Impact Investing: The Next Big Thing?

Transcription

1 What is Impact Investing? Impact Investing: The Next Big Thing? Steven Ellis, CFA February 12, 2015 Investing for more than one purpose For both financial return and measurable, positive social/environmental impact Market rate vs. concessionary returns Also known as: Socially Responsible Investing (SRI) Sustainable or Green Investing Double or Triple Bottom Line Purpose Driven, Program Related, Mission Related, etc What is Success? One enduring version Who is on the bandwagon? To laugh often and much To win the respect of intelligent people and the affection of children To leave the world a better place To know that even one life has breathed easier because you have lived Ralph Waldo Emerson ( ) If you want to leave a mark on the world but are unsure of how to do it, I d say take a look. It is urgent that governments throughout the world commit to promoting a market of high impact investments I want to use our G8 Presidency to push this agenda forward David Cameron $1 billion commitment from the Gates Foundation What is Investment Success? My Journey towards Impact For a rapidly growing number of individuals and foundations: Investment Success Financial Return These investors seek to: Combine purpose and profit, Own assets that are aligned with their values, and Address the most challenging issues of our time. We call this impact investing.

2 " Evolution of the Industry 3 Stages s and 80 s: Negative Screening. Excluding unwanted firms or industries. (SRI) s and 2000 s: Positive (ESG) screens and shareholder activism. 3. Since 2007: Impact investing private equity & debt investments Muhammed Yunus accepting Nobel Peace Prize for work in microfinance in Bangladesh. Types of SRI & Impact Investments by Asset Class 1. Public debt muni bonds in schools, parks, hospitals, open space, water treatment, infrastructure 2. Private debt often in non profits, often credit enhanced. Solar projects, microfinance, sustainable agriculture, affordable housing, small business loans, domestic & intl. 3. Pay For Performance social impact bonds to reduce prison recidivism, improve health care outcomes, reduce chronic homelessness, etc. Bonds Equities 4. Public Stocks: With industry and ESG screens. 5. Private Equity: Social enterprises, renewable energy, clean tech, medical devices, educational technology, water purification, services to bottom of pyramid, 6. Real Assets: Wind and Solar farms, green real estate, timberland, sustainable agriculture, water treatment. Common Investment Exclusions Traditional: Alcohol, Gambling, Tobacco Weapons & Firearms / Genocide Nuclear power Animal Experimentation Emerging: Fossil Fuels / Mining Agribusiness/GMO's Big Banks / Insurance Companies Packaged & Processed Foods / Fast Foods Client specific choices Track Record of Public SRI Funds Deutsche Bank Meta Study, 2012 Aggregate Results of 56 peer reviewed studies 100% of studies found companies with higher CSR (corp. social resp.) and ESG ratings have lower cost of capital i.e. they are lower risk. 100% of studies found companies with high CSR ratings had financial outperformance. 89% of studies found companies with high ESG ratings had market outperformance. 85% of studies found companies with high ESG ratings had accounting outperformance. 88% of studies found SRI mutual funds had neutral or mixed results vs. market not significantly outperforming or underperforming. Sustainable Investing, Establishing Long Term Value and Performance, June 2012 DB Climate Change Advisors, Mark Fulton, et al. Environmental, Social & Governance (ESG) Positive screens for best in class performance considering: Environmental Factors: Energy Usage Hazardous Waste / Pollution Resource Conservation / Sustainability Social Factors: Treatment of employees & customers Treatment and expectations of vendors Community Service / contributions Governance Factors: Executive Compensation / Board Independence Women in Senior Management / On Boards Transparency / Legal problems / Scandals! Track #$%%&! record of MSCI KLD 400 (Domini) Index of # Socially '# ( ) & &" Screened &* * Large US Firms +,- './0 12 " Information Technology 22.8% Financials 15.5% Health Care 15.4% Consumer Discretionary 13.5% Consumer Staples 10.8% Industrials 9.2% Energy 4.4% Materials 3.2% Telecommunication Services 3.1% Utilities 2.1% dex_fact_sheet/msci-kld-400-social-index.pdf Sector Weightings of MSCI KLD 400 Social Index

3 Examples of (Private) Impact Investments Industry Size & Growth: SRI/ESG Investments Environmental: Alternative Energy (wind/solar/other) Clean Tech / fuel efficiency Land Conservation Organic Farmland Sustainable Forestry Green real estate (materials/efficiency) Natural products Social: Microfinance Banks Small/mid-sized companies in emerging markets Small/mid sized companies with social benefit in US Affordable housing Charter Schools Social Enterprise Investing with a Gender Lens Quality Senior Housing Medical Technology / Biotech $45 trillion. Assets managed by the 1,276 signers of the UN Principals of Responsible Investing. (G8 report) $13.6 trillion. Socially screened publicly traded stock & bonds approx, or perhaps 6-7% of private capital. (G8 report) $6.6 trillion. US SRI investments. 18% of professionally managed funds in US. Nearly 100% growth in 2 years, 1000% growth in 20 years. (2014 US SIF).?@ABCBDE FGHIIHJKLMNOPQKOMQP lmnoe RGOapHMGHc`O RSPQSMTSKKSM USKHMH VHGPQWXXHGKYQHNO :8;<=> fyqrsgic fygmypjp WaaOPPTSKKJMHQiTY[HQYI Sample Impact Investments ZGOOMWI[\Y ]SMYQ\YM^SPOTS_`GOOMSXXHaObIc`Pd esmomzisbyi^oyiwppoqp FYG`OQOcKJMHaH[YIbSMcP eygsmyfghnyqoghjhqi jikofhkbog gmqog[ghpowxxsgcybioksjphm` ^evesahyivhmymao TYINOGQVSJMcYQHSM ZGOOMbYapOG FGHjHMa LK[YaQWPPOQP VGHOMcP\H[RGHc`O These investments are examples only provided for educational purposes. These investments involve risk, are uninsured, and could result in the complete loss of capital. CCM is not making any investment recommendations. Consult with a qualified advisor before making any investment decisions. Private Impact Investments 2014 JP Morgan study of $46 billion at 124 organizations: s21% Microfinance s21% Financial services (excluding microfinance) s18% Other s11% Energy s8% Housing t8% Food & agriculture (expected to be fastest growing) s6% Healthcare (second fastest growing) s3% Information and communication technologies t3% Education s1% Water & sanitation Spotlight on the Market The Impact Investor Survey JP Morgan Social Finance, 2014 Close-up of an Impact Investment Friendship Bridge The Opportunity Ahead: The Great Transfer of US Wealth Microfinance loans to 22,000 women in Guatemala Non-profit with 25 Year history, Colorado office Grameen Bank model of group responsibility Strong educational component: business, health, human rights 3 Year loan, 4% interest, used to expand loan assets. Inside view of people and finances. This example provided only for educational purposes. Such investments involve risk, are uninsured, and could result in the complete loss of capital. CCM is not making any investment recommendations. Consult with a qualified advisor before making any investment decisions Boston College Study by John Havens & Paul Schervish Initially estimated at $41 trillion (from 2007 to 2062). Raised in May 2014 to $59 trillion. Largest in history. 70% of this is expected to go to women And of course to younger generations.

4 Gender Lens Investing: Women, Wealth and Impact Veris Wealth Partners Sept 2013 Companies with three or more corporate directors who are women (in at least four out of five years) outperformed those with no women on the board 1 : Return on Sales +84% Return on invested capital +60% Return on equity +46% Micro finance institutions that have more women clients have lower write-offs and lower credit-loss provisions (meaning they are better credit risks). 2 A 2009 study in Silicon Valley found that venture-backed companies run by a woman had annual revenues that were 12% higher, used an average of onethird less committed capital, and had lower failure rates than those led by men. 3 Gender Lens Sample Investments Publicly Listed: Pax World Ellevate Fund (pxwex) Barclays Women in Leadership ETN (wil) Nia Global Solutions (Domini S.M.A.) Calvert Foundation Win Win notes Microfinance: Root Capital Accion Friendship Bridge (local) Microvest Private Equity/Venture Capital: Incubators/Accelerators: Springboard Enterprises, MergeLane (local) Angel/VC Firms: Belle Capital, 37 Angels, Golden Seeds, Pipeline Fellowship 1.Catalyst, Lois Joy, et al, The Bottom Line: Corporate Performance and Women s Representation on Boards , Roy Mersland, et al, Women and Repayment in Microfinance, March Cindy Padnos, High Performance Entrepreneurs: Women in High-Tech, 2010, These investments are examples provided only for educational purposes. These investments involve risk, are uninsured, and could result in the complete loss of capital. CCM is not making any investment recommendations. Consult with a qualified advisor before making any investment decisions Gender Lens Investing: American College of Financial Services Study Research by Mary Quist-Newins 45% of American millionaires are women $25 trillion will be passed to American women by 2030 In 2030, women will control 66% of American wealth Facts about Millennials uyounger wealth holders are more socially and environmentally conscious. Bank of America reports that half of their high-net worth clients want to reflect their societal values in their portfolios, and the younger the age group, the higher the interest. uaccording to the 2014 Deloitte Millenial Survey, millenials believe business can do more to address society s challenges of resource scarcity (56%), climate change (55%) and income inequality (49%), and unearly 40% of GenX/Y millionaires give more than $30,000 annually to charity versus 6% of baby boomers. Gender Lens Investing: Harnessing the Power of the Purse-- Female Investors and Global Opportunities for Growth, 2014 Results from Global large scale survey of high net worth investors (over $500k of investable assets or over $100k income): 53% of women surveyed do not have financial advisors 67% of women surveyed feel misunderstood by their financial advisor 75% of US women under 40 do not have financial advisors 77% of women surveyed want to invest in companies with diversity in leadership 90% of women surveyed say making a positive impact on society is important The Times they are a Changin Rise of the Participation Age, end of the Industrial Age (Blakeman) The Age of Transcendence (Sisodia). People increasingly looking for higher meaning in their lives, The signature trait of those midlife and beyond who are not battling basic survival issues Employee and societal expectations are changing in a way that is transforming the very soul of capitalism.

5 Firms of Endearment by Wolfe, Sheth & Sisodia Cultural Characteristics Trends in Impact Investing Trust Authenticity Caring Transparency Integrity Loyalty Empowerment Consider the words affection, love, joy, authenticity, empathy, compassion, soulfulness, and other terms of endearment. Until recently, such words had no place in business. However, that is changing. Today, a growing number of companies including every FoE cited in this book comfortably embrace such terms. What Makes a Firm of Endearment? By Wolfe, Sheth & Sisodia, August 17, 2017 FT Press Gender Lens investing Fossil Fuel Free and Green Real Estate funds Sector funds: water, renewable energy, clean tech Improving technology clean tech, health care, poverty alleviation Democratization of Impact Investing to include smaller minimums Social Entrepreneurs / B Corporations Incubators like Unreasonable Institute & Global Social Benefit Institute (GSBI) Expanded use of ESG metrics and focus on corporate responsibility It Pays to be Endearing Investing in a Better World 1800% 1600% 1400% 1200% 1000% 800% 600% 400% 200% 0% Stock Appreciation 118% 262% 1681% S&P 500 Good to Great Firms of Endearment FOE Corporate Vision criteria: vbroader purpose than just wealth generation vdedication to servant leadership vemotionally intelligent leadership vcommitment to exemplary citizenship vrecognition part of interdependent ecosystem. Every investment has an impact. We help individuals, families and foundations align their resources with their deeply held values and convictions. We vet compelling investment options across asset classes and issue areas. We support the growth of impact investing through collaboration, education, and implementation. Firms of Endearment & B Corporations Embracing Stakeholders Firms of Endearment are defined by treatment of stakeholders: society, partners (vendors), investors, customers, & employees (SPICE) They have a purpose beyond wealth generation. Certified B Corporations have this same focus. (This certification is comparable to the fair trade or Leed certification for corporate social responsibility.) Advisors for Impact TM Potential network of firms interested in sharing resources and offering impact investing services Passionate, dedicated and sophisticated Investment professionals Deploying assets to generate both financial returns and positive social/environmental impact.

6 About Colorado Capital Management Our Firm: Independent Fee-only Advisors 15 Year track record Serve over 100 families and foundations Approaching $250 million in assets In the Community: A Certified B Corporation Contribute 5-10% of net income to nonprofits thru CCM Foundation. Provide pro-bono services to individuals and foundations. Provide volunteer leadership in our community, and beyond. Our Services: Portfolio Management Financial Planning Impact Investing Steven Ellis, CFA Steve is the president of Colorado Capital Management. He has 30 years of experience in the financial industry. His early work included teaching college courses in accounting and finance, consulting for a major accounting firm, and researching and acquiring investments as the chief due diligence officer of a national financial planning firm. Since 1989, he has managed large investment portfolios for individual and institutional investors. He is a Chartered Financial Analyst (CFA), holds a business degree from the University of Colorado, magna cum laude, and a masters degree from Cornell University. Steve heads up the firm s impact investing practice, and is passionately committed to this work. Steve is married, with two daughters, enjoys hiking, biking, skiing and tennis, and is very active in the community. He has served on the board and/or the finance/investment/allocation committees of the Allied Jewish Federation, Boulder Jewish Community Foundation, Boulder Jewish Community Center, Horizons K-8 School, Congregation Nevei Kodesh, 18 Pomegranates Seed Council and the Rose Community Foundation. He currently volunteers for Jewish Family Service and Friendship Bridge, is an angel investor with the Unreasonable Institute, and actively supports Teach for America and La Puente Home. Contact Info Colorado Capital Management 4430 Arapahoe Ave., Suite 120 Boulder, CO [email protected]