Category: Spotlight On…

We reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…

QUESTION”What’s in the bill?”, “What does allow us to do?” and “What still needs to be done?”

ANSWERBolor-Erdene Tumurchudur – Ubik Group Director of Partnerships

ANSWERAs an investor, it is important to understand energy and infrastructure-related investments are long-term investments. Thus, the bill could be higher in the short-term, but over time it will pay back. It will allow the investors to contribute to the decarbonization effort directly, and the health of the population indirectly. This also helps investors to choose research and development of renewable energy, battery storage, water management efficiency (all types of energy (including nuclear energy) and are water inseparable) and related long-term projects.

ANSWERWe also need to collaborate with city mayors, lawmakers, and other organizations to create a clear systematic structure to decrease HFC and GHG emissions. Moreover, investors need to pay attention to left off industries like nuclear Energy and their safety, specifically nuclear waste, etc. On top of that, it’s significant to push energy efficiency-focused policies and projects.

QUESTION”What’s in the bill?”, “What does allow us to do?” and “What still needs to be done?”

ANSWERNimet Vural, Freelance Sustainability, Accountability and Corporate Governance

ANSWERThe Bill is aggressively fighting both the Pandemic and Climate Change. The Investment Industry seeks returns as its primary objective and today some of the most convincing opportunities for growth and returns come from a transition to a more sustainable economic model that both harnesses and preserves nature. We need to see Innovation and creativity among the Investors looking to address Social Inequalities on a more Systemic basis.

QUESTION”What’s in the bill?”, “What does allow us to do?” and “What still needs to be done?”

ANSWERPaul Ellis, Founder of Paul Ellis Consulting & The Sustainable Finance Podcast

ANSWERCombining the economic cost of physical climate risks from floods, fires and storms, with the economic impact of transition climate risk like the COVID-19 pandemic, has brought the U.S. Congress together in a rare bipartisan moment related to energy policy. I expect to see more of the same as both physical and transition climate risks continue to multiply in the next two decades. And investors will play an increasingly important role in this process by voting with their retirement assets, investing in companies that produce and use clean and renewable energy products and services.

QUESTION”What’s in the bill?”, “What does allow us to do?” and “What still needs to be done?”

ANSWERLebo Mahlare, Renewable Energy Finance

ANSWERThis is a significant development in the fight against climate change but we still have much more to do given that models still require less than a 2 deg C rise in global temperatures, especially in specific regions of the world.

We reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…

QUESTIONHow is the nature of work changing as companies move toward a more socially and environmentally sustainable world?

ANSWERChristina Shim, Managing Director, Commercial Innovation Practice, Americas at Palladium: Make it Possible

ANSWERIt is impossible to untangle this with the changes we’ve all experienced as a result of the pandemic. The nature of ‘what’ work is vs ‘how’ work is accomplished has fundamentally shifted in the past 10 months. As companies continue to evolve towards sustainability progress for trends and reasons beyond Covid, the essential mandate of their business and model is slowly forced to adapt as well. This includes the need to integrate greater diversity and inclusion in the workforce. It includes understanding and creating transparency and traceability in supply chain. At its essence, it’s about embedding sustainability – financial, social, environmental – all into the core of the company’s strategy and operations. This is no longer a nice to have – it’s a must have.  

QUESTIONHow is the nature of work changing as companies move toward a more socially and environmentally sustainable world?

ANSWERRabo Garba, Senior Consultant at Ernst & Young

ANSWEREvents of 2020 accelerated trends in sustainability and technology adoption. Companies and individuals seem to have a greater focus on systemic issues that affect society and the environment. Demand is developing for individuals that understand complex supply chains and can identify innovative business models, partnerships, and technology applications to extend decarbonization efforts beyond a company’s operations. Manipulating and understanding large data sets is critical and must be combined with new insights to solve structural problems created by our current systems.

ANSWER(These remarks are solely my own. Not representative of my employer or any other affiliated institution or organization)

QUESTIONHow is the nature of work changing as companies move toward a more socially and environmentally sustainable world?

ANSWERPaul Ellis, Sustainable Finance Consultant & Host of The Sustainable Finance Podcast 

ANSWERThe COVID-19 pandemic has exposed the changing nature of work in the U.S. economy as a physical and transition Climate Risk with far-reaching social and financial implications. Front-line healthcare and service workers are at significantly higher physical risk while earning less for their labor than those of us in WFH jobs with more flexible childcare and family care options. Many public/private sector companies are struggling to retain experienced staff, with some better prepared than others to meet these challenges. In 2020 the pandemic has sent a “loud and clear” message regarding the need for more and better public/private policy partnerships regarding the nature of work if we want to “Build Back Better”.      

QUESTIONHow is the nature of work changing as companies move toward a more socially and environmentally sustainable world?

ANSWERDoug Willmore, Chief Executive Officer – World Tree

ANSWERAt World Tree, we have found that our mission and values have become more important than ever. We have many potential employees that search us out specifically because of what we do and how we are doing it. Finally, I think the rest of the world is moving to what World Tree has been for many years – a virtual company. While we have an office in LA, almost all of our employees work virtually around the hemisphere. Being able to live wherever they want, work wherever they want, and not having to commute is a huge attraction to current and potential employees.

In exploring this question we reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…

QUESTIONAs ESG considerations become more widely adopted what’s the realistic impact on current jobs and future job opportunities?

ANSWERNimet Vural, Student at Aerospace and Machine Learning Field

ANSWEREnvironmental trends affect the world of work directly, just as the world of work affects the environment. The future of work cannot be conceived as independent of its effects on the natural world. Environmental degradation destroys work opportunities, worsens working conditions and negatively impacts the social fabric of society. So, any efforts to achieve sustainability will entail a structural economic and government policy transformation through global frameworks like the UNSDGs. Such a transformation can also result in millions of jobs through the establishment of sustainable national and regional public policy development.  

QUESTIONAs ESG considerations become more widely adopted what’s the realistic impact on current jobs and future job opportunities?

ANSWERJuan Adorno, MBA, Strategic Partnerships at Mascoma Bank 

ANSWERThroughout my time in the Investments industry from 2011-2019, there was a notable uptick in ESG jobs across mid and large firms, especially throughout the bull markets, as ESG retail capital flows increasingly gained momentum. Any assessment of job markets in 2020 is muddled by the pandemic, but I’ll share that more broadly speaking, the question of the connection between ESG trends and impact on job markets is relative to geography, industry, and other dimensions. As I see it, ESG is a long-term evolutionary trend, slowed by cultural pressures for preservation and conservation, at the expense of innovation: the SEC’s 2020 guidance on ESG in 401(k’s) as a case in point. 

ANSWER(These remarks are solely my own. Not representative on Mascoma Bank or any other affiliated institution or organization) 

QUESTIONAs ESG considerations become more widely adopted what’s the realistic impact on current jobs and future job opportunities?

ANSWERKhyati Thakkar, Senior FP&A Associate, Brookfield Renewable

ANSWERDue to persistent pressure from investors to integrate ESG considerations into an organization’s long-term strategy, firms are increasingly looking to expand the scope of current jobs and future opportunities. Those with passion and a skill set for sustainability will be valued and sought after. I can already see the difference on my current role where with my educational background in finance and sustainability, I have helped build my firm’s ESG policy and the Green Finance Framework in addition to my regular job of portfolio management. 

QUESTIONAs ESG considerations become more widely adopted what’s the realistic impact on current jobs and future job opportunities?

ANSWERCH Herbert Consulting, President

ANSWERThe loss of traditional jobs requires basic changes in economic and governing systems because for the first time in history the middle class must adapt to a technological job market that leaves too many with no work. Huge population sectors will be without work and there will be no cash flow to maintain infrastructure and govern as the civilized world progresses toward Developing country conditions. Corporate and political leadership is entrenched and will not and cannot plan, manage and implement the changes needed. Developing countries mirror the future for all unless the financial sector assumes leadership, describing the problem and what can be done about it.  

In exploring this question we reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…

QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERKristin Barbato, CEO & Founder of Build Edison, Co-Founder of Dynamo Energy Hub

ANSWERWe have the technology for clean energy, air, water, and food. What we don’t have are clear paths to unstopper their promulgation at scale. The largest obstacle to scaled implementation is mostly due to a combination of lack of accessible capital and a patchwork of complex regulatory rules. Therefore, I believe the path to scaling clean solution implementation is streamlined capital and permitting.

QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERSarah Adams, Chief Sutainability Officer, Vert Asset Management

ANSWERGlobally, physical assets and supply chains are facing increasing risks from climate change.  The investment community is more closely evaluating the role of science-based emissions reduction targets in corporate strategy to keep global warming to 1.5°C above pre-industrial levels. We believe all companies will need to plan for net-zero pathways.  

ANSWERAs investors in real estate, for us “net-zero energy” or “net-zero carbon” is about getting buildings to only consume as much energy as they procure from renewable sources. Buildings can achieve net zero through a combination of energy efficiency, electrification, and renewables procurement, and many have done so already and are saving money by doing so.

ANSWERBuildings consume 40% of the world’s energy and create 33% of global greenhouse gas emissions. Real estate owners can look at the transition to a low-carbon economy as an opportunity to both lower their carbon footprint and their utility bill.

QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERTodd Arthur Bridges, Partner & Global Head of Sustainable Investing and ESG Research at Arabesque

ANSWERBased on scientific observational data and future scenarios, achieving net-zero emissions – the balancing of anthropogenic (human-induced) emissions with the carbon removal of GHGs already in atmosphere over a given period – will require fundamental shifts in how our economies, societies, and political systems operate. An unprecedented global collaboration across all stakeholders – countries, states, cities, companies, and investors – is needed if we are to achieve net-zero by 2050. Arabesque believes there are significant opportunities associated with a zero-carbon future and that we can play our part in helping clients with data, research, advisory, and technology solutions. As one small actor in this global stakeholder collaboration, we will do our best to create value by designing solutions such as the S-Ray Temperature Score that can help corporations make long-term strategic plans and investors to make sustainable strategic allocations aligned with the net-zero target.

QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERIyassu Essayas, Director of ESG Research, Parnassus Investments

ANSWERNet Zero Carbon is an emissions target where the same amount of human-caused GHG emissions are removed from the atmosphere. It is possible to achieve but will take the international community to agree on decarbonizing their economies. The Paris Climate Agreement was the first international agreement with widespread support and commitments to do so. It is also a good example of what nations can do together to combat the effects of climate change.  

QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERDesmond Wheatley is President and CEO and Chairman of the Board at BEAM Global

ANSWERTo achieve global carbon neutrality we must capture the global imagination. Big, easy to see and easy to understand wins are essential. At Beam Global we are focused entirely on the intersection of clean energy and transportation. Why? 70% of US greenhouse gas emissions come from transportation and the generation of electricity. Our products eliminate both sources. To fully electrify transportation we need rapidly deployed, highly scalable infrastructure solutions which are independent of the centralized vulnerabilities of the grid. Our products are the fastest deployed, most scalable EV charging infrastructure solutions in the world and they are powered entirely with locally generated and stored renewable energy. Driving on Sunshine delivers. Beam Global – Clean Mobility For All. (NASDAQ: BEEM).

QUESTIONQUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERPeter Fusaro, Partner, and Head, ESG and Impact AV Group Limited.

ANSWERNet Zero Carbon is technically possible but it will take a long-term time horizon. Realistically, 2050 is the date to achieve that goal through three market drivers: energy efficiency i.e. not consuming as much energy, and that means efficiency in the 80+% range which is doable in both buildings and transportation. A much more global deployment of renewable energy and energy storage to replace most of fossil energy in all its forms including natural gas. Finally, a robust deployment of hydrogen for both transportation and electric power generation. This means marrying hydrogen to solar and wind farms to make green hydrogen for both charging electric vehicles and running power stations, trains, and ships.

In exploring this question we reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERPeter Fusaro, Partner & Head of ESG and Impact AV Group and Founder, Wall Street Green Summit

ANSWERThe Covid crisis has created a unique opportunity to rebuild society where human health and welfare come first. I am particularly inspired by the hundreds of thousands of young people throughout the world who are ready and capable of helping to do the heavy lifting required to accelerate sustainibility in clean energy, sustainable agriculture, clean water, a regenerative economy, and social justice. ESG investors get read for this inflection point!

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERBob Dannahuser, CFA, FRM, CAIA & Senior Advisor, The Investment Integration Project

I’ve had a front-row seat to sustainable investing over the course of my career and have seen it evolve from something driven more by marketing to something beginning to become rooted in investment analysis and strategy. And while cynical voices remain (and are well worth listening to, for they make us better), I’m gratified that environmental issues in particular are much more mainstream.  The pandemic, an awful episode with catastrophic impact for so many, offers an opportunity for social issues to join that trajectory to become a more routine component of what drives investor decisions, as the systemic, disruptive effects of income inequality, worker rights, and a fragile healthcare system become more prominent to more of us.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERChris Stearns, CFP & Financial Advisor at Conte Wealth Advisors, LLC

ANSWER”The welfare of any segment of humanity is inextricably bound up with the welfare of the whole. Humanity’s collective life suffers when any one group thinks of its own well-being in isolation from that of its neighbours…” – The Universal House of Justice.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERDr. Gillian Marcelle, Resilience Capital Ventures 

ANSWERESG investing has great potential to contribute to sustainable development and improved livelihoods for persons living in communities with high climate risk and vulnerability. I am seeing slow movement in mainstream and alternative financial institutions, understanding how an ESG investment philosophy can be good for both the bottom line and society. Finding ways to accelerate these changes keeps me motivated and inspired.   

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERJeffrey Gitterman, Co-Founding Partner and creator of Sustainable and Impact Investing Services at Gitterman Wealth Management, LLC

ANSWEROne of the things lacking in ESG data has been information on racial inequality at the corporate level for both pay equity and management opportunities, as well as board seats. George Floyd protests have exposed this lack of disclosure and we are starting to shed some light on better corporate disclosure. You can’t manage what you don’t measure.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERWilliam Burckart, Co-Founder and President, The Investment Integration Project; co-author of 21st Century Investing: Redirecting Financial Strategies to Drive Systems Change (2021)

ANSWERMore and more, investors—big and small, individual and institutional—are beginning to extend their embrace of ESG investing to include the context (or systems) in which they operate. In doing so, these investors are charting a path forward for the financial community to better manage and solve the complex and interconnected social and environmental challenges like income inequality and climate change that are increasingly threatening returns across all asset classes.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERDorri McWhorter, CEO, YWCA Metropolitan Chicago

ANSWERIt is inspiring to see investors actively seeking new impact investing strategies across different asset classes. At the same time, we are witnessing social impact organizations actively creating new vehicles and strategies! I am excited that engagement is coming from both the finance industry and social impact organizations with the objective to use finance as a tool to accelerate the pace of change.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERPhil Kirshman, CFA, CFP & Founder at Impact Metropolis

ANSWERI’m inspired by the energy of the next generation, which seems to be significantly more thoughtful about how investment capital will be deployed in the future than their parents and grandparents were. I’m inspired by the rigor with which many are approaching the field today, in terms of evaluation, analysis, and impact measurement of the investable universe. Finally, I’m inspired by the authenticity and commitment of many of the practitioners of the impact investment field, older and younger, who are seeking ways to make a measurable positive difference in the world.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWER Aisha Williams – ESG Investment Advisor, RJK Associates

ANSWERI’m inspired by the continuing shift in attitudes towards investing sustainably as awareness is increasing among younger investors of the source of investment returns, which in turn is prompting a shift towards ESG mandates such as the European Commission’s Action Plan on Sustainable Finance. In The UK, climate risk concerns have prompted the Financial Conduct Authority to consult on proposals that will require financial firms to disclose how they handle climate risk and other ESG criteria. The continual progress in ESG investing, supported by institutional mandates, clearly shows the realization that the adoption of ESG investing needs to be proactive in order to aid in the reshaping of the investment landscape towards responsible and sustainable investing.   

In exploring this question we reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERYusuf George Managing Director, Corporate Engagement, JUST CAPITAL

ANSWERJUST Capital’s polling shows that Americans are calling on corporate leaders to create equitable companies, and our data shows that companies that prioritize their workforces outperform industry peers. The companies that prioritize diversity, equity, and inclusion tend to have stronger and more engaged workers, which in turn leads to better performance for shareholders. 

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERPeter Krull. CEO & Director of Investments. Earth Equity Advisors

ANSWERSocial justice is intimately connected to environmental justice. Every time we make a conscious choice to invest sustainably and with our progressive values, we’re helping to make the world a better place for everyone.

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWEREsther Pan Sloane, Head Partnerships, Policy & Communications, UNCDF

ANSWERInvesting in businesses owned by minorities and women can help previously excluded groups create jobs, build wealth, lift their families out of poverty and build their communities.  There are many currently overlooked opportunities that can deliver both social impact and financial returns that we encourage investors to consider as part of a diversified impact investment portfolio.

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERMartina Macpherson, SVP ESG Engagement, Moody’s & President, Network for Sustainable Financial Markets

ANSWERSocial justice and equality is an ongoing process. It entails respect, care, and equity; with a consciousness on the impact of race and ethnicity, class, gender, age, sexual orientation, family responsibility or family status, religious or political conviction, pregnancy, and disability. Social justice and equality recognize inclusive behaviours in the construction of institutional, corporate and governance policies and practices, and seeks ownership, accountability and responsibility for these behaviours. By recognizing human rights, and the dignity of each individual as a categorical imperative, investors, corporations and public institutions should seek to establish a global community of respect, resilience and purpose. This approach in turn is a fundamental part of the social agenda in ESG, and its philosophy for long-term value creation.

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERJed Emerson, Independent Strategic Advisor to Impact Investors, Blended Value Group

ANSWERWhat inspires me regarding ESG’s potential as a vehicle for the advancement of social and gender justice is that ESG is all about the illusion of separation—the idea that it is wrong to think that one can consider economics in the absence of considering social and environmental factors—and social/gender justice is, at its core, a question of our understanding the links between Self and Other, between who we are as individuals and who we are as communities and society. Just as diversity makes for strong eco-systems and viewing the firm as part of the stakeholder whole and commons makes for stronger companies, for each of us to fulfill our own individual potentials all of us must be supported in attaining our individuals possibilities, which at its core is what social and gender justice offers.

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERChristina Shim, Managing Director, Commercial Innovation Palladium

ANSWERIn this world rife with ramifications – both positive and negative – from COVID and the BLM movement, now is the time for real change – if not simply because it’s the right thing to do, then because people are demanding it. The business world has made statements and committed funds, but their efforts ring hollow in the ears of stakeholders who have become disillusioned by posturing without progress. Same with ESG investing, with many investors considering socially responsible investing tied to the SDGs or ESGs as public relations issues. Investors and the trillions of dollars of available capital can touch every facet of our lives – that amount of deployed capital is too immense not to play a meaningful role. Focusing on investing through an ESG lens – by focusing on impact to communities (as partners rather than beneficiaries) and moving beyond the box-ticking – can have serious catalytic consequences on social justice and gender diversification. It’s inspiring to think that we’ve started to see different worlds coming together to create these catalytic changes, which require a focused assessment of the current state, a targeted outcome of what the investments want to achieve, and a roadmap for realization. Social justice and gender diversification is for all of us to solve – and in particular, those groups, organizations, and investors that have historically enjoyed a position of relative power in society.  

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERMegan Fielding, Senior Director, Responsible Investing at Nuveen & Head of Strategic Partnerships

ANSWERThere is a clear connection between the integration of ESG issues and financial performance. This includes strong evidence supporting the benefits of gender and racial diversity, and conversely, penalties when these issues are not prioritized. We are now experiencing a cultural and economic alignment that is rapidly driving progress–financial materiality, performance results and investor demand—and this convergence will likely lead to positive change for both investors and society at large.

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERKesi Gibson CEO/Founder – Club Debut

It is terrific that considerations of environmental, social and governance issues are now being incorporated into institutional investors’ decision calculus. This will go a long way, particularly on the environmental front, where there are tangible metrics to report on. Gender diversification will also continue to be a priority for companies, as investors respond to the demands of the feminist movement and other diversity related campaigns, making women in leadership a prerequisite for investing.  When it comes to social justice, I am honestly in no way inspired that the widespread approach to ESG investing will do much to engender lasting change. I would go as far as to say that it is disingenuous to tie the two together. Definitionally, social justice relates to the  distribution of wealth, opportunities, and privileges within a society. For social justice to be relevant in any discourse on ESG investing, the accepted metrics around ESGs would have to, at a minimum, address access to capital for underserved entrepreneurs, and businesses owned and operated by people of color. That said, I am inspired by the conversations around race, class and privilege that are now happening among the people (particularly the investor class) who truly have the power to make progress on social justice, beyond words. 

QUESTIONQuestions by:
The Socially Inspired Investor Digest

ANSWERInterview with:
Heather Lang – Executive Director at Sustainable Finance Solutions and Sustainalytics.

QUESTIONTell us more about Sustainalytics

ANSWERSustainalytics is a leading environmental, social and governance research and rating firm and we use the acronym ESG throughout. Our clients are among the largest global institutional investors, banks and corporations, and our principal business is really to support our investor clients in incorporating ESG insights into their investment decision making. We have over 25 years of experience in the industry, so in that sense, we’ve really evolved. We participated in the industry’s evolution from niche to mainstream.

QUESTIONAre there bonds that are directly involved in helping us recover from the impact of the coronavirus?

ANSWERYes. Social bonds have really emerged as an important instrument for allocating capital to some of the impacts of Covid-19 and those tend to focus on two key areas. The first is health care and the second is socio-economic impact. For healthcare we might see subsidization of pharmaceuticals for treatment of Covid-19 or research and development for potential vaccines, to name a couple of examples.

QUESTIONTell us a little bit more about green bonds and what types of projects are involved in that?

ANSWERGreen bonds are distinguished from plain vanilla bonds. There are three main areas and one is green buildings. Here we would be looking at companies that would be looking to finance or refinance LEED certified buildings, for example, that meet best practices for energy efficiency. Transport could include investing in a green transit system, or changing fleet from diesel to electric vehicles, or electric trains. The third category, of course, renewables would involve seeing any investments in projects that would support increased use of renewable energies, including solar, wind, biomass and hydroelectric, for example.

ANSWERSo those three categories accounted for about 80 percent of 2019 issuance, and Green bonds constitute the largest segment of the sustainable finance market, accounting for about 260 billion in 2019. But it’s also worth noting that there are other related instruments under the sustainable finance umbrella. Those include social and sustainability bonds, along with green loans and sustainability linked loans. Social bonds though they have a smaller market share, they directly target disadvantaged groups in accessing healthcare, education, affordable housing, gender equality, to name a few; whereas sustainability bonds include both environmental and social projects. And while green bonds really are the market driver, we have seen an uptick in social and sustainability bonds in recent years and particularly a noteworthy uptick in social bonds in the context of the pandemic.

QUESTIONWhat kind of examples are you talking about with Social Bonds? Where is that money going?

ANSWERIt’s largely being targeted towards vulnerable or disadvantaged groups in a variety of contacts, making accessible housing, healthcare, education and transport. Often there’s also an overlap in the sustainability bonds. For example, you invest in transport both on the environmental side and on the accessibility side, to make sure that it’s more available to disadvantaged groups. There’s a lot of focus there under the under the social bonds on small to midsize enterprises and helping them to be more resilient.

QUESTIONOn the subject of Green Bonds, how are U.S. companies participating?

ANSWERBoth financial and non-financial corporates represent about 45 percent of green bond issuance in 2019, and these are large corporates that we know such as, Apple, Starbucks and Pfizer. Financial institutions have played a leading role in this space, both in terms of issuing, and underwriting green bonds. However, we’ve also seen a lot of different sectors come into the green bond space in recent years. There is a lot more diversification now to include tech, telecom and food retail, alongside other traditional issuers like utilities providers and real estate companies as well as corporates.

QUESTIONAre green bonds utilized globally?

ANSWERWe have worked with sovereign insurers over the years and in the last couple of years, Luxembourg, Netherlands, Fiji, Korea; also-sub sovereigns and municipalities. Additionally, development banks have played an important role in the green bond market, especially in the early years, with the World Bank being the first to issue a green bond back in 2008.

QUESTIONSo, government entities are involved in some of these, too?

ANSWERYes, absolutely.

QUESTIONHow do non-government organizations (NGOs) use bonds for social purposes?

ANSWERThey arenot as common as other types of issuers; however, we have seen an increasing amount of nonprofit issuers in the last year or so. A couple of them that Sustainalytics have worked with include the Conservation Fund, the Low-Income investment fund and Century Housing. We’ve also seen recent issuances from a handful of foundations and most notably, including the Ford Foundation, which recently issued its first-time social bond. In doing so, the foundation was able to leverage investment to double its grant making from about half a billion to over a billion, to help stabilize the financial needs for organizations that might otherwise see a funding decrease, due to Covid-19, an associated economic impact.

QUESTIONAre there bonds that are directly involved in helping us recover from the impact of the coronavirus?

ANSWERSocial bonds have really emerged as an important instrument for allocating capital to some of the impacts of Covid-19 and those tend to focus on two key areas. The first is health care and the second is socio-economic impact. For healthcare we might see subsidization of pharmaceuticals for treatment of Covid-19 or research and development for potential vaccines, to name a couple of examples. For socio-economic impact, we’d be looking at loans for small to midsize enterprises at risks, projects to prevent or alleviate unemployment and other financial supports for vulnerable populations.

QUESTIONTell us about how Green Bonds work. Who decides where that money goes?

ANSWERThe project selection for Green Bonds is often a combined effort between sustainability and finance teams and depending on the assets to be financed, they can either choose one or multiple categories. It’s worth noting that there are a set of globally identified guidelines by the International Capital Markets Association and these are called the green bond principles. There are four specific categories that all companies need to align with.

• The proceeds have to finance or refinance green projects.
• There needs to be a clear and transparent process for determining project eligibility and any potential material risks.
• All of the proceeds need to be managed in a separate subaccount or sub portfolio.
• There’s an expectation from investors that there would be regular reporting, usually on an annual basis on allocations as well as key performance indicators.

QUESTIONAre there some tax advantages to getting the green bonds and investing?

ANSWERThere are several types of tax incentives for investor, there are tax credit bonds through which investors receive tax credits instead of interest payments. That way, issuers don’t have to pay interest on their green bond issuance. There are also tax-exempt bonds where bond investors don’t have to pay income tax on interest from the green bonds they hold and that’s most common in the U.S. muni market.

QUESTIONTell us about Sustainalytics relationship with Morningstar

ANSWERI’m pleased to announce that Sustainalytics was fully acquired by Morningstar, and that’s after partnering with them for a number of years on sustainable indices and ratings. This collaboration will really support the expansion of ESG more to individual investors, advisors and wealth managers around the world. On the sustainable finance side, which is the team that I’m leading up, we are also the leading global reviewer of green bond frameworks. We work with issuers and underwriters to accelerate capital allocation to sustainable solutions.

For more information go to: Sustainable Finance Solutions at Sustainalytics.

Originally published: June 17, 2020

QUESTIONQuestions by:
The Socially Inspired Investor Digest

ANSWERInterview with:
Esther Pan Sloane – Head of Partnerships, Policies and Communications at the United Nations Capital Development Fund (UNCDF)

---

QUESTIONEsther, can you explain briefly what the UNCDF is, and what it’s designed to do?

ANSWERThe last area that we work in is innovative financial instruments. We make loans and guarantees to small businesses in least developed countries, to help them grow and prosper. 

QUESTIONHow do you get the point across to individual investors from your standpoint that it makes sense to include investment vehicles in their overall strategy?

ANSWEREPS: Many investors are facing the questions, “How do I participate?”, “How do I support the issues that I care about?”, “How do I work to make a better world?”, and “What tools are at my disposal?”. 

ANSWERI think many institutional investors are hearing pressure from their shareholders and participants about how their money is invested. The nurses’ union in Sweden for example, mandated that the investments made by that union had to support gender equality and many pension funds are hearing that around the world. People who support family offices are hearing it from the next generation of wealthy individuals, who are very committed to social causes and are looking now at the corpus of their funds and saying, “What can I do with my investments that also reflect my values?”. You are seeing foundations move in this direction as well with PRI investments and looking at how do they invest their endowments.

ANSWERIf you are an individual investor and you care about issues like gun control, minority empowerment, or women’s economic empowerment, this is a new way that you can make decisions with your investment funds that reflect your values. We know for example, that it’s hard for many people to feel like they are engaged with the UN, we are working in many countries around the world. You may not have a direct connection to a woman microfinance entrepreneur in Myanmar, but you could buy certain funds on the stock market, get a market return for your money and know that that fund is supporting our work – UNCDF’s work, directly in the poorest countries. It was a way for us to try to pilot a vehicle that would allow people to connect their investment funds, get a return because we know that’s important for investors and that it’s a fiduciary duty of many fund managers, but also to support social organizations that are working to make the world better.

QUESTIONA part of your job must be raising money, talking to the big people who have the money and convincing them, it must be a big part of it?

ANSWEREPS: As the UNCDF is a UN agency the main focus of my fundraising is with governments. We are funded by donations, by grants from governments and we have a  responsibility to use that tax money effectively. What we are trying to do with these new vehicles, like with this one with Impact Shares is to pilot new instruments that can use taxpayer dollars that we are receiving to catalyze or attract private sector dollars, to areas where they otherwise would not go and have achieved a sustainable development outcome. For example, our biggest donor at UNCDF is Sweden and Sweden has been very creative in their use of grant funding where they will allow us to use their grant money to make loans to small businesses. We are doing that at concessional rates that help small businesses survive but then when the businesses pay their loans back, which they do, we are allowed to keep the income to make new loans. It’s essentially a smart way to do philanthropy because you’re creating a self-regenerating source of finance. 

QUESTIONWith the rise in interest in socially responsible investing in recent years do you think that the COVID-19 experience will actually speed up that trend a bit?

ANSWEREPS: I hope so and that’s been topic of discussion at the UN and in a lot of multilateral forums lately which is the clear evidence that societies that had stronger social safety systems have responded better to the COVID crisis. If you had a strong health network, good access to healthcare and a strong social safety net, businesses would not over-leverage. They had good access to reliable sources of finance and were able to withstand the shocks better. Even in this first stage where governments are really focusing on their response to the health crisis and trying to mitigate the health impacts, it’s very clear that the economic impacts that have come along with things like social distancing and shutdowns are hitting poor and less equal communities harder. And that will be doubly true of poor countries.

ANSWERI heard this morning there are 150,000 confirmed cases of COVID in all of Africa but that’s not because that’s how many cases there are, it’s because that’s their capacity to test. Once it becomes evident that you know that this disease has really hit, you are in societies where there is no reliable access to clean water, the food supply is disrupted, 80% of the economy works in the informal sector, there are weak social safety nets so imagine the health and economic pain we’re going through in the United States or a developing country and then magnify it by a thousand for a poor county.

ANSWERI think many investors and policymakers are realizing that the impacts of a crisis like this really show the effects of the policy choices we’ve made in the past. As societies have chosen to invest in certain aspects of our infrastructure or business cycles or access to public services at the expense of others and now we are seeing the impacts of that in some very negative ways. I think it will accelerate the move towards sustainable development investing or investments that are aligned with ESG principles because It is a terrific opportunity to build a better society, build back better. The fiscal stimulus that has been released now to deal with COVID could go into clean energy investments or water investments or technology of the future, that will really help us get on the right pathway to achieving both the sustainable development goals and the Paris Agreement. It also highlights that choices we’ve made in the past have really negative impacts. 

ANSWERFor more information about UNCDF go to www.UNCDF.org

Originally published: March 25, 2020

QUESTIONQuestions by:
The Socially Inspired Investor Digest

ANSWERInterview with:
Charles Hamowy, CFP®, CPA/PFS – CEO Saad Tahir – SVP & Partner – Investments & Operations Seasons of Advice Wealth Management, LLC.

---

QUESTIONWhat inspired you to start the Stewardship Personal Values Portfolios? Or rather, what event or series of events lead to the creation of these portfolios?

ANSWERCH: In February a couple of years ago, I think we will all remember a horrific shooting at the Marjory Stoneman school in Parkland Florida. Now certainly there had been other terrible mass shootings but for some reason it seemed we had reached a tipping point. Almost immediately I started to receive calls. All from clients with whom we have worked on behalf for decades. But now asking a question they’ve never asked before, am I investing in gun companies. The truth is pretty much all mainstream index funds do include gun companies. It dawned on me that for whatever reason the time had come that we need to be more accountable to not just returns, which are extremely critical but also the values that people have. And it’s not only guns. People have strong feelings about the environment and even the way companies treat their employees. We knew it would be hard but partnering with companies like Morningstar and others, we were able to build an investment strategy that not only focused on risk balanced returns, but also gave our clients a way to vote their investment dollars to reflect their personal values. This became the Stewardship way of investing. For the future we believe this kind of filtering will result in better performance in the long run.

QUESTIONDescribe your approach on how you filter investments for the Stewardship Personal Values Portfolios?

ANSWERST: At Seasons of Advice, we use a proprietary scoring algorithm to filter mutual funds and ETFs through the Morningstar DIRECT platform. Using their data and additional screening through Sustainalytics, we are able to filter this list of investments further by eliminating all investments that are rated average or lower on the Sustainability Rating spectrum. This filters the list of investments down from a few thousand options, to a few hundred. We then overlay this list of investments with an additional layer of filters revolving around specific areas of concern that include controversial weapons, palm oil, thermal coal, tobacco, small arms, and animal testing, which is optional. We look to eliminate investments that have more than 5% of their assets invested in companies involved in any of these areas of concern. Once filtered for the areas of concern, we look for the best option in each of the asset class categories that are represented in our firm-wide allocation models. We compare the investment in each category to its relevant benchmark to make sure the performance is in line or better and then add the investment to our “buy” list. This filtered list of mutual funds and ETFs is also complemented with some individual stocks that score high on ESG concerns to add a little extra alpha to the portfolio.

QUESTIONWhy is this approach different than buying a singular socially conscious fund like the Vanguard FTSE Social Index Fund?

ANSWERST: That’s a great question! What singular investments like the FTSE Social Index Fund are offering you is one investment that primarily invests in stocks and comes with the risk metrics of a stock investment. Our goal with the Stewardship Personal Values Portfolios is to provide a fully asset-allocated portfolio that not only manages risk by giving you access to stocks, bonds and alternatives but further breaks out those categories. I believe this focus on a fully asset-allocated portfolio and risk management by investing in multiple asset classes is the single biggest differentiator between a pre-packaged fund like the FTSE Social Index Fund and our Stewardship Personal Values Portfolios.

QUESTIONHave you been surprised by any of the findings once you started filtering for these specific “areas of concern”?

ANSWERST: There’s been a few surprises or “aha” moments as we have continued to work on the Stewardship Personal Values Portfolios over the past couple of years. The biggest one that comes to mind is the continuous addition of investments that now have an ESG mandate. This can be seen in recent announcements by people like Larry Fink, the CEO of BlackRock, who wants to turn BlackRock into an ESG focused asset manager. Another big surprise to me personally was how performance wasn’t affected by focusing more on investments that have an ESG focus versus investments that did not. In the past, one of the biggest reasons for not investing in these ESG investments was the belief that they tend to underperform their non-ESG focused counterparts. When we began to filter investments for our Stewardship Personal Values Portfolios, we came across countless options in multiple asset classes that were either outperforming or performing in line with their non-ESG counterparts and the subsequent indices. I think as this space continues to evolve over the next few years, we’ll find ourselves being surprised less and less since ESG focused investments and investing seems to be the way the industry is headed.

QUESTIONHow does weaving personal value choices or principles into an investment portfolio strategy help or hurt performance?

ANSWERST: Based on the results we’re seeing; performance is definitely not being hurt by investing ones personal value choices or principles as part of the investment strategy. We have a number of clients who have now been invested in the Stewardship Personal Values Portfolios since the onset in late 2018 and the performance since inception is on par, if not out-performing their blended benchmarks. As we mentioned before, we continue to back-test these portfolios using Morningstar DIRECT portfolio snapshots over the last 1, 3 and 5 years. The trend appears to be that these portfolios will perform just as well if not out-perform their blended category indices. Again, this is a back-test based on data already available and no guarantee for future results but the fact that more and more investments are now being offered with an ESG mandate will only help portfolios outpace their blended benchmarks.

QUESTIONThe risks to investors of most Climate Change scenarios seem overwhelming for the next decade. How do Stewardship Personal Values Portfolios manage climate risk?

ANSWERCH: As Saad mentioned, the Stewardship portfolios only feature companies that have above average or high ratings for Environment, Social and Governance. The investors pool their money to try to influence the decision makers. By proactively filtering out activities companies that are unfriendly to the environment like thermal coal and palm oil producers, our investors are giving a clear message that they will not allow their money to fund these types of companies. Even more so, Stewardship Portfolio investors along with all the other ESG oriented investors expect the Leaders of these companies to take the efforts to respect the environment with the hopes that one day, working together, we can have an impact on climate change.

QUESTIONHow do Stewardship Personal Values Portfolios determine which responsibly managed companies are well-positioned to provide strong long-term growth?

ANSWERCH: That’s an interesting question. Well really, the Stewardship fund follows the same process the parent company uses to determine the best investments for the future. The highly successful Seasons of Advice methodology and algorithms that have been used in the mainstream investments for decades are part of the approach for the Stewardship portfolios. The goal of all the company investments is to meet or exceed benchmarks net of fees. We are very proud of our results.

QUESTIONHow do you think the Stewardship Personal Values Portfolios will evolve over time since the industry seems to be moving in the direction of “green/ethical investing”?

ANSWERCH: We are already working on Stewardship 2.0. We now have the technology for consumers to custom build a portfolio by selecting from a long list of what are called impact items. Specifically molding the investments to further customize target goals such as focusing on women’s and diversity issues as well more focused client issues.