossil fuel companies, and divest from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds within five years.”

AfricanCatholics

African Catholic groups associated with 350.org have called on Pope Francis to support the divestment movement.

In a December letter to the Pope they wrote, “Because of the grave threat of climate change and the fossil fuel sector’s unyielding refusal to change, it is no longer right for religious groups to profit from investments in such companies. We appeal for your support for the global divestment movement from the fossil fuel industry and to call for a just transition towards a world powered by 100 percent renewable energy.”

They felt that Pope Francis acknowledged their concerns in his speech to the United Nations Environmental Programme in Nairobi, where he stated that the Paris climate conference, “represents an important stage in the process of developing a new energy system which depends on a minimal use of fossil fuels, aims at energy efficiency and makes use of energy sources with little or no carbon content.”

Now, 350 Africa intends to broaden its sphere of influence to include divestment activists of all faiths, saying in December, “We need to change the idea that the climate change crisis is to only be tackled by environmental organizations. The recent resolution of the Anglican Church of Southern Africa to explore withdrawing their investments from companies that exploit fossil fuels, is an example of how faith groups can do their part in the climate movement through divestment.”


Award-winning journalist Sunny Lewis is founding editor in chief of the Environment News Service (ENS), the original daily wire service of the environment, publishing since 1990.

Header image: 2015 was the warmest year since modern record-keeping began in 1880, finds a new analysis by NASA’s Goddard Institute for Space Studies. The record-breaking year continues a long-term warming trend – 15 of the 16 warmest years on record have now occurred since 2001. (Image: Scientific Visualization Studio courtesy NASA Goddard Space Flight Center) public domain
Featured image: New York State Comptroller Thomas DiNapoli, April 2015 (Photo courtesy New York State Comptroller) Public Domain via Flickr
Image 01: African Catholics advocate for divestment from fossil fuel companies, December 2015, Nairobi, Kenya (Photo courtesy Go Fossil Free.org)

Donor Checklist Improves Odds of Doing Good

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By Christopher Purdy

Americans continue to be a most generous people, ranking Number 1 in the World Giving Index 2014, the only country to rank in the Top 10 for all three kinds of giving covered by the Index – helping a stranger (1st), volunteering time (5th) and donating money (9th).

In 2014, Americans’ giving to charitable organizations exceeded $350 billion, according to Charity Navigator, equivalent to 2% of Gross Domestic Product.

No doubt, that largesse does a considerable amount of good. But this generosity could have even more impact if prospective donors would consider a few issues before writing a check or punching in their credit card number. Here’s a checklist for prospective donors looking for outstanding investing opportunities in social good:

  • ___ Measurable Results and Transparency: Organizations should rigorously measure and report results that are transparently presented on a consistent basis by yardsticks such as contraceptive prevalence and maternal and child mortality. This ensures greater accountability and engenders trust by partners and donors. Look for an annual statistics recaps, like this example, on their website.
  • ___ Cost Recovery: The best programs mimic the best for-profit companies and recover a significant portion of their costs through revenues collected, and do so without sacrificing the quality of its services or the ability of poor people to use them. It’s important to ensure that programs are financially sustainable and have the financial health to endure beyond a donor’s gift. This article talks about the three steps to financial sustainability – cost recovery, cross-subsidization and profitability.
  • ___ Check Out Their Finances: Their audited financial statement and Form 990 should be easily accessible on their website. “Savvy donors ask the charity for copies of its three most recent Forms 990,” according to “Top 10 Best Practices of Savvy Donors” of Charity Navigator. “Not only can the donor examine the charity’s finances, but the charity’s willingness to send the documents is a good way to assess its commitment to transparency.”
  • ___ Entrepreneurial Spirit: Look for an entrepreneurial spirit where managers are empowered to use social marketing or others tools of the commercial marketplace to achieve a social purpose. This entrepreneurial tendency generally results in less bureaucracy and more focus on bottom-line health impact using the commercial infrastructure already in place.
  • ___ Decentralization: Look for a decentralized approach, ensuring that strategic and programmatic responsibility is delegated to field offices or employees on the ground. This allows for fast decision-making that is based on the realities of the environment. It also means fewer headquarters costs. DKT International, which I run, spends 2% of operating costs on a headquarters of less than 10 people; less than 0.2% is spent on fundraising.
  • ___ Domestic vs. International: Many people subscribe to the credo that “charity begins at home” and tend to favor domestic charities over international ones. Certainly, there are great needs in the U.S. But I believe that there are tremendous opportunities to make more impact with less money by donating to organizations working in developing countries. This article, “Your dollar goes further overseas,” explains this concept.
  • ___ Follow Up: Don’t just fork over the money and then forget about it. Check back a year later and see whether the organization has met its objectives, says GiveWell, a nonprofit dedicated to finding outstanding giving opportunities, in their “6 tips for giving like a pro.”

When giving to charity, following your heart feels good. Using your head and your heart feels even better.

Chris Purdy is CEO and president of DKT International. From 1996 to 2011, he served as DKT country director in Turkey, Ethiopia, and Indonesia, where he managed the largest private social marketing family planning program in the world.  He served as executive vice president from 2011-2013. His professional interests center on advancing the cause of social marketing for health and socially responsible capitalism.

Images: 123RF