Podcasts with Impact Advisors

In the T100 Launch Report, Toniic found that investors who are working with advisors are moving faster into impact than investors without advisors. Thus, in partnership with Heron Foundation, we have recorded and shared below five brief interviews with impact advisors of  Toniic 100% Impact Network participants. Learn more in our more detailed report with insights from 35+ advisors and consultants.

Click on the photos below to learn more about these impact advisors.

Brent Kessel

Abacus Wealth Partners

Service areas: Impact strategy, Investment Management, Philanthropy & Charitable Giving

Headquarters: Santa Monica, California

Size of organization: 11-50 employees

Years in impact advisory: 15-20 years

Website: abacuswealth.com/impact

“There are lots of resources that are getting scarce at an alarming rate and if we wait for business to take the signal from a pricing market, it may be too late.” – Brent Kessel

Hear more in this podcast facilitated by Heron in partnership with Toniic (9:55 minutes)

About This Podcast

Brent’s role as an impact wealth manager has given him a keen understanding of the interplay between many facets of the transition to more impact. These include coordinated tax planning, values and estate planning, liquidity constraints and rate of return requirements, so that helping the world doesn’t hurt your other financial goals. In this podcast, he shared how he navigates this spectrum with clients, as well as why he favors operational metrics over reputational ones, and why he believes impact investing will enjoy widespread adoption in the near future.

Brent and his team offer a number of services to individuals/families, foundations and financial advisors. This includes utilization of a “proprietary Impact Heatmap to show you which of your impact goals can be accomplished with specific investment opportunities.”

About Brent Kessel

Brent’s “why” to impact investing comes from a deep, active awareness of our interconnectedness and from a desire to create conditions for others to be successful, much like the favorable first-world conditions he himself was lucky to be born into. His professional life is a commitment to values alignment, both in himself, and in helping others realize that resonance in their own lives — in particular, by mapping values to investment opportunities.

Full Podcast Trancsript

TJ: This is Toni Johnson from Heron.org Soundbites. We are here today with Brent Kessel [Co-founder and CEO of Abacus Wealth Partners] and we’re here to discuss his work with members of TONIIC.

Hi Brent.

BK: Hi Toni.

We’re doing this as a joint project with TONIIC to really delve into some of the valued managers and advisers that work with TONIIC members. Can you talk a little bit about the types of impact services you provide and give a glimpse of your typical impact client and maybe thoughts on investors who may be way ahead of the curve on this?

BK: Sure, so the TONIIC members that we’ve worked with and the 100 percent network members we’ve worked with have hired Abacus to really do soup-to-nuts wealth management for them. So, that includes financial planning, tax planning – which actually has a big impact on how quickly they can migrate their portfolio from where it is to being 100 percent impact because taxes obviously play a part in that – estate planning, philanthropy, etc. and then the detailed impact strategy work that we do. The services of Align Impact are more specialized in impact consulting. A family office or a large foundation doesn’t need a personal cash flow projection and they don’t need insurance advice or some of the things that wealth management includes. So, for those we really focus much more on the kind of impact they want, their impact mission statement and how we align the investment portfolio and the grant portfolio with those values, with that mission.

TJ: What was the journey that got you into impact? Could you contrast it to any other work you’ve done in the traditional investing space? Was there a learning curve and how does it compare to a general rise in the market?

BK: I mean, there is definitely a learning curve and it never ever ends. I think probably one of the biggest things I’ve learned the longer I’ve been in this is that I used to think of social investing or responsible investing as binary – you either did it or you didn’t. And while there is some truth that maybe it’s binary if someone just has zero interest in it and is completely closed to it, once you open that door even a crack it becomes completely non-binary, it becomes a spectrum and it’s very iterative. So, you can always go further with how you define impact, with which of your resources you choose to measure, even if we are talking about all your philanthropy and all your investment assets then you might want to consider your consumption choices. Not that we give advice on that but it’s really never-ending and to me there is no pure definition of having arrived. Even 100 percent impact could be 100 percent Responsible using the definition that TONIIC provides, and you could go from that to having 50 percent Responsible and 50 percent focused on Impact First or Thematic Impact, which would be an increase in impact but it doesn’t get your total percentage under the impact umbrella to be any higher. It never ends.

I started in proactive private equity impact investment in 2004. We’ve made about 30 impact investments over those 12 years in all kinds of themes and all geographies. Probably two thirds emerging markets and one third US, really very little in Europe other than a solar investment that we did that actually turned out quite well. And then, before that, we did responsible investing in the public equity public bond space; we started that in the early 90s.

TJ: How do you decide what is or what is not an impact investment and thinking about the various rating systems [and] screening methodologies where do you land? Are there methodologies that you think are really great or some that you say are no go?

BK: Yeah, first of all I mean this is a big area where we need so much more attention and so much more improvement in the data that’s being collected and measured. We tend to favor operational metrics over reputational metrics. Our investment philosophy is quite quantitative, quite diversified and pretty disciplined. It doesn’t rely on much tactical moving around from sector to sector or asset class to asset class. As a result our approach to ESG investing in public equities and bonds is also quantitatively oriented and pretty rigorous and disciplined, so I’m much more interested in how do you measure the products, practices, services and supply chain behavior of a particular company using quantitative metrics. And I’m less interested in a story that a journalist happens upon about a particular company that is doing something wrong. I mean, often it’s those stories whether it’s about apartheid South Africa or sweatshop labor in Asia that lead to the development of quantitative data that can then be applied more broadly. So journalism is very helpful, useful and educational, but I don’t like it as a tool for portfolio construction and management.

TJ: Do you use research and other client services to help educate traditional investors? And do you help your client’s influence and outreach to expand the market?

BK: Definitely. I think the way this spreads is with storytelling and we use our quarterly newsletters for storytelling. The unfortunate part is that the human brain has very limited capacity to take on new material. If I can get our clients to remember one story a quarter, that’s great.

So, last quarter I told the story of a private equity investment we made called Fulcrum BioEnergy that is taking municipal solid waste, trash basically, and turning it into jet fuel and it’s been phenomenally successful in terms of the airlines’ interest in it and investment in it. And it’s a concept anyone can understand like, ‘oh wow we can take trash that is expensive to dispose of, a lot of it doesn’t degrade and instead of having to pay to dispose of it – pay both financially and environmentally to dispose of it – we can turn it into fuel at 85 percent less carbon footprint than current jet fuel and 60 percent lower cost so it’s a financial win, an environmental win.’ If I can get one story like that out a quarter, and we tend to do one story on the private equity side, one story on the public equity and public fixed income side, I think that spreads the message a lot. We have a pretty strong graphics team and I believe a picture’s worth a lot more than words. We try and share a lot of our educational content using graphics and not just pictures. The visual depiction of quantitative information is really fascinating to me and how you tell a financial story with pictures is important.

TJ: So you talked about using operational data and quantitative metrics. How closely are you tracking impact performance and do you align it at all with thinking about how the company is doing financially. If a company is going south how you do advise a client on whether to actively engage or whether to maybe think about divesting.

BK: It’s really up to the client. So we start with sort of strategic preferences and these vary by client. We are not a one-size-fits-all kind of business, we believe that impact is very personal so one person may say ‘yeah I want to own the bad actors in a number of industries and I want to be about engagement. I want to pledge my shares so that new shareholder resolutions come out.’ And one client may want to do that around gender parity and another client may want to do that around climate disclosure. The tools they want to use vary by client. What they use those tools to impact varies by client. The asset classes within which they want to act varies by client. The amount of time they have personally to engage with it varies by client. Some want to delegate it to us or to others. Some want to be very involved, go to the shareholder’s meetings, write the letters to management, tell all their friends and take it on as a personal cause. So we’re pretty agnostic as to which of those choices each client makes but we view our role as really trying to help the client get energy from their impact investing experience by tailoring it to what they love to do.

TJ: I just have one last question – impact investing seems to be gaining increasing momentum. Why do you think this is happening now and how does it relate to long-term economic trends?

BK: I think impact investing will not really be a term itself in some number of years – five years, ten years, something like that – because impact investing really is about identifying a problem and solving it with business and almost all business is predicated on that. You find a problem or a value you can create for people and you get paid for that. Another way to say it is, take resources and make something better out of those resources and then if you can take fewer resources to make that same thing, your profit margin goes up. That’s just kind of business 101, that’s not impact investing. So I think the role of impact investing is to point out the resources that are scarce that the general market doesn’t think are scarce yet. And say ‘hey, you’ve got to pay attention to carbon emissions, you’ve got to pay attention to clear-cutting rainforest for beef production, [and] you’ve got to pay attention to polluting water.’ There are lots of these resources that are getting scarce at an alarming rate and if we wait for business to take the signal from a pricing market, it may be too late. So in a way we are trying to forestall what business will pay attention to eventually, because if a resource gets ultra-scarce there will be more value to the business that figures out how to use that resource more efficiently. We’re trying to get ahead of the curve really, figure it out now because it’s clear to me that it’s going that way in lots of these different areas.

TJ: Thank you, Brent.

BK: Thanks Toni

TJ: From Heron.org, this is Toni Johnson.

Patricia Farrar-Rivas

Veris Wealth Partners, LLC

Service areas: Impact Investing, ESG Investing & Wealth Management

Headquarters: San Francisco, CA

Size of organization: 11-50 employees

Years in impact advisory: 10 years

Website: www.veriswp.com

“We bring our clients and others together to discuss how to create sustainable and inclusive economies.” – Patricia Farrar-Rivas

Hear more in this podcast facilitated by Heron in partnership with Toniic (15:51 minutes)

About This Podcast

Finding the impact bullseye

Since inception, Veris Wealth Partners has supported clients in aligning impact values with investing strategies. Patricia speaks to this process of integrated performance, how they learn from client’s expertise in thematic areas, and why the consequences of climate change, income inequality and more have fueled the momentum for impact investing in recent years.

Veris provides a wide array of services including, impact strategy, impact investing consulting for foundations, due diligence, building portfolios, and more. Veris tackles impact investing with the keen recognition that there is strong complementarity between financial performance and positive impact.

About Patricia Farrar RIvas

Patricia is driven to wield capital management as a tool for reducing inequality in the world — whether it’s gender, income, race, or other forms of systemic disenfranchisement. She believes that the more our investment portfolios reflect such a vision, the more equitable, profitable, and sustainable our world will become.

Full Podcast Trancsript

TJ: This is Toni Johnson with Heron.org. I’m here today with Patricia Farrar-Rivas, of Veris Wealth Partners, to discuss their practice in impact investing. Hi, Patricia.

PF: Hey, Toni. How are you?

TJ: Very good. So my first question has to do with the types of impact services that you provide. And maybe a glimpse for our listeners of a typical impact client, and if you have some clients that are way ahead of the curve that are pushing you on this, that would be great too.

PF: So we are a 100 percent devoted to sustainable, impact, ESG investing wealth management firm. So we offer impact strategy advice, and we offer that as an investment adviser. But we also consult to foundations that are moving to a mission-related investing or an impact investing strategy. We also provide due diligence in the sense that we’re constantly doing due diligence on both public and private managers. We don’t sell that information, but that’s part of our investment advisory services when clients are working with us.

We also do asset management, meaning we build portfolios, we’re manager of managers, we’re out looking for other fund managers and separate account managers that are out there actually doing the due diligence on the individual companies. We provide a certain level of impact reporting, understanding that this area of the field is growing and we’re still working on how we can do it as best as possible.

But we’re putting significant efforts into how do we actually have a performance report that includes impact that is not just a secondary aspect of performance but it’s integrated into performance. And right now a good deal of that we’re looking at all the companies a client invests in and getting anecdotal reporting in certain instances. In other instances we’re able to look at clients’ portfolios and say what percentage of your portfolio is dedicated to low carbon companies, what percentage of your portfolio is dedicated to companies that support gender lens investing – so that is definitely evolving.

And we also work with our clients to develop their impact investing policy and process, and give a level of philanthropic advice. So we will often bring in other philanthropic advisors too, depending on the needs of our clients. And we work with donor advised funds. So the full range of opportunities for our clients are also looking at what kind of decisions they’re making about how they’re structuring their philanthropic dollars and how that will work best for them to have that committed as much as possible, if not 100 percent, to impact investing.

It’s not unusual for us to have a client that has more expertise in a particular impact thematic area in an industry than we do. We are generalists looking for the best opportunities in multiple thematic areas. And so we tend to attract people that have a lot of expertise in that area. We also attract more women than men. It’s pretty balanced, but slightly more women than men. I think women often prefer to enter into the financial industry with conversations that are about the companies that they’re investing in, and the role they play in the world, versus looking at a set of statistics that are just purely looking at performance or correlation. Very early on in the divest-invest movement clients came to us and asked for a portfolio that’s as fossil-fuel-free as possible. And then also we have had very early movers in regards to building portfolios with a gender lens.

TJ: Great. So it’s interesting you said that you guys have been doing impact investing since inception. Could you talk a little bit more about why you got into impact investing? And any learning curve that you guys have experienced in comparison with how traditional investing works? And how does it compare with a general rise in the market in terms of all investing?

PF: So I would say that for the partners of Veris, and also probably for a number of our new wealth managers and employees, the financial services industry was our first learning curve. Before Veris, all of the partners were involved in other sustainable investing firms, or firms that were doing socially responsible investing. A number of our partners came to the financial services world to make change. We have backgrounds in social justice, environmental justice, and issues around inequality. So we came from that background seeing the financial services industry as an instrument to change the world. And recognizing that business and economies are a key driver in the end results of whether or not we’re going to be in a community that is sustainable and supports the individuals in that community, but of course also supports a healthy planet.

We have put a lot of energy and time into being skilled wealth managers because we bring a lot of the understanding of the issues that are underlying issues around impact investment. So whether it’s having expertise in housing and looking at issues around the evolution around green real estate, and whether that green real estate meets both issues around the environment but also meets issues around providing low income housing opportunities. So for us we have always come at it from that point of view.

I would say one of the challenges of the impact investing industry growth – I mean for us we moved from understanding environmental and social governance criteria to really having an analysis around sustainability, which, believing that there are suitable business models and that sustainable business models, we believe, over the long run are going to perform better than business models that don’t take into account sustainability issues, to really moving to the challenge of understanding every investment you make has an impact.

Everything has an impact. It’s not always a good impact. And we’re seeking good impacts. And in seeking good impacts – and I think this is a challenge for us and all of the industry – there is not always a complete agreement on what is a good or what is a bad impact. As you move from a carbon economy to a low carbon economy, what’s the best route to get there? As generalists it’s important that we’re staying up to date on what’s evolving there. Because we get challenged, which we love, we are constantly challenged by our clients. Because as I said, many of them know more about these issues than we do. So we always want to be on top of that so that we have the information – we know what is available in the landscape of impact investing. And we understand or seek to understand the best we can the differences, and how the theory of change of that impact investment is going to align with the theory of change with our client’s theory of change. And that’s a real evolving challenge.

TJ: So when you’re thinking about impact investments how broadly do you decide what’s an impact investment or not. Particularly with public equities, where do you land on the screening methodologies and how does it fit into your practice?

PF: So I like to think about the bulls eye. And it varies from client to client. So our job is to understand the impacts our clients want to have, then understand with each investment, whether it’s a fund or a manager, we don’t do direct investments into companies, but an investment process for that fund and manager, whether there is real rigor in it. And so we’re not saying this is a good impact, that is a bad impact, we’re saying these are the range of impacts.

We wouldn’t want to invest in something that we felt that the process that they’re using, and identifying whether or not a company has strong environment or social governance practices – if that was weak we wouldn’t go with them and then consider them to be light impact. Right? We would consider light impact something where they’re taking from a rigorous point of view a broader approach to what’s having impact. So that could be in the public markets and the way they’re looking at sustainability.

You could say a manager that’s saying we believe companies that have impact are those companies that take sustainability issues into account and are looking at all of these issues within a company and therefore they have really high quality management. And although there may be some products and services that are not impact products, that company as a whole is really moving forward in a sustainably-minded way, and we believe that they could have really broad impact across an industry in a particular area. But we would be able to look at that and discuss that with a client. That might be too broad for them. They may want to be saying, I’m gonna allocate a portion of my portfolio in this really high impact. And so we have to balance that with what is the portfolio doing for the client. Is this a portfolio that they live off of? Is it a foundation that they have to produce five percent a year for? How do we meet those with what is available, what products are available within the impact area they are interested in.

Most of our clients have kind of a broad approach to impact. So it includes environment and community and health and poverty alleviation and women’s issues. And so there’s a broader set of opportunities that are impact opportunities. Our job is to say these are the ones that we feel are highly aligned with you, these are the next tier out, these are the ones that are going to have broader impact but, yes, are moving the industry forward in a positive way. Maybe these are the ones on the outside that you’re really just looking at environmental and social and governance criteria, maybe doing some shareholder engagement for your impact. So we see shades of impact and try to align that with clients’ goals.

TJ: As a service do you use any kinds of research or other services to help your clients educate more traditional investors?

PF: So we have services versus use-services. I mean we do participate in conferences. We do participate in putting out thought pieces. We do blogs. We send those to our clients and hopefully encouraging them that they will send those to other folks. And those blogs are papers, and when we’re speaking at conferences are often educational, so not sales presentations. They’re education about what’s happening in regards to how do you build a low carbon portfolio, how do you build a gender lens portfolio, what is SASB doing. The Sustainable Accounting Standards Board. So we’re part of – member of Confluence, I sit on the Sustainable Accounting Standards Board Standards Council.

We all across the firm participate in different local opportunities. We interact with our clients and engage with them to help build impact investing. Having our clients attend conferences that are gonna support them, whether it’s for foundations or families, or around a specific thematic area. We also do discussion meetings. We’re doing one called the uncommon conversation right now, bringing our clients and other people together to talk about the issues of how do we shift culture to be able to create a transition society to address issues of inequality. So we use every tool that is out there that is possible as a way for us to be out there in the world, but also inviting our clients along with that.

TJ: So how closely do you track impact performance? If a company is going south on impact, maybe it’s doing okay even financially, how do you work with clients on whether to actively engage or divest?

PF: So for us it would not be a specific company, it would be a manager and a fund. We are looking at the underlying holdings in that manager fund, and it could be public or private, and we are talking to our clients about what is in that portfolio. We talk about what the expectations are going into the portfolio. We have clients from an alternative energy point of view and they may have specific concerns. Maybe they don’t want to be investing in wind because they have concerns about issues with animal rights. Therefore we’re really trying on the front end to kind of tease out all of the main impact concerns for our clients. And so going into it they know whether that matches their impact concerns.

Now, on a broader level if we continue to look at a manager fund and continue to see issues – generally we’re not going in there in the first place, but if a manager changes their strategy we’re looking at the underlying companies they’re buying and constantly seeing does this meet our sense of what the manager was intending to do, what their mandate is from an impact point of view in the first place. And we will terminate managers because of their impact approach.

And it happens more on the public side than it does on the private side. On the public side we’ve looked at funds that were considered to be environmentally sustainable index funds for example, and you look and go, oh my goodness, they own so-and-so. Why do they own this? And you meet with managers and you have this criteria. Why is this here? There may be reasons that they think they’re doing in regards to engagement, and we will see whether or not we really think that that response holds water. And if it doesn’t hold water we will divest from those. And that’s a decision that we make both on a firm-wide level, but we will bring that information to our clients and report out to our clients what the manager is doing and that there is a change and terminate them.

Most of the time we are doing it on a firm level, but there have been times – especially if it’s a specific environmental issue like this manager now is buying wind power so we have to let the client know that that’s a specific concern of them. If they don’t want it to be there then we’re going to terminate the manager.

TJ: Impact investing seems to be increasing in momentum. Why do you think this is happening now? And how does it relate to longer term economic trends?

PF: I think it’s happening now because the sustainability issues that for decades people have felt were going to have significant impact on the economy and individuals day-to-day lives are happening. So I think there is this combination of, yes, people have been doing socially responsible investing, impact investing, for 30 years or more, and the business argument, the sustainability argument, the risks associated with these sustainability issues are becoming more and more clear. Not just to the public, but to investors, individual investors, but also institutional investors that are looking at this – poses a serious risk not only to serious individuals but poses a risk to our portfolio.

I think that that is moving this ahead much faster when you see CalPERS integrating sustainability into its portfolio process. Because they believe that from a moral point of view that addressing these issues is going to build a better world for their pensioners, but also because they recognize that there are financial risks that those pose in their portfolio. Not just climate, but issues in regards to income inequality. If we don’t start addressing issues around income inequality and we don’t start supporting the integration of women and people of color into leadership into companies, in financial companies, in this country we will not have a middle class. And the decision is becoming much clearer that this is the direction to go. It’s affecting people’s lives and their portfolios on a daily basis.

TJ: Great. Well, thank you so much, Patricia.

PF: Oh, thank you, Toni.

TJ: For Heron.org, this is Toni Johnson.


Raúl Pomares

Sonen Capital LLC

Service areas: Investment Strategies, Investment Advisory, Investment Management

Headquarters: San Francisco, CA

Size of organization: 11-50 employees

Years in impact advisory: 6+ years

Website: www.sonencapital.com

“Thematic impact investing epitomizes the power of capital markets to address large scale global challenges and generate attractive returns.” – Raúl Pomares

Hear more in this podcast facilitated by Heron in partnership with Toniic (15:47 minutes)

About This Podcast

Investing in a period of unprecedented transition

Understanding and harnessing the many layered, interconnected trends of our time drives the strategic approach utilized at Sonen Capital. With his firm’s singular focus on impact investing, Raul shares how they combine customized account services with an advocacy approach to deepen engagement and amplify impact.

Sonen Capital LLC, which Raúl founded, offers deep expertise in areas such as, due diligence, portfolio construction and monitoring, impact analysis and reporting, and much more.

About Raúl Pomares

Raúl has been a foundational force in the sphere of impact investing and was equally integral in the early stages of Toniic.

Through Sonen, Raúl is driven to expand the reach of impact investing by activating capital through the lens of what he believes are two “mutually reinforcing objectives” — financial returns and social/environmental impact. He also acts as an advisor to the Global Impact Investing Network (GIIN) Impact Base and has authored several publications, including Solutions for Impact Investors: From Strategy to Implementation.

Full Podcast Trancsript

TJ: This is Toni Johnson with heron.org sound bites. I’m here today with Raúl Pomares of Sonen Capital and we’re going to discuss their work and the work with some of their Toniic members. So Raúl, this is a joint project that Heron is doing with Toniic, to talk to some of the advisors and managers that work with Toniic members. So just to get started, could you give a brief overview of the types of impact services you provide and a glimpse of your typical impact client? And any thoughts on any investors that may be ahead of [what is] typical –what does that look like and what does that mean for your work?

RP: Great, well thank you, Toni. Happy to be a part of this. I’ve always actually admired the early work of Heron and obviously been fortunate to be at Toniic since its early inception, and watched the tremendous growth and role that it’s played now in the ecosystem. In terms of Sonen, who we are, what we do, clients we work with—what’s unique is we’re singularly focused on impact investing. It’s who we are and what we do, and, heck, it’s what’s in our name. Sonen is a modified acronym for social and environmental capital. So really that’s what we do. What we’re focused on and what that manifests into, in terms of how we deliver, is a function of working to bring solutions to asset owners, depending on where they are at in that journey. And how perhaps they may organize their affairs and operate their assets.

Put simply, we really do three things. So one of the things that we’ve done at Sonen is we’ve created a series of pooled vehicles to allow asset owners to come together, aggregate their capital and gain access to what we believe are portfolios that are optimized for financial returns and impact. But because those portfolios don’t meet every client’s needs, clients have different financial objectives, different impact objectives, we also [secondly] offer the ability to build customized, or what we call, managed account services where we’ll build a client a portfolio of funds and investments that are consistent with their own risk, return and impact objectives. And then thirdly, for those who are still not all the way ready to move into implementation, that might still need some help and guidance around building consensus amongst their board, their foundation or even amongst family or family office organization, we’ll still do some kind of strategic consulting to try and help coalesce some thesis and strategy around impact, for which we can then assist them in implementing.

Who we do this for are foundations and family offices. We are equally committed to working with clients on a direct basis, but also working with their existing advisors or other wealth managers, who have clients who have needs in impact but those firms themselves aren’t able to deliver full breadth and depth of services like a full dedicated firm like ours can bring. So we welcome the opportunity to also partner with other financial intermediaries in helping serve clients in their impact needs.

TJ: Could you go into a little more depth about how Sonen got started? Why is it an impact investing firm and how do you contrast it with any work you may have done in the traditional investing space? Was there a learning curve?

RP: Absolutely. Sonen and my journey are intrinsically linked obviously. Really started almost 15 years ago working with two of the founding members of TONIIC, Charly and Lisa Kleissner, while I was working in a much more traditional wealth management type of business. Charly and Lisa really challenged me to think differently about their wealth and how to deploy that money. In particular, those assets that were in the foundation to align the assets within our programmatic intent and objectives. So that was really the impetus, and going out and looking out into the marketplace and not finding credible, quality solutions. And I really set out to do the work myself. And so over the years I’ve built up a wealth management practice that really started to attract a significant number of clients for my impact investing capabilities.

But then as time progressed I kind of realized that one of the challenges were that even though I’d attracted this capital, I spent the time and energy scouring the globe trying to find, what I believed to be, the best of the best impact investments. It became increasingly difficult to actually put the money to work. I couldn’t really build well diversified portfolios that I felt were critical in order to allow these clients to meet both the financial risk reward characteristics, but also the impact that they desired. So having looked at that and kind of hit that wall, I felt that really what was needed was a new business model that could build out the necessary scale and drive the expansion of the impact ecosystem. That by creating a platform in which you can pool capital to deploy it, as well as needing to build a much more robust skill set by attracting a more dedicated team to be singularly focused around impact and impact investing. We didn’t want to find ourselves in a situation where in one hand we’re a part of a business that is trying to solve problems, with the other side of the business was investing directly against us by supporting or creating those problems.

TJ: How do you decide what is an impact investment? And thinking about the various ratings systems and screening methodologies—you talked a little bit about negative screening—where do you land? Who do you think is doing this really well in terms of the methodologies? And what kinds of methods might you generally avoid?

RP: So you know the critical element and challenge that we still face as an industry is one of language. Unfortunately, we as an industry have not done ourselves any favors by all of us kind of referring to things differently. Everybody is kind of trying to come up with their own definitions or views on what is impact investing. And so our approach has been to try to elevate the term impact investing and have it mean the full range of activity that you can do between classically investing for financial gain and the idea that if you wanted to do something good in the world you had to do that through philanthropy. What we believe is a robust set of approaches that you can take in between those two historical paradigms, one being responsible investing, where you are taking a negative screening approach. We talk about sustainability investing rather than avoiding investments you proactively recognize, and pursue investments that are selling in terms of their environmental, social and governance related practices. Then, thematic investments which operate kind of at the nexus of investment opportunity and the incredibly important positive social and environmental outcome.

Those represent to us the range of activity one can embark on that are able to generate similar type market-based returns. We do also recognize that, yes, part of this ecosystem is impact-first investments for foundations and program-related investments. Which, of course, you would be looking to optimize social, environmental impact with less regard to what the financial return might be. So the first thing we do is organize the universe into one of those categories. And then within each of those, we assess and evaluate the quality and ability of them to be doing that. And [we] are trying to push more and more towards thematic investing because for us that is where we believe our mission of harnessing the power of capital markets to address large scale global challenges and generate attractive returns really is most epitomized.

Processes very much focus on taking that theme and developing a robust framework and understanding of what are the outcomes that we see within that theme. So, water, agriculture, energy, and then what those outcomes translate to in terms of investment factors, and then how those factors can be played both in public market and private market investing. And then, of course, we couple that with kind of a very traditional, institutionally-grounded quantitative and qualitative financial due diligence process. That’s kind of how I would pull it all together. And then also that framework, not surprisingly, serves as the basis for the reporting around the impact of the investments that we make. One of the things that we did this year was to frame the results of our impact across our strategies. Again, the United Nations Sustainable Development Goals—and we chose to do that because we felt that we could at least start to get a common sort of language and objectives from which all investors could begin to consider and evaluate their investments.

TJ: So you mentioned outcomes. In looking at tracking a portfolio, how closely do you track impact performance over time? If a company is maybe going south in the impact performance area do you advise clients on engaging or divesting, and what sort of factors do you take into account?

RP: This is an area that we both as a business and as an industry have a long way to go, and I’m eager to see us continue to assess and evaluate. I don’t think anyone has cornered the market, if you would, on the perfect solution for impact assessment and evaluation. But again, I do feel some of the work we do is no doubt at the leading edge. So we track it as closely as we can. And it’s important for people to recognize that there is a natural bifurcation in how and what one can track in the context of things like public equities and public fixed income, versus how one can track in private equity, venture capital. For example, if you invest in a utility scale solar farm, you know exactly how many megawatts of clean power you’re producing, how much greenhouse gas you’re offsetting, all those things are much more easily and cleanly definable, assessable and measureable through private versus public equity. You know our focus there is on developing and understanding a series of high level outputs. Things like carbon intensity, water intensity, toxic emissions and what we’re assessing and evaluating in our public equity portfolios, is how are the companies performing relative to traditional benchmarks in terms of environment, social issues, governance-related issues. And so it’s a series of much more broad-based measurements.

You mentioned engagement and advocacy—that is something we think is critically important to driving greater impact from public equity investments. Recognizing that, again, as an impact investor in public equities your impact is much more diffused, you’re much further away from it. But nonetheless, how you can really solidify, from our perspective, that process is through engagement. So we take a very active, engaged strategy in the sense that, number one: the underlying fund managers which we’re assessing and evaluating [and] ultimately putting in client portfolios, are selected for their approach and the work that they do. On top of that we directly ourselves engage with companies, in particular around issues that we think are important. Things like environmental disclosures.

And I think the last thing of that question was also this notion of divestment. So we applaud and really appreciate the efforts and the work of the divest-invest campaign. We think it’s been an amazing grassroots effort to really draw attention to the critical issue with respects to both the environmental risk [and] the financial risk associated with continuing to own carbon polluting companies. As a portfolio approach, we’ve very fortunate because we start with a high conviction and focus just on sustainability and thematic type investing. So our focus as a business has been on the invest side. Now, that being said that doesn’t mean that that process and methodologies didn’t result in some exposure to those types of companies. And in those instances we didn’t make the decision based on the frameworks, the objectives we stipulated, the policy guidelines of our respective clients, to then ensure that those particular positions, no matter how de minimis, don’t find their way into our clients’ portfolios.

TJ: Do you provide any research or other services to help clients better educate traditional investors on the work, and why they do it?

RP: Absolutely. Not just other advisors, but other board members, family members. We think it’s really important to do that. I think historically our approach was to shame these other advisors or take an aggressive position against them. And I think our focus has been to really educate, to empower them, to get them to ultimately embrace an understanding of this. We do a lot of work in training, in disseminating educational materials. If one goes to our web site you’ll find no shortage of resources. Even the frameworks that I described earlier, although not the full robust versions, we do produce a clear, comprehensive summary of the various frameworks for others to consider. We also produce a number of primers.

So, for example, clean power and land and natural resource management. I quickly found myself in a number of conversations where folks didn’t know what a power purchase agreement [was.] Say the word PPA and I’d get a blank stare, and then I’d say, ‘oh, I meant a power purchase agreement.’ These were things that many traditional advisors and just many people were not aware of, let alone aware of the implications they have at driving financial return opportunities in the context of highly impactful environmental, positive investments. And so we published a real assets primer, our most recent publication was a water primer. These pieces are, from our perspective, intended to be highly educational and a launching point for people to begin.

TJ: So this is my last question. Impact investing as a way of doing business is growing. We’re hearing a lot about it. My boss Clara Miller is going to the Vatican actually next week for an impact investing conference. Can you talk a little bit about why you think this is happening right now, why it’s gaining momentum? And how does it relate to longer-term economic trends?

RP: Yeah. It’s a great question. You know, the old guard of traditional investment management is really starting to change its tune, and coming into this space in different forms and fashions. We have a lot of attention drawn to the Millennial generation [who are] really starting to have advisors, investment options. We’ve got more and more folks that are really asking for these types of solutions. I think it’s a series of factors. One, I think that the realization of some of the macro trends that are driving this in terms of population growth, urbanization, natural resource utilization. These things are there. I mean, all you have to do is go to the city of Beijing—the air quality, these things are less and less theoretical there. They’re right in people’s faces. So as a result of that I think people are more in tune to waking up to that.

As you see we are in a time period of unprecedented transition from one generation to the next. Whenever there are transitions of wealth and leadership and responsibility around assets, you tend to see new ideas. And this is a generation that’s grown up around the ideals and principles – many of them have even gone to business schools who 15, 20 years ago wouldn’t touch in the subjects. Now, most business schools are really talking about this and I think that’s a major fact. Kind of similar to that has been the human capital coming into the traditional investment, financial services industry. They too are grounded and have some of this perspective, and are waking up to the opportunity to both pursue a career in financial services and investment services—while still being true to who you are from your personal values, and explore and address social and environmental challenges. At a minimum they recognize this is a strong desire of their client and are fortunate to have things like Toniic, the work of Heron and others that have come before that, have been publicized to turn to a point of reference to begin the journey themselves.

TJ: Great, well thanks so much for your time, Raúl. For Heron.org, this is Toni Johnson.

RP: Thank you.

Tom Mitchell

Cambridge Associates

Service areas: Outsourcing and Discretionary Portfolio Management, Customized Investment Advisory Services, Global Investment Research, Enterprise Advisory, Investment Management Data, and Benchmarking Services

Headquarters: Boston, MA

Size of organization: 1,000 – 5,000 employees

Years in impact advisory: 10 years

Website: www.cambridgeassociates.com

“What do you do when things are working on your financial bottom line, but not on your social and environmental bottom lines?” – Tom Mitchell

Hear more in this podcast facilitated by Heron in partnership with Toniic (16 minutes)

About This Podcast

There is no golden algorithm for measuring returns

At Cambridge Associates nearly 10 years ago the impact investing conversation gained steam and has been growing and evolving ever since. In addition to their high touch approach to advisory services, Tom discusses how data proliferation has influenced that evolution, particularly in regards to measurement, risk assessment, and helping investors understand how the positive benefits of an asset are distributed.

About Tom Mitchell

Tom serves as the managing director of Cambridge Associates and is a founding member of the firm’s Mission-Related Investing Group. With considerable reach at the firm, Tom seeks to fulfill an actionable commitment to catalyzing systemic change within capital markets, and the world at large.

Full Podcast Trancsript

TJ: This is Toni Johnson with Heron.org Soundbites. I’m here today with Tom Mitchell, Managing Director for Cambridge Associates mission-related investing practice. Hi, Tom.

TM: Hey Toni, how are you?

TJ: So Tom, Heron is doing a joint survey project with Toniic. And so we’re asking some of the members of Toniic’s managers and investment advisors to weigh in on what they’re doing and how they see the space. Could you give me a brief overview of the types of impact services you provide and a glimpse at your typical impact client? And maybe elaborate, thoughts on investors who might be way ahead of the curve?

TM: Sure, sure. Well, at Cambridge Associates we provide a full range of services. It goes from everything from fully outsourced discretionary investment, advisory support, [a] sort of outsourced CIO model is what I think it is most easily described as, all the way to very project specific things we might do for a given client. So we believe that every investor is unique in many regards, which we can talk about further and how that spills over to impact. And so we look to provide highly customized services. I think a more typical client – I really maybe describe two types of clients that are perhaps more typical. You have a very large foundation client, which say, has greater than a billion dollars in investment assets. And probably in-house investment staff and their program staff, and so as you all know there has been an increasing trend for these foundations to start looking at impact investing. And frankly, I think they are figuring out how to build a bridge between the programmatic side of the house and the investment side of the house. And so with some of those clients we’re helping them build that bridge and think about how to take a more holistic view.

And then I think our average client size is a client that has similar size to Heron. As far as having a few hundred million dollars, having a good staff, typically not having a lot of investments staff so – different than Heron in that regard. And we end up being the outsourced investment office, or at least the extension of staff for the foundation. So it’s a very high touch, highly engaged advisory relationship thinking through strategies, thinking through how to manage the total portfolio and with, particular to impact, how to really best integrate that in with the portfolio and then overall operations of the enterprise.

The ones that are ahead of the curve are the ones that have already worked through – on an institutional side – those that have already worked through some of the organizational challenges. Thinking about how to have a much better and integrated conversation between a programmatic side and the investment side so that it’s not so much a binary one or the other. I think that there has been a fairly great awakening if you will on the philanthropic community with that. I think that other investors who are impact investors who are really at the leading edge would see that in families and family offices. Typically you have less bureaucratic decision making. You have people that have been quite successful because they have taken on a lot of risk to build their wealth and build their influence. And they are certainly willing to look at newer, less proven ideas. Not to say that impact investing is riskier by any means, but that it does take a willingness to embrace risks that are less familiar.

TJ: Can you talk a little bit about the journey of Cambridge, how you got into impact investing. Was there a learning curve?

TM: [I’ve] been fortunate to play a prominent role with a group of some really great people and helping build our mission-related investing practice. And so some of your fans and listeners may or may not know that certainly the dawn for Cambridge was in – the conversation started in 2007 and really moving into 2008 launching a group with the support of Heron, with the support of the Annie E. Casey Foundation, the Meyer Memorial Trust, where there was a general view in the field that consultants are a problem and they didn’t know how to talk to people about mission or impact investing. The journey at Cambridge is that in 2008, [we] said okay, how do we formalize this practice? At the time we were organized – and it’s still a big part of what we are – we’re a big global firm. Today we have eight offices around the world. We have about 1,100 clients all who are trying to do worthwhile things, we think, with their capital. But moving toward more mission alignment and impact is taking it to a new level.

So when we first started we had a group of about five of us. Sat down and said, how do we make this work within a big firm? We already have a big research component. We have a big client portfolio manager component. And then we have a lot of data and a lot of information that we manage. And it was really trying to think about how do we build a group that best cooperates with and can sometimes hopefully co-opt some of these resources to drive things forward. In the first couple of years when we had a global financial crisis people who were more dipping toes in the water or were about to do that really put that on pause. That was an unfortunate time in the capital markets but it gave us more time to really focus on what are the things we need, the resources we need in the group. And fast forward on that journey we’ve gone from five people to 35 people globally. Largely located here in North America, in London and Australia, that are working with clients on a variety of impact issues.

So we started building out the research capabilities, the market has exploded and there’s all kinds of data out there, there are all sorts of new entrants in the investment manager landscape. We’ve oriented ourselves around how can we best assess this landscape and find what the absolute best ideas are for our clients. We’ve been able to use our incredible benchmarking capacities to work with the GIIN to build an impact-investing benchmark for private investment funds, which we don’t think is the end of a journey, but the start of one. There’s now data available to people who are skeptic to say this is real, and it’s powerful and it’s potent, and we don’t have to abandon all of our previously conceived principles around investment management.

TJ: How do you decide whether something is an impact investment or not? Here at Heron we say all investing is impact investing. You put money on the street, it has an impact. Can you talk a little bit about the various ways that you think about impact investments? And the rating systems and screening methodologies, there’s a whole universe out there now.

TM: It’s been my great pleasure to be drinking the Heron Kool-Aid alongside with you guys. And I agree, all investments have impact. And it becomes a question of how can you determine what those impacts are, positive, negative, or transformation. I think ultimately what impact investors want to do is probably important to state if we’re talking about the measurement systems. To my mind if there’s two things that impact investors have in common, and there’s many things that impact investors have in common, but there’s also many things about which they still disagree and therefore will not collaborate and invest together. Impact investors want to know what they own, and why. And they want to understand how the risks and the benefits are distributed, beyond just their portfolio or their bottom line.

So how are those risks – they could be thinking about financial risks to their portfolio for a given investment, but are they thinking about the risk they’re trying to mitigate in a community or with the environment by making this investment. And the benefits beyond just the dollars returned back to them, it really becomes how can we assess what the benefits are of this investment? And that’s where you get into some of the measurement systems. And so some things can be directly measured. Some things can be indirectly measured and you have to make more assumptions.

In 2008 I was hoping like many for just a golden algorithm which would just solve it all and make it easy. But I don’t think that’s where we’re headed or what’s needed. I don’t think it’s possible. Here’s why. If you look at a given enterprise and say – just we walk around the corner from your office here and go down Wall Street, and look at all the equity analysts, and I’d say they’re looking at one company. They’re not just looking at one source of information or one measure to evaluate that company to determine how to deploy capital or if that would be worthwhile. They’re looking at several. And so I think we have an emerging wonderful marketplace of a lot of different data points that come into this. It’d be nice to make better sense of them and get greater clarity of them.

If we look at public markets, Cambridge, we, Bloomberg and the Sustainalytics data that comes through there, we pay money to MSCI to use their data and particularly their ESG ratings. And frankly, if I look at Sustainalytics they have 76 KPIs, Key Performance Indicators. MSCI has 37. I don’t know that for any of my clients that even 37 are most valuable, but it’s our job to understand what’s driving them. I think the market for their data is just exploding. I think MSCI had 2,000 equities covered globally in 2010 and they have almost 6,000 covered today – Huge increases in this – over 350,000 bonds. And then we even find that bond traders and credit analysts might take a different view on a company’s environmental and social and governance risks than an equity analyst.

And the private markets. I’ve always been a big fan of B Lab and what they do in general with B Corporations. And when they launched the GIIRS, the Global Impact Investment Reporting System. And have portfolio managers apply that to their underlying companies and really understand what they’re doing. And I think that’s great. It becomes very labor intensive. And sometimes particularly these funds that are operating on smaller markets and just the economics of these funds are such that they’re always a little stressed – so to have one more big haul to bring that data in can be challenging but I think that there’s a lot that’s been created there that can be built upon. So I’ve been tracking a lot of these data providers there and learning what they’re doing. We find that they have interesting platforms. I think we’re moving more from the CSA model to the Whole Foods model on the selectivity in your basket. The challenge is though, something needs to stand out right. So the more information we can put out there the better.

TJ: How closely do you track impact performance? You just spent a lot of time talking about the sort of CSA approach to impact performance versus the Whole Foods approach and how people think about it? So now this ten year long experience in particular that you’ve been talking about, what does impact performance tracking look like for Cambridge? And then if a company is going south on impact, what does that discussion look like?

TM: As the years have passed and more information has got out there we’ve taken the best of what we could find and try to reflect that back to clients. I think that only in the last few years we’ve gotten to a point where we can really say we can draw some real meaningful conclusions from this. But I do think, to the point of helping people know what they own and why, that’s always been sort of the guiding point. But it’s been very highly customized. I would like, frankly, to find something that is more scalable and apples to apples across different investors. That they are paying attention to similar things and valuing similar things in similar ways. Because ultimately, if you have a collective wisdom that emerges from that, and those decisions reflect back on to the enterprises, on to asset managers I think that’s where we make progress. The question about what do you do when things are working on one bottom line, on your financial bottom line, but not on your social and environmental bottom lines, is a very interesting one. And I think we, sadly we see far too many instances of where that’s the case.

So this is what I’m talking about when talking about distribution of benefits. There are certain investors that can try to extract all the value out of an enterprise to their financial bottom line. And that could involve reducing head count, cutting cost, doing all those sort of things that help the market cap, help evaluation, help an earnings statement, that aren’t necessarily holistically beneficial. And you see it both in public and private markets. What it has led to is conversations about, first of all, how much control over our asset do we have? If we’re a foundation and we’re invested through a money manager, what structure are we invested in? Are we in a limited partnership where capital is locked up and we’re largely, frankly, passive investors? We can pound the table and raise our hand and express displeasure to a fund manager, but ultimately we’re just one of several limited partners. There’s only so much legal recourse we may have, other than applying social pressure about something we’re not happy about.

Or are we in a public market where we can determine whether to own or sell? We can sell immediately if we wanted to, or engage. And I think it’s really – so our conversations really start, what sort of control do we have over the asset at this point? And in situations where we don’t have a lot of control I think that’s led to conversations about, well, let’s not do that again. It’s, what can we learn from this? We can’t do much now. Can we get in a situation where we’re still investing in those types of assets or enterprises which we want to own but we’ll have more control next time.

TJ: Impact investing seems to be gaining in momentum. The Vatican is having its second annual impact investing conference, for example. Can you talk a little bit about why do you think this is happening now? And how does it relate to longer term economic trends?

TM: I think we live in a time where we know more, we have more, there’s just more of everything, right. More consumption. More pollution. There’s just so many things that are happening in the world that it’s – the world – this sounds very pollyannish, but I think the world needs impact investing in many regards. But I think if I broke it down on a capital markets perspective, our public market has been heavily influenced by central bank policy. I mean we’ve had major central banks printing money, moving people out on a risk spectrum. So it’s hard to actually get comfortable with the valuation of certain assets in the public markets. They could be written down at some point, i.e. we could have a correction in the market.

We could have negative interest rates outside of the U.S. If we’re just focused on the U.S. you say, great, you can get a ten year treasury bond for less than 2%. That’s an expensive bond and not paying much interest. Well, if you go to Europe everything is negative. And that puts things in extremes. And at the same time all this monetary policy has driven a bull market in financial markets but it’s not been good for people. For most people. The vast majority. So we’ve had stagnant global wages. While unemployment numbers have come down, underemployment and under-utilization of great human capital remains high. And we just have a lot of global economy and global trade and that can be quite dislocating for many people, most of whom fall at the lower denomination of the income spectrum.

I’ve never been one to believe that there’s some magic tipping point. But I do seek to see these asymptotic curves of once things build enough momentum – right now impact is centered in the mainstream. And every asset manager right now has to, absolutely has to understand at a bare minimum what their position is on environmental, social and governance factors on investments. So we’ve talked a lot about at Cambridge what we’re doing with our impact investing clients. We cover over 10,000 asset management firms globally, which have about 30,000 funds. We’re asking all of them about what their doing with ESG in their funds. That’s something new we’ve been doing over the last year and a half. Figuring out how to integrate into our database, versus the just over 1,000 funds that have self-identified as impact and ESG. So where we’re at right now is everyone at least has to have a position on it.


TJ: Thank you, Tom. For Heron.org, this is Toni Johnson.

Thomas Van Dyck

SRI Wealth Management Group (part of RBC Wealth Management)

Service areas: Customized ESG investment strategies

Headquarters: San Francisco, CA

Size of organization: 10,000+ employees

Years in impact advisory: 30+ years

Website: www.rbcwmfa.com/sri/sociallyresponsibleinvesting.htm

“Every investment you make has an impact. The question is what kind of impact you want, and then how do you want to measure it?” – Thomas Van Dyck

Hear more in this podcast facilitated by Heron in partnership with Toniic (13:55 minutes)

About This Podcast

Investment as a form of self-expression

There are exploitative elements of capitalism, as well as innovative and regenerative elements. Thomas details how he taps into the latter as he navigates the often grey areas of impact evaluation and engages with clients, shareholders, and other stakeholders in aligning their values with their investment decisions.

About Thomas Van Dyck

For more than 30 years Thomas has been a leader in the field of socially responsible investing. With SRI Wealth Management Group, he oversees $1.7 billion of assets screened for ESG criteria. Recently, Thomas founded As You Sow, a shareholder advocacy foundation dedicated to promoting environmental and social corporate responsibility. In line with his ardent passion for clean energy Thomas believes the shift to renewables is not only what is best for people and planet, it is also where financial wealth will be generated.

Full Podcast Trancsript

TJ: This is Toni Johnson, with Heron.org Soundbites. I’m here today with Tom Van Dyck of RBC Wealth Management. Hi, Tom.

TD: Hi, Toni. How are you doing?

TJ: Heron and Toniic are working on a joint program looking at some of the asset managers and advisors that work with Toniic members. And could you give a brief overview of the types of impact services that RBC provides? And maybe sketch out a typical impact client that you have?

TD: The way we look at impact is across the entire portfolio. What we call that is integrating environment, social and governance criteria to mitigate risk and to generate, ideally, alpha or out performance associated with those criteria. And that means that you do it in the public equities, in the bonds, in the private equity – you do it across the entire asset allocation of the portfolio. And then you choose to use shareholder engagement for those opportunities you think you can leverage change and create change more quickly.

So our client base is predominantly foundations, the trustees of those foundations, the entrepreneurs that are leading the change in our society, from one to more clean technology, from one based on burning a carbon molecule. And with individuals and celebrities that are using their brand to advance the new vision of where the world needs to go to be more sustainable.

So that – and they believe – our client’s really look at investment as the economic expression of their thoughts. So our job is to use that thinking using the environment, social, and governance criteria – and what’s actually happened with the divest-invest movement – the idea of divesting from fossil fuels and burning carbon to investing in clean technology or using renewable sources to produce an electron, which is going to be the largest wealth generation shift of our lifetime, it’s gonna affect every element of our economy – that discussion with the divest-invest movement has gone to investment committees around the world.

And they realize that the “E,” in this case the environment, has identified a risk, high carbon assets. That awareness that there was an economic risk there has led committees that are not just like ours, but normal investors, to start considering if there’s an “E” element here, if there’s a risk that the environment has pointed out. Is there’s something in social or governance area? Like do we need diversified boards that have women and people of color on it? Will that help our company and our brand get more market share and grow better? Do we treat our employees as assets or costs? These types of factors that the environment, social and governance criteria identify actually lead to the bottom line of a company. Are they more productive? Fewer sick days on the employee side? Are we more sustainable? So do we use our resources more efficiently so they’re not wasted? Or we produce a toxic that we have to watch for 10, 20 or 25 thousand years depending on the process, are we able to use less energy, are we shifting our entire business model to create our product in the way that’s most sustainable, that works for our employees in a way that keeps them, empowers them to stay here, as well as fit into our communities in a way that is responsible. Basically looking to take the exploitative elements of capitalism out of the business model and move in the more innovative elements of capitalism so that we can evolve as a society, as a culture, as a planet.

TJ: On that note, how did RBC come about? It sounds like you’re primarily doing impact. How did you get your start? And was there a learning curve?

TD: I’ve been doing this for over 30 years. I came into this field in 1983 with the sole focus of using the capital markets to not only generate investment return within the risk objectives of our clients, right, which are all the financial objectives, but also to be consistent with the values and the mission of that investor. My clients have only been that. I’ve only worked with investors who are interested in not only meeting their financial needs but also doing it consistent with their values and their mission.

Traditional investors, the way they look at things, and the misnomers that they have, there’s a couple that are out there, is the fact that you have to give up return for applying an environment and social and governance factor on your portfolio, because that’s not true. The other fact is that regulations cost jobs. If you’re interested in a de-regulated capitalistic system you just need to go to Beijing in China to see what that looks like. Elon Musk said last week, by not pricing carbon it’s like allowing these companies to dump garbage in the streets and not pay to have it picked up, but to have taxpayers who also share those streets pay to pick up their garbage.

Regulations actually help define the playing field of capitalism to limit the exploitative elements of capitalism, which is two things, they exploit the environment and they exploit labor more efficiently than any other system in the world. They don’t allow people to externalize cost off their balance sheets onto the taxpayers balance sheets. In other words, like Elon Musk said, where by not pricing carbon is allowing the fossil fuel industry to throw garbage in the streets and have taxpayers pick it up. So in a free market pollution is ultimately a subsidy. Right. So if you put regulations in place so the externalities don’t come off the balance sheet of companies that are actually embedded in our collective price of the product itself, that’s why by not pricing carbon they’re getting a free ride. If you priced it the true cost of producing power from fossil fuels would be more accurately reflected – that would then allow innovation to take place because you don’t have someone cheating the system. Because they’re truly embedding their cost in the price of their product.

TJ: Just to go back to this idea of what is impact, how broadly do you decide what’s an impact investment? So how do you think about that? And thinking about, particularly with public companies seem to take a multi asset class approach which Heron also does, how do you think about the various rating systems and screening methodologies? Are there some that you are really excited about or do you have any ideas about what kind of work needs to be done in this space?

TD: So we use a lot of different technologies and databases and I’ve seen many of them develop over the last period of time. We use things like Bloomberg, Sustainalytics, MSCI KLD, we have our own database that we’ve built out obviously over that time as you’d imagine. So we use the information that’s available, that’s new and out there on different management teams to overlay those different environmental, social and governance criteria onto companies across asset classes – large, international, emerging [and] small.

I mean obviously there’s more information available on larger companies than there are on smaller companies, both in the U.S. and in emerging markets where it’s more difficult to get information. But certainly with the internet available you’re able to get the information and be able to see what these companies are doing and how the management teams are handling things. I think it’s only going to become easier in time with increased transparency.

I think the thing that people would prefer to do is “can you just give me a list?” It’s like, no, no, no. Investing is hard. It’s not a list-type situation because there’s areas of grey when you’re making these determinations between the environment and social and governance factors when evaluating a company. So if you can evaluate companies within sectors and compare them against each other, ultimately what you’re doing is the ESG criteria that help identify a quality management team will lead to better bottom line performance over the long term.

TJ: So how closely do you track impact performance? Some of the folks that we talked to over the years say that their clients are happy with anecdotes, for example. If you could talk a little bit about your impact and what happens if a company is not doing so hot on impact, how do you talk to your clients about actively either engaging or divesting?

TD: We invest in large companies all the way down to private companies so it depends on what you want to measure. Ultimately, one of the measurements is returns, right. And we would want, ideally, our portfolios to generate larger return over benchmark with less risk. So that’s the goal. Return is an effect, I think. Because every investment you make has an impact. The question is what kind of impact you want, and then how do you want to measure it? And I would say that our client’s measure impact by what the company is doing. If they’re looking for above market return with above market risk with a focus on environmental sustainability, then we will go find a private equity investment and a manager that will help identify those kind of companies. It’s a combination of a multitude of factors to how you measure the impact of an investment from that perspective.

On the negative side – that’s the positive side – on the negative side you say, “ok how do you deal with it when say, you own a company that had passed the ESG screens and the financial screens to get into a portfolio, management portfolio, and now it’s going sideways.” So let’s take an example of one. A long time ago there was an oil company where they changed the CEO. It was British Petroleum. They moved from Lord Browne who, in Kyoto, actually said climate change is a problem – and he got replaced by another person that did not have the same type of vision. And you could start seeing the deterioration of the company take place well before the Gulf of Mexico was an issue. When we said, okay, this is a whole different scenario that we had when we entered the situation so we had our manager move the company from the portfolio.

You have to constantly keep updating, evaluating and talking and looking at what the companies are doing from an ongoing perspective. Shareholder engagement is a tool that can be used to make a company actually, I would think, better. Most of them are publicly traded companies it’s not the Carl Icahn’s and the Bill Gates’ of the world that own the most stock, it’s actually teachers and government employees. So these management teams of public companies are actually accountable to teachers and government employees – the actual public – if they choose to use the power of the proxy to engage these companies in dialogue to point out where there might be risk within their behaviors that might undermine the value of the company to the shareholder.

As an example, Best Buy, where we saw there was a need to recycle. And we went to Best Buy and said there’s an opportunity here to increase foot traffic in our stores and get more people coming in – we asked everyone how many people have old TV sets and computers in their house that you don’t know what to do with? Everyone raises their hands, essentially. So then they say okay, what if we took them back in our store? They tried it. They said, this is working. They did that in all 1,000 stores. So there’s ways in which shareholder dialogue can work.

Where it works the best is with these companies where they already have a high quality management team both from a financial and ESG perspective. The more difficult shareholder engagements are those where the management team may not be good at either of those other areas, specifically the ESG and the financial where it becomes much more antagonistic because you’re looking to shift the corporations to what their primary function in business is. And in those situations there is no need for our client to maintain a full position in keeping the risk in the portfolio because why would you do that, why would you expose the portfolio to greater risk just so you can dialogue with the company. Lower the position to a de minimis amount where you can still maintain dialogue, where you can still organize those other shareholders to go in and have these fruitful discussions with these companies in hopes they’re gonna change, but knowing that the characteristics are going to be very difficult going into it.

TJ: So since you’ve been doing this for such a long time I’m interested to know, why do you think this is happening now? Impact investing seems to be gaining increasing momentum. More people are entering the space, larger institutions, both as investors and managers have gotten into the space. What’s going on? And does this relate to any longer term economic trends in your view?

TD: Here’s what I think is happening on a large scale as to why this is becoming more adopted. Like we discussed, the divest-invest movement is a huge movement, right, that has pointed out risk in portfolios, it’s pointed out risk for the planet, society, and how we need to change. So that is led by the great groups of 350.org, Carbon Tracker, Sierra Club, Vote Solar. They’re all pushing this idea into the discussion because they’re saying, okay, here is a risk. These assets are going to be stranded. So that’s reflected in the stock prices of the various fossil fuel companies today. There’s your risk.

And of course in the last 18 months anybody that had divested three years ago did a lot better than somebody that did not because you did not have that risk right. The energy sector was down 21% last year. The key is that this is the head of the spear that’s going to these committees and the committee is saying, are there other factors, governance and social factors that we need to be evaluating? So the divest-invest movement in many ways and this realization that we cannot continue to burn carbon to produce and function as a society. We need to shift to renewables. And the good news is, guess what, that they’re cheaper, they’re cleaner [and] they’re more efficient. And that shift of technology and where we’re going, that’s where this wealth is going to be created from.

And if that mega trend combined with the idea of transparency combined with millennials who are inheriting wealth who realize – that in fact over 50% of millennials who have over a $1 million net worth, which means they’ve generally inherited it as opposed to make it, there are some that have made it but the vast majority have inherited it – are putting some sort of environment and social and governance factors on their portfolio. Why? Because they realize that they don’t want to invest in something that’s going to lead to the destruction of the planet before they even have kids. And the kids are going to look at them and say, “well what kind of world did you leave us?” Well you were invested for maximum return and exploitation. Well in fact, it wasn’t even maximum return, it was just straight exploitation. We have enough data out there now with the different managers and the Domini Index that demonstrate there’s no need for you to underperform to put an environmental, social and governance factor on your portfolio.

TJ: Thank you, Tom. For Heron.org, this is Toni Johnson.


AT: As a disclaimer. Past performance is not indicative of future results. This information is not intended to be used as the primary basis of investment decisions.  Because of individual client requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. The opinions expressed here are those of the author and are not necessarily the same as those of RBC Wealth Management or its research department. RBC Wealth Management did not assist in the preparation of the material and makes no guarantee as to its accuracy or the reliability of the sources used for its preparation. RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.”


As a disclaimer. Past performance is not indicative of future results. This information is not intended to be used as the primary basis of investment decisions.  Because of individual client requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. The opinions expressed here are those of the author and are not necessarily the same as those of RBC Wealth Management or its research department. RBC Wealth Management did not assist in the preparation of the material and makes no guarantee as to its accuracy or the reliability of the sources used for its preparation. RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.