I used to be a monk. Now I’m a financial advisor. For a while, I was both a monk and a financial advisor. For some reason, those facts make me a sort of unicorn to most people. But that is why reconciling faith with finance is so important. For too long, religion and money have been held separate, as if the very existence of one sullies the other. But the cold hard truth of modern life is that we need money. We can’t live our lives and serve others without it. Everyone needs a little bit of wealth — even monks. I discovered this fact the hard way when our community went bankrupt.
However, some Christians will cherry pick quotes from the Bible or parse a single passage to avoid the conflict between faith and finance. One of the more popular justifications is to re-interpret key passages, like 1 Timothy 6:10: “For the love of money is a root of all kinds of evil, and in their eagerness to be rich some have wandered away from the faith and pierced themselves with many pains.”
I’ve heard preachers say that it is the “love” of money that is the problem, not money itself. For me, this is like saying sex isn’t a problem, enjoying sex is the problem: Have all the sex you want, just don’t like it very much. That’s a little silly too. I love having sacks of money.
But that doesn’t mean there aren’t serious spiritual dangers around money and sex. Money can too easily amplify our selfishness and derail our spiritual growth. Rampant selfishness at the expense of others is unspiritual, unkind, and in opposition to the core teaching of the world’s religions.
We need to find a way forward that allows us to care for the poor and our planet, without feeling guilty about having money, and enjoying it wholeheartedly for the good it produces in the world and our personal lives.
I suggest being mindful about your money by giving your money some love—the right kind of love. Not avarice or greed, but spiritual love. Love that is attentive, patient, and kind, and mindful of our responsibility to live in alignment with our values.
For example, in Ancient Greek, the original language of the New Testament, there are four different words for love. Each has a unique flavor and nuance. But in English, we only have one word for love. All four Greek terms get jumbled together, creating much confusion about “love” of money. This is a topic worthy of an entire book, but it seems reasonable to distinguish between selfish, narcissistic love of money for self-aggrandizement versus a higher love of money that is mindful, filled with gratitude for our blessings, and increases our capacity for service.
The phrase, “love of money” in 1 Timothy 6:10 comes from the word philargyria, which literally means love of silver. Phil is one of the Greek roots for love, and argyria is silver, the metal that ancient Greek coins were made from. (Argyria rhymes with Algeria.) Philargyria has a profoundly negative connotation and refers to avarice.
What I suggest is that we need agape-argyria: divine love of money. Agape, the highest form of love, also means charity. It is a selfless love fervently devoted to the service of others. Agape allows us to love that which is intuitively unlovable: the sinner, the criminal, the fool, the leper—and perhaps even money.
Why shouldn’t money and God work together? It is true that no one can serve two masters. “Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.” Matthew 6:24. But here’s a cool trick: You can make money to serve God. Just not the other way around.
Economics, like science, is one of the most effective tools available to alleviate suffering. We’ve updated our religious and moral framework over the centuries to include scientific discovery and the scientific method in our worldview. Given the demands of a modern economy, we need to update our religious and ethical worldviews to have a healthier attitude toward money by not layering all money talk with guilt and shame.
As philosopher Ken Wilber points out, a core function of our wisdom traditions is to help us with four key stages of psychological development: growing up, cleaning up, waking up, and showing up. Agape-argyria can help with all of these. First, it helps us grow up in our relationship to money by avoiding a dualistic, good or evil, view of money. Then it can clean up our selfish, ego-driven desires for personal gain at the expense of others. Next, it can wake us up to the reality of climate change and the social injustices created by our current economic systems. And finally, agape-argyria can help us show up and make a difference in the world by aligning our investments with our values.
After all, money is just a sponge that absorbs the intent of the user. We can use it to make the world better or not.
So, how are you going to make your money a force for good?
Article by Doug Lynam, partner at LongView Asset Management, LLC, in Santa Fe, NM and an industry thought leader in ethical and sustainable investing.
Profiled in numerous media outlets such as the New York Times, Kiplinger’s, CNBC, Entrepreneur, and The Street, Doug brings a unique perspective to the world of finance. His ground-breaking book, From Monk To Money Manager: A Former Monk’s Financial Guide To Becoming A Little Bit Wealthy – And Why That’s Okay, receives enthusiastic reviews for its wisdom and thought-provoking insights told with humility and humor.
Doug is a self-proclaimed “Suffering Prevention Specialist,” as well as a cartoonist, columnist, and speaker. He graduated Marine Corps Office Candidate School, was ordained as a Benedictine monk by Fr. Richard Rohr, and taught math and science for 18 years while in the monastery. He continues to provide pro bono advice to low-income families and has won awards for his volunteer efforts for the homeless.
“A monk, a Marine, and a money manager walk into a bar . . . actually, they wrote a book and they are all the same person! Doug Lynam is one of the most interesting people I know.” – Scott Dauenhauer
There can be no doubt that the field of responsible investment is in the midst of a series of significant changes. Rating systems are moving from the qualitative toward the quantitative, and subjective research techniques are being challenged by artificial intelligence and big data. The structure of the industry is also shifting, with mainstream investment managers entering a field that for many years has been served mainly by specialized boutiques. Brian Bruce, the editor of the Journal of Investing, recently surveyed the 30 largest asset management organizations and found that every one of them now claims to have Environmental, Social and Governance (ESG) capability.1
Some might also note a shift in emphasis in the field away from values – especially religious values, and toward disclosure standards and empirical tests of ESG performance within an industry. One way to see this change is in the relative prevalence of exclusions, which tend to be more values-based, and ESG integration, which tends to have a more quantitative and sustainability-oriented character. The distinction can be subtle, but it is very important: exclusions are typically about what a company does, ESG integration is typically about how the company does.
The Global Sustainable Investment Alliance reports that the two approaches are now roughly comparable in scope: exclusions are employed in the management of $19.8 trillion in assets globally; ESG integration accounts for $17.5 trillion, but is growing faster (but many managers employ both techniques, so there is some double-counting in these figures).2
So does this represent a tipping point? Will values-based exclusions soon be eclipsed by newer approaches? I strongly doubt it, for two reasons. First, the wealth management market – particularly in the U.S. – is more focused on religious values than many realize. And second, faith-based investors have not just been a part of the responsible investment movement, they were its creators, and remain vital to its success.
A Faithful Market
While surveys find that perhaps ¼ of the investment assets in the U.S. are managed according to some type of responsible investment policy3, this figure seems low when you consider the beliefs of the population. When asked in a recent Gallup poll if they believed in God, 87% of respondents in the U.S. said yes.4 And, despite a decline in churchgoing, most still identify with a particular religious tradition. According to the Pew Research Center, roughly 2/3 of Americans consider themselves Christian, although demographic and cultural changes have led to significant change over the past ten years (see chart).5
The novelist John Updike noted that religion can be “a mode of defiance, insisting, This is what I am.”6 For most Americans, it remains an important marker of identity.
Here is a story that I have heard several times in recent years, with different investment teams in different organizations: A new ESG product is developed, embodying the best modern techniques and perhaps incorporating some new innovations. The marketers call prospective investors to test the waters, and the word comes back that there is strong early interest – if the product can be adapted to the needs of faith-based investors.
The tipping point, if it comes, still seems far off.
Influence on Responsible Investment Practice
Religious investors have been a vital force in the development of modern responsible investment. Pax World, the first responsible investment mutual fund in the U.S., was launched in 1971 by Methodist ministers Luther Tyson and Jack Corbett.7 In that same year the Interfaith Center on Corporate Responsibility (ICCR) was founded, and over the next half century members of that organization have been actively engaged with corporations on issues ranging from the South Africa boycott to climate change.8 In 2020 ICCR members filed 281 shareholder resolutions, resulting in 114 substantive agreements for change at corporations.9 .
Religious concerns on some issues are quite longstanding. Harmful products are a good example. By most surveys tobacco is the #1 or #2 exclusion used in the field.10 Christian avoidance of harmful products goes back at least to the sermons of John Wesley, one of the founders of Methodism, who in the 1800’s warned his congregation that they ought not to “gain by hurting our neighbor in his body…we may not sell anything which tends to impair health.”11
Over the past decade, however, climate change has surpassed even tobacco as a governing issue in responsible portfolios. In 2015 Pope Francis issued an encyclical letter strongly endorsing this trend, and stating plainly that “for human beings… to destroy the biological diversity of God’s creation; for human beings to degrade the integrity of the earth by causing changes in its climate, by stripping the earth of its natural forests or destroying its wetlands; for human beings to contaminate the earth’s waters, its land, its air, and its life – these are sins.”12
As practitioners we sometimes forget that we live in a religious world, and that deeply-held matter of faith may be of greater import to our clients than the profit and the loss. The participation of religious groups in the world of responsible investment has been constructive, effective, at times even decisive. We’d be wise to remember this as we prepare to meet the challenges to come.
Article by Lloyd Kurtz, CFA, senior portfolio manager and Head of Social Impact Investing for Wells Fargo Private Bank in San Francisco, California. Prior to joining Wells Fargo, Mr. Kurtz was chief investment officer and co-head of the investment committee for Nelson Capital Management. Before joining Nelson Capital, Mr. Kurtz spent nine years as a research analyst and director of quantitative research at Harris Bretall Sullivan & Smith, a San Francisco-based money management firm. Before that he was senior research analyst at KLD Research & Analytics in Boston, one of the first research firms to specialize in ESG (Environmental, Social, and Governance) investment.
At KLD, Mr. Kurtz participated in the development of the Domini Social Index, now known as the MSCI KLD 400, the first broad-based ESG benchmark in the U.S. Mr. Kurtz has written numerous articles on the impact of ESG factors on portfolio risk and performance. In May 2017 he was appointed to the Sustainable Accounting Standard Board (SASB), a non-profit organization that sets standards for corporate sustainability disclosure. He has been in the financial industry for more than 29 years.
Mr. Kurtz is affiliated with Northwestern University’s Kellogg School of Management, where he serves as faculty co-chair of the Moskowitz Prize research competition, and as a member of the steering committee for the Impact & Sustainable Finance Faculty Consortium.
Mr. Kurtz holds an MBA from Babson College and a B.A. from Vassar College, and holds the Chartered Financial Analyst® designation.
Footnotes:  Brian Bruce. “Editor’s Letter.” The Journal of Impact and ESG Investing, Fall 2020.
Wells Fargo Bank, N.A. offers various advisory and fiduciary products and services including discretionary portfolio management. Wells Fargo affiliates, including Financial Advisors of Wells Fargo Advisors, a separate non-bank affiliate, may be paid an ongoing or one-time referral fee in relation to clients referred to the bank. The bank is responsible for the day-to-day management of the account and for providing investment advice, investment management services and wealth management services to clients. The role of the Financial Advisor with respect to the Bank products and services is limited to referral and relationship management services
Wells Fargo Private Bank, a Wells Fargo business, provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.
The information and opinions in this report were prepared by Wells Fargo Private Bank. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent Wells Fargo Private Bank’s opinion as of the date of this report and are for general information purposes only. Wells Fargo Private Bank does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.
(Above – Azure, a Calvert Impact Capital portfolio partner, is an initiative that mobilizes capital and technical expertise to upgrade and expand water services for the poor in rural and peri-urban communities of El Salvador. Azure was launched through a partnership between Catholic Relief Services (CRS) and the Inter-American Development Bank’s Multilateral Investment Fund (IDB/MIF)).
Justice, justice, justice shall you pursue.
For many of us who engage in impact investing, this verse from Deuteronomy 16:20 is a familiar one, our clarion call to pursue a path of justice and healing – which includes the responsible stewardship of our personal and communal assets. Many more Americans have become familiar with this verse, as the words hung in the chambers of esteemed Supreme Court Justice Ruth Bader Ginsburg, a touchstone for her as she pursued a life committed to justice.
Today, the call for justice is growing louder, with a global pandemic that has laid bare the deep fissures in our society and a legacy of systemic racism and economic inequality that we as a nation can no longer ignore. And in the midst of this crisis and churning, we are also experiencing a great awakening to the possibility of transforming society, as we acknowledge our interdependence, and make real a world that is just, equitable, and sustainable.
For all investors, but particularly for communities of faith in these turbulent times, the prospect of impact investing offers an abundance of meaningful opportunities to realign and reaffirm how our values support our investment strategies. From a congregation that decides to make a deposit in a local credit union or Black-owned community development bank, or to a church-based pension fund that invests in climate resilience, there are multitude of options and approaches across asset classes and impact themes for investors to explore.
Like many of us working in this dynamic space, my own impact investing journey began well before the term was coined. In the late 90s, I had the good fortune to work alongside visionary leader Jeffrey Dekro to organize the first and only national initiative to encourage American Jewish individual and institutional investing in CDFIs and low-wealth communities. Our “why” was steeped in Jewish values, teachings, and our historical experience as immigrants. To undertake the “how,” we looked to leaders across faiths as our models and partners, as well as to secular funds like Calvert Impact Capital, as we supported congregations, foundations, and communal organizations to make their first impact investments over the course of a decade-plus. We also launched an interfaith disaster response fund, focusing on critical recovery programs post-Hurricanes Katrina, Rita, and Sandy, demonstrating the power of interfaith investor partnerships.
In doing this work, we were part of a long and storied tradition. Faith institutions helped create the impact investing market as we know it today. Over the decades, faith communities have served as true pioneers and risk takers, demonstrating again and again that impact investing is a viable strategy in pursuit of justice, offering opportunity to our most vulnerable and disenfranchised communities, locally and globally.
At Calvert Impact Capital, one of the first impact funds in the US, faith investors have been our partners since we began our work 25 years ago. By that time, faith investing in US community development financial institutions (CDFIs) and international microfinance was an established practice, with Catholic orders and women religious at the vanguard. Today, faith investors currently represent more than 15 percent of our $500 million capital base. They include congregations, churches, health care systems, mutual funds, and foundations, and span denominations and affiliations – Catholic, Baptist, Mennonite, Jewish, Unitarian, Methodist, and many others. We also know that many of our 5,400 individual investors are inspired by their traditions; our most recent investor survey revealed that 26 percent of respondents “invest because of my faith.”
As Director of Faith Based Initiatives, I serve as a resource and a connector for faith institutions and their financial professionals — chief investment officers, financial advisors, and asset managers — leveraging Calvert Impact Capital’s impact investment expertise. Since 1995, we have helped over 150 faith-based groups develop their first impact investing programs or enhance programs already underway; overcome barriers with internal finance committees, leadership, external financial advisors, and fund managers; explore creative ways to deploy their assets; and connect with other faith investors doing this work to share successes and lessons learned. We understand well that for many faith investors travelling from the faith-specific “why” to the “how” is a process of discernment, listening, and eventually, action. We also work very closely with financial advisors and professionals who are committed to supporting their faith clients on this journey.
Faith-based investors are natural leaders of the impact investing movement and we want to ensure they are fully equipped to reach their potential. This is why over the next year, we will offer a series of training opportunities and resources to educate faith investors and build a deeper impact investing practice among them.
Answering the call to be part of the solution to our urgent local and global challenges has never been more urgent. Drawing from the examples set by many faith investors so far, we encourage congregations and institutions of all faiths and religious traditions—and the community of financial professionals who support them—to seek justice and put faith into action through impact investing.
Article by Amanda Joseph, Director of Faith-Based Initiatives at Calvert Impact Capital, a leading impact investment firm that through its products and services has mobilized over $2 billion in investments to create a more equitable and sustainable world. She serves as a resource for faith-based investors on their impact investing journeys and partners with faith leaders and networks to build the capacity and community of practicing faith-based impact investors.
Previously, Amanda worked at Opportunity Finance Network, the nation’s leading association of community development financial institutions (CDFIs) committed to providing affordable, responsible capital and financial services to communities not served by mainstream finance. She has held senior management roles at a technology company assisting Americans to sustainably move out of poverty and for a decade-plus at Jewish Funds for Justice/The Shefa Fund where she managed the first and only national initiative to organize the American Jewish community to invest in low-wealth communities across the county.
Amanda has prior experience as a commercial loan officer for the Self-Help Credit Union, and has worked with a range of mission-driven organizations. She holds an MBA from the Yale School of Management, and an AB from Bryn Mawr College.
Bringing a lens of faith to the reality of low-to-moderate income communities during these challenging times
2020 has been a year like no other and will definitely make it into the U.S. history books. This spring the reality that we were in the middle of a growing pandemic slowly dawned on every sector of our society with destabilizing certainty. We have lived through ever increasing and loosening restrictions as authorities take measures to contain the spread of the virus across the country. Now these same officials are trying to figure out how to safely reopen with coronavirus still present and active in our communities.
Many of us – particularly knowledge workers – have had our share of inconveniences in this new reality: working from home while managing multiple distractions, not being able to connect with our families and friends like we were used to, figuring out how to explain what improper fractions are to our children, etc. – all for the greater good. We have been practically “loving our neighbor” by wearing masks, social distancing and doing our part to “flatten the curve.”
But what of those who cannot easily work from home? Whose labor on-site, on the front lines of our economy helps the rest of us minimize our interactions with others? Many of these essential positions belong to low-to-moderate (LMI) income individuals, a significant number of whom are people of color. According to the Kaiser Family Foundation, nearly 65 percent of households living in poverty in America are black, Hispanic or Native American
It is times like these that people of faith and others of shared values are called to reflect deeply on what it means to “love our neighbor” and to care for those relegated to the margins. How can this current crisis not only spur us to action today but challenge us to better understand the linkages between economic vulnerability and historic patterns of inequity due to race, gender and ethnicity? The prophet Micah’s encouragement to “do justice, and to love kindness, and to walk humbly” (6:8, NRSV) is uncomfortably relevant, again, in 2020.
Understanding the Low-to-Moderate Income Community
According to federal Community Reinvestment Act criteria, a low-income person makes 50 percent or less of the Average Median Income (AMI) of a metropolitan area or census tract, while a moderate-income person makes between 50 percent and 80 percent of the AMI. Because the AMI varies from one area to another depending on incomes of the residents, a geographical region can be considered an LMI area if more than half of the people living there meet the definition of low-to-moderate-income. These distinctions impact not only the lives of individuals and families, but also entire communities.
LMI Implications – COVID-19 Vulnerability
When more than half of the residents of a metropolitan area or census tract are low-to-moderate income, it is considered a low-income area. People in low-income or minority communities are more likely to work in jobs that expose them to the coronavirus – in factories, grocery stores, public transit etc. These individuals are less likely to have paid sick leave, have higher rates of chronic illnesses and are more likely to live in crowded housing. They also have less access to health care, especially routine preventive services.
Emerging research on the effects of COVID-19 is showing that racial and ethnic minorities are being disproportionately affected. In New York City, for example, a study by the Department of Health revealed an overrepresentation of blacks among hospitalized patients. According to the study, this is also true among COVID-19 deaths for which race and ethnicity data was available; death rates among black/African-Americans (92.3 deaths per 100,000 population) and Hispanics/Latinos (74.3) were substantially higher than that of whites (45.2) or Asians (34.5).
Living a Different Reality
For people of the Christian faith (as well as others) the holy scriptures are filled with verses about how we are to treat the poor, care for the widow and orphan, welcome the alien and include those who are marginalized. More importantly, these verses are rarely just a suggestion, but rather a command. We are instructed to see them, embrace them, and respond to them as a reflection of God’s love for us. This starts with developing an understanding of a reality that can be very different from our own. While 2019 and 2020 have seen record stock market gains, many LMI workers continue to struggle to make ends meet with jobs that don’t provide financial stability or reliable benefits, including health insurance and paid sick leave.
According to the 2019 Scorecard by Prosperity Now:
Over one in five (22.5 percent) jobs in the United States are in a low-wage occupation
40 percent of households don’t have enough savings to make ends meet for three months if their income is interrupted
13.2 percent of all households fall behind on their bills
Almost half (48.1 percent) of Americans with credit have scores below prime
20 percent of households have no access to mainstream credit
These numbers represent tens of millions of workers and households that must rely on low or unreliable wages to get by. Their fragile, day-to-day economic existence can continue for years and, increasingly, even beyond and between generations. This reality falls disproportionally on communities of color and fails to reflect the vibrancy and economic opportunity within them.
Surviving Financial Shocks for LMI Households
Often when an LMI household faces a financial hardship, something as minor as a car repair or routine medical expense can threaten their economic stability. Because they have less in savings than the general population and often lack of access to affordable credit and health care, such hardships could quickly lead to skipped bills, forgone medical care or even food insecurity and homelessness.
The speed at which COVID-19 has brought much of the main street economy to a screeching halt has exposed major gaps in how our society is caring for its “essential” LMI households. The government moved quickly to address some of these gaps through three stimulus packages totaling $2.1 trillion, which is a good start, but so much more is needed as the crisis extends into 2021
What Can Faith-based and Other Impact Investors do to Help?
The first epistle of John addresses the need for us to love one another in very real and tangible ways. “How does God’s love abide in anyone who has the world’s goods and sees a brother or sister in need and yet refuses help? Little children, let us love, not in word or speech but in truth and action.” (1 John 3:17-18, NRSV) Traditionally seen as a call to greater charity, in 2020 this verse —and many others — can provide inspiration for investors to integrate their values and pursue impact through their portfolios as well.
As values-driven investors, we are uniquely suited to love our neighbor through financial structures designed to provide solutions that meet human needs.
Invested capital, in service to marginalized communities and in response to historic inequities, can take a variety of forms, including:
Catalytic (below-market) Community Development Investments — For more than two decades, Praxis Mutual Funds has channeled nearly one percent of each mutual fund’s assets to investments in community development financial institutions (CDFIs) serving those on the margins. SRI mutual funds look to these investments to address issues of racial economic inequality and to help underserved communities respond to systemic threats such as COVID-19.
Positive Impact Bonds — While many are familiar with the rapid growth of Green and renewable energy bonds, less well known is the growth in bonds now being issued to target other social and community infrastructure needs. These market-rate, fixed-income investments support particular social or environmental outcomes, allowing the Praxis Impact Bond Fund and other SRI fixed income funds to become active, targeted investment vehicles strengthening vulnerable communities in the U.S. and internationally.
LMI-focused shareholder advocacy — For nearly three decades, SRI funds have leveraged their voices and influence as institutional investors in pursuit of racial justice and in support of low-income communities worldwide. For Praxis, these efforts have included shareholder engagements in response to the Coronavirus pandemic and efforts to promote racial and gender diversity on corporate boards and among executives.
These strategies represent just a start in what faith-based and values-driven investors can do to promote equity and opportunity in the communities we seek to support. We can and should continue to find ways of “loving our neighbor” in ways that restore hope and opportunity. It is a challenge and calling we embrace.
Article by Stella Tai, Manager of Stewardship Investing Impact and Analysis for Praxis Mutual Funds® and Everence® Financial, a leading provider of faith-based financial products in the United States. With more than 15 years of experience in small business lending and non-profit development, Stella provides primary leadership and support for the promotion, integration and development of impact investing and community development finance solutions.
Stella guides the development of financial products that meet the needs of low-to-moderate income (LMI) communities, helps promote the integration of faith and finances through Everence products and services, and works to grow opportunities for impact investments. Stella also leads proxy voting and impact reporting efforts.
Before coming to Everence, Stella was the Assistant Vice President of Lending at FINANTA, a Community Development Financial Institution (CDFI) in Philadelphia, Pennsylvania, where she provided access to capital, small business training, technical assistance and credit building to credit-challenged small businesses – primarily minorities, women and borrowers with language barriers.
In 2006, Stella created a non-profit, Fruit of the Vine International, that fundraised for various children’s homes in Kenya through 2015. She has served on the board of Esperanza Health Center, a multi-cultural ministry providing holistic healthcare to Philadelphia’s underserved communities.
Currently, Stella serves on the board of Chariots for Hope, a non-profit supporting a network of eight children’s homes in Kenya that serves over 800 children. Originally from Kenya, Stella holds a Masters of Economic Development from Eastern University and a Bachelor of Business and Marketing from the University of Nairobi, Kenya.
Consider the fund’s investment objectives, risks, charges and expenses carefully before you invest. The fund’s prospectus and summary prospectus contain this and other information. Call 800-977-2947 or visit praxismutualfunds.com for a prospectus, which you should read carefully before you invest. Praxis Mutual Funds are advised by Everence Capital Management and distributed through Foreside Financial Services, LLC, member FINRA. Investment products offered are not FDIC insured, may lose value, and have no bank guarantee.
Investing involves risk including the possible loss of principal.
In the ever-evolving landscape of Environmental, Social, and Governance (ESG) investing, the core philosophy of Trillium has remained the same since it was founded in 1982: provide for the financial needs of our clients while leveraging their capital for positive social and environmental impact in alignment with their values.
Over the last 21 years, this approach of the $579 million Trillium ESG Global Equity fund has proven itself, time and again through a long track record of positive results, generating returns responsibly. The Fund has an 8.56% average annual return for the past five years, outperforming 75% of 895 peer Morningstar funds in the World Large Stock category as of August 31, 2020, based on total returns*, with a gross expense ratio of 1.33%.
The differentiation of the Trillium ESG Global Equity fund is in the details. Two decades ago, at the Fund’s inception, there was little in the way of ESG data, so Jim Madden, Co-Portfolio Manager, was part of the team that created the criteria from the ground up. Trillium has been evolving and refining those core metrics ever since.
“Discerning what is important in vetting these companies requires even greater discipline now that ESG and traditional data has grown, and continues to grow,” said Madden.
For over 20 years, the Fund has offered clients a core global equity exposure with what Trillium believes are quality growth companies and diversified assets across countries, sectors, and market caps. Led by a senior Portfolio Managers team, the Fund’s construction has historically delivered higher returns versus its benchmark, the MSCI ACWI over 1, 3, and 5-year periods.
Why Fossil Fuel Free?
The Fund’s mission has always considered Climate Change as a driver that makes fossil fuel exposure inherently risky and so, avoids exposure to the energy sector. By instead investing in companies that Trillium believes understand ESG principles, they conclude that this acknowledgement demonstrates the qualities of innovation and leadership that create a distinct competitive advantage and build long-term value.
Trillium’s commitment to the quality of the Fund speaks to their overall commitment to ESG and many of the principles that inform the firm’s investment strategy are on full display in some of today’s most profound issues, where Trillium’s Shareholder Advocacy continues to be an influential force for change. In addition to investing for positive environmental and social impact, Trillium has a long and proud history of active ownership. The firm leverages the capital of its clients by engaging in dialogue with companies it invests in to work toward improving their environmental, social and governance profiles.
In addition to the primary ESG analysis process conducted by Trillium’s equity research analysts, the strategy maintains a proprietary framework to assess each considered company on environmental merits. A comprehensive review of the ecological risk and opportunities analyze seven categories implemented across all sectors. Data is gathered and analyzed by the portfolio managers, equity research analysts and ESG specialists, utilizing a range of resources, including their 20+ years of proprietary ESG company datasets, governmental websites, and non-governmental organizations. Each company is scored accordingly and monitored to assess any material changes to this initial assessment.
Trillium’s ESG-integrated fundamental research process efforts include both industry and in-depth company analyses, which cover both quantitative and qualitative considerations. In terms of industry reviews, the team evaluates the respective secular & cyclical dynamics, along with relevant national & regional aspects of a company’s operating environment. In terms of company-specific analysis, the team considers strategic leadership (business model, competitive advantage, strategy, management quality, etc.) and financial fundamentals (economic translation of that leadership, along with analysis of key quality characteristics including margin profile, cash flow, ROIC, net leverage, etc.). Valuation is derived through a combination of a traditional P/E multiple approach and a discounted cash flow analysis (with a 3-stage model), depending on sector & industry and other considerations.
Glossary of Terms:
P/E, or price-earnings ratio, also known as P/E ratio, is the ratio of a company’s share (stock) price to the company’s earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued.
Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business. At the most fundamental level, a company’s ability to create value for shareholders is determined by its ability to generate positive cash flows, or more specifically, maximize long-term free cash flow.
ROIC stands for Return on Invested Capital and is a profitability or performance ratio that aims to measure the percentage return that a company earns on invested capital. It also represents the residual value of assets minus liabilities.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800-853-1311.
The MSCI ACWI Index, MSCI’s flagship global equity index, is designed to represent performance of the full opportunity set of large- and mid-cap stocks across 23 developed and 26 emerging markets. One cannot invest directly in an index.
Article by Matt Patsky, Jim Madden, and Patrick Wollenberg
Matt Patsky is CEO of Trillium Asset Management and a Portfolio Manager on Trillium’s Sustainable Opportunities strategy and the Trillium ESG Global Equity Strategy. He joined Trillium in 2009, and has three decades of experience in investment research and investment management. Matt began his career at Lehman Brothers in 1984 as a technology analyst. In 1989, while covering emerging growth companies for Lehman, he began to incorporate environmental, social and governance factors into his research, becoming the first sell side analyst in the United States to publish on the topic of socially responsible investing in 1994. As Director of Equity Research for Adams, Harkness & Hill, he built that firm’s powerful research capabilities in socially and environmentally responsible areas such as renewable energy, resource optimization, and organic and natural products. Matt was most recently at Winslow Management Company in Boston, where he served as director of research, chairman of the investment committee and portfolio manager for the Green Solutions Strategy and the Winslow Green Solutions Fund. Matt is currently on the Boards of Environmental League of Massachusetts, and Shared Interest. He has also served on the Boards of Pro Mujer, US SIF and Root Capital. Matt is a member of the Social Venture Circle (SVC). Matt is a member of the CFA Society Boston and is a Chartered Financial Analyst charterholder. He holds a Bachelor of Science in Economics from Rensselaer Polytechnic Institute.
Jim Madden is a Portfolio Manager on Trillium’s ESG Global Equity Strategy. Prior to joining Trillium in 2014, Jim was Chief Investment Officer and Senior Portfolio Manager at Portfolio 21. He worked with Portfolio 21 for over 20 years both on the investment team and as the developer of the company’s shareholder activism program. Jim earned a bachelor’s degree and M.B.A. from the University of Wisconsin and is a Chartered Financial Analyst (CFA) charterholder.
Patrick Wollenberg is a Portfolio Manager of the Trillium ESG Global Equity strategy and a Research Analyst covering the financial sector. Patrick joined as an Analyst in September 2018 with previous experience as a portfolio manager and equity research analyst for several Global and European equity funds at ING Investment Management and Robeco Asset Management, where he started his career in 1994. Immediately prior to joining Trillium, he was an Investment Director at John Hancock Investments (JHI), covering global, international, emerging markets and US equity funds for John Hancock. While at JHI, Patrick served as an ESG specialist at the firm, driving product development, content creation and client education. Patrick also served in due diligence roles at Merrill Lynch Global Wealth & Investment Management. Patrick completed his Masters of Science (Honors) in Business Administration in 1992 and Masters of Science Economics (Honors) in 1994 from Erasmus University Rotterdam, The Netherlands. Patrick is a Certified European Financial Analyst.
The fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company, and it may be obtained by calling 800-853-1311, or visiting www.trilliummutualfunds.com. Read it carefully before investing.
Mutual fund investing involves risk. Principal loss is possible.
Trillium ESG Trillium ESG Global Equity Fund may invest in foreign securities, which are subject to the risks of currency fluctuations, political and economic instability and differences in accounting methods. These risks are greater for investments in emerging markets. Investing in foreign securities is riskier than investing in domestic securities. The fund invests in smaller companies, which involve additional risks such as limited liquidity and greater volatility. Trillium ESG Trillium ESG Global Equity Fund’s environmental policy could cause it to make or avoid investments that could result in the portfolio underperforming similar funds that do not have an environmental policy. There are no assurances that the fund will achieve its objective and/or strategy.
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* Morningstar ranked PORTX in the top 32%, 28% and 24% out of 825, 725 and 610 World Large Stock funds for the one-, three- and five-year periods ending 8/31/2020, respectively.
It is undeniable that China’s influence on the global economy, global financial markets and geopolitical system is significant. From an economic standpoint it is the second-largest economy in terms of GDP and is slated to reach parity with the US in the next 10 years or so. In global financial markets, China represents 43% of the MSCI Emerging Markets Index and 5% of the MSCI All Country World Index as of August 31, which follows the United States and Japan. Moreover, 22% percent of the MSCI All Country World Index is non-Chinese companies dependent on the purchasing power of Chinese consumers to fuel their own companies’ sales and profit growth. On the geopolitical front, China continues to be an export machine supported by the country’s low-cost, skilled labor and efficient infrastructure.
However, the decision whether to invest in China is a complicated one, particularly to a responsible investor. The power and reach of China’s state-led model, its weak human rights record, lack of transparency, as well as heightened geopolitical tensions, can dissuade international investors from investing in Chinese companies or non-Chinese companies doing substantial business in China. Calvert’s viewpoint, however, is that it is preferable for a responsible investor to invest in China and engage as a shareowner, rather than divest. At Calvert, we believe as responsible investors we should fully understand the unique risks that investing in China may offer and weigh that against the return potential that a country with diverse people and a rich culture can offer in the form of both investment opportunities, in areas such as renewables, infrastructure, technology and consumer goods, as well as shareholder engagement. Engagement can create opportunity to be a part of positive change that advocates for business practices that can benefit the planet and the quality of life for billions of people.
Like many emerging-market economies, China is very much in development. While China’s GDP is second only to the US, its GDP per capita, according to 2019 World Bank data, is far lower, at $10,800 versus the US, at $65,118. This trails most Western countries and is more comparable to its emerging-market peers such as Mexico and Turkey. A strong civil society and legal system that provide effective checks and balances continue to be works in progress. At Calvert, we consider risks around data security, data access, legal protection, systemic corruption and political hazard to be key risks when investing in China, and ones we believe will grow in importance with China’s increasing economic influence.
Chinese internet security law, which took effect in 2017, requires that local firms allow the Chinese government access to individual privacy data in the interest of national security. Given China’s infamous record on protecting data of international firms and individuals, data security is a cause for real concern. This risk can lead to downstream reputational and liability hazard, as well as long-term national security concerns. The case of Yahoo reflects on ways this risk can materialize. Yahoo complies with Chinese authorities and openly acknowledges that the company cannot protect the privacy of China-based users. In 2005, when Yahoo provided data to the Chinese government, it led to the arrests and 10-year sentences of two Chinese activists. Yahoo was sued by the dissidents’ families, which eventually led to a settlement in 2007. As part of that settlement, Yahoo created a $17 million fund to support persecuted Chinese dissidents and their families.
Furthermore, data physically located in China is irretrievable by international regulators and firms. International auditing firms cannot retrieve data from their Chinese units. This can lead to problems for investors, affiliated auditors and international regulators. The case of China MediaExpress, an advertisement services provider, shows how problems surrounding data access can lead to losses for multiple parties. After being caught inflating revenues and stock prices, China MediaExpress was delisted by Nasdaq (2011), deregistered by the SEC (2012) and charged with fraud by the SEC (2013). In addition, Deloitte, KPMG, PricewaterhouseCoopers, BDO and E&Y were all charged by the SEC for refusing to hand over documents to aid the SEC’s investigations.
Another risk is China’s inconsistent application of legal protections, which may tend to veer on the rule by law, not the rule of law. The legal system is still developing, and is often influenced by powerful forces in politics and business. In previous decades, inconsistencies usually benefited international firms; more recently, inconsistencies have tended to benefit Chinese firms. We anticipate that this will continue as China protects domestic firms in certain sensitive industries. This risk is linked to unexpected legal action, particularly against people who are linked (even loosely) to sensitive issues. This risk materialized in December 2018, when Michael Kovrig and Michael Spavor were arrested by China and charged with criminal espionage days after Huawei’s CFO Meng Wanzhou was arrested by Canadian authorities and set to be extradited to the United States. Kovrig, a former diplomat, and Spavor, a high-level consultant, are both Canadians, and their arrests are almost universally seen as retaliation for Meng’s arrest in Canada. Kovrig and Spavor remain imprisoned in China.
Political tensions between Beijing and international actors can hurt Chinese and non-Chinese firms. This risk can cause serious financial damage to individual firms, potentially presenting material obstacles to established business models and growth strategies, and potentially impact the broader economy. The evolving saga around TikTok demonstrates the unstable environment that political hazard risks present for businesses and investors. President Trump’s executive order that threatened to ban TikTok was met with a recent update to Chinese law that could require ByteDance (the Chinese firm that owns TikTok) to obtain government permission for any sales of technology to a foreign company, potentially derailing any possible sales to Oracle, Microsoft and other non-Chinese suitors.
Finally, systemic corruption is another overarching risk. Similar to other emerging economies, vested interests at various levels of government operate in an opaque system. Networks of relationships often drive business and political decision-making processes. Many companies, such as GlaxoSmithKline (GSK), have faced reputational damage and steep financial losses due to their corrupt business practices in China. The case of GSK reflects how systemic corruption is relevant to both Chinese and China-exposed international institutions. GSK, the British health care giant with a history in China dating back to Imperial times, was involved in extensive corruption in its China operations. Company representatives bribed hospital officials and health care providers to push the company’s drugs for unlicensed uses. It also paid hush money to a patient who had health complications after using a drug that was not approved for the condition for which he was taking it, and GSK also attempted to bribe Chinese regulators. Moreover, GSK’s China operations were linked to a series of shell firms accused of money laundering. As a result, GSK had to pay a then-record $489 million fine to China in 2014, and several managers were deported and/or given suspended jail sentences. In the wake of the scandal, GSK’s sales and reputation plummeted in China.
Calvert believes that understanding these risks is essential when investing in China. We also believe that one can find attractive investment opportunities where the risk/return profile is favorable, given the growth potential in the country. As a responsible investor, engagement with management as a shareowner can also be a tool to drive positive change, whether improving working conditions for employees, pushing for stronger environmental practices or advocating for a move toward global norms of corporate governance. We are already seeing the Shanghai and Shenzhen exchanges move toward greater disclosure requirements around ESG issues. While overall disclosure requirements are not yet to the stringency of US and Hong Kong exchanges, the trajectory is positive. Responsible investors have a role in advancing these company disclosures so all investors can have a clearer understanding of material risks. By avoiding any Chinese exposure altogether, one loses that seat at the table.
Article by John Streur, President and CEO for Calvert Research and Management; Hellen Mbugua, Vice President and ESG senior research analyst for Calvert Research and Management; and Jade Huang, Vice President and Portfolio Manager for Calvert Research and Management. See their biographies below.
References to individual companies are provided solely for informational purposes only and are intended only to illustrate certain relevant environmental, social and governance factors. This information does not constitute an offer to sell or the solicitation to buy securities. The information presented has been developed internally and/or obtained from sources believed to be reliable; however, Calvert does not guarantee the accuracy, adequacy or completeness of such information. Opinions and other information reflected in this material are subject to change continually without notice of any kind and may no longer be true after the date indicated or hereof.
As of August 31, 2020, Calvert portfolios hold the following companies within its integrated telecommunication services subindustry:
BT Group plc
Cellnex Telecom S.A.
Chunghwa Telecom Co, Ltd
Deutsche Telekom AG
Elisa Oyj Class A
HKT Trust and HKT Ltd
Infrastrutture Wireless Italiane S.p.A.
Nippon Telegraph and Telephone Corporation
NOS SGPS SA
Proximus SA de droit public
Royal KPN NV
Singapore Telecommunications Limited
Telecom Italia S.p.A
Telefonica Deutschland Holding AG
Telekom Austria AG
Telia Company AB
Telstra Corporation Limited
TPG Telecom Limited
United Internet AG
Verizon Communications Inc.
As of August 31, 2020, Calvert portfolios hold the following companies within its pharmaceuticals subindustry:
Astellas Pharma Inc.
Axsome Therapeutics, Inc.
Bristol-Myers Squibb Company
Chemical Works of Gedeon Richter Plc
Chugai Pharmaceutical Co., Ltd.
Dechra Pharmaceuticals PLC
Eisai Co., Ltd.
Elanco Animal Health, Inc.
Eli Lilly and Company
H. Lundbeck A/S
Hikma Pharmaceuticals Plc
Horizon Therapeutics Public Limited Company
Jazz Pharmaceuticals Plc
Kyowa Kirin Co., Ltd.
Merck & Co., Inc.
Novo Nordisk A/S Class B
ONO Pharmaceutical Co., Ltd.
Orion Oyj Class B
Otsuka Holdings Co., Ltd. Daiichi Sankyo Company, Limited
Perrigo Co. Plc
Reata Pharmaceuticals, Inc. Class A
Recordati Industria Chimica e Farmaceutica S.p.A.
Roche Holding AG
Royalty Pharma Plc Class A
Santen Pharmaceutical Co., Ltd.
Shionogi & Co., Ltd.
Sumitomo Dainippon Pharma Co. Ltd.
Taisho Pharmaceutical Holdings Co., Ltd.
Takeda Pharmaceutical Co. Ltd.
Vifor Pharma AG
Zoetis, Inc. Class A
Article Writers Biographies:
John Streur is president and chief executive officer for Calvert Research and Management, a wholly owned subsidiary of Eaton Vance Management specializing in responsible and sustainable investing across global capital markets. John is also president and a trustee of the Calvert Funds as well as a director of Calvert Impact Capital and member of its Risk Management Committee. He guided the creation of the Calvert Principles for Responsible Investment, the Calvert Research System and the Calvert Indices, and has placed focus on investment research and emphasis on environmental, social and governance (ESG) factors integrated with investment decisions. He joined Calvert Research and Management in 2016.
John began his career in the investment management industry in 1987. Before joining Calvert Research and Management, he was president and chief executive officer with Calvert Investments. He has managed socially responsible investments at the request of institutional clients, including public funds, religious institutions, and college and university endowments since 1991. Previously, he was president, director and principal of Portfolio 21, a boutique firm specializing in global environmental investing, and spent 20 years at AMG Funds (and its predecessors), a firm he co-founded and where he served as president, CEO and chair of the Investment Committee.
John is a Founding Member of the Investor Advisory Group of the Sustainability Accounting Standards Board and serves on Merck’s External Sustainability Advisory Council. John earned a B.S. from the University of Wisconsin, College of Agriculture and Life Sciences.
Hellen Mbugua is a vice president and ESG senior research analyst for Calvert Research and Management, a wholly owned subsidiary of Eaton Vance Management specializing in responsible and sustainable investing across global capital markets. She is responsible for environmental, social and governance (ESG) research in the apparel and retail industries. She joined Calvert Research and Management in 2018.
Hellen began her career in the investment management industry in 2009. She has worked with pension funds and asset managers in both public and private markets. Before joining Calvert Research and Management, she held senior investment positions at IFG Development Group and Adaris Capital Partners, both private equity firms focused on alternative assets. Prior to her work in private equity, Hellen was an associate director at Pacific Alternative Asset Management Company (PAAMCO), where she was an associate director covering multiple asset classes and participating in hedge fund co-investments. Prior to PAAMCO, she worked at State Street Corporation and Segal Consulting’s actuarial practice.
Hellen earned a B.S. from the University of California Santa Barbara and an MBA from the Tuck School of Business at Dartmouth College, where she was a Robert Toigo Fellow. She was born and raised in Kenya and speaks three languages.
Jade Huang is a vice president and portfolio manager for Calvert Research and Management, a wholly owned subsidiary of Eaton Vance Management specializing in responsible and sustainable investing across global capital markets. She is responsible for managing the suite of Calvert Responsible Indices, including the index construction processes, as well as developing new investment products at Calvert. She joined Calvert Research and Management in 2016.
Jade began her career in the investment management industry in 2005. Before joining Calvert Research and Management, she was a portfolio manager with Calvert Investments. Previously, she was an investment analyst at Microvest, an asset management firm specializing in impact investing, and led the certification department at Fair Trade USA. Jade earned a B.A. from the University of California, Berkeley and an M.A. in international finance and economics from Johns Hopkins University, School of Advanced International Studies (SAIS).
Globally, socially responsible investing is flourishing. Almost as importantly, it means the same thing around the world. I begin with some recent quotes, which I noted over the past few weeks:
Datuk Muhamad Umar Swift, CEO of Bursa Malaysia, “As a frontline regulator and market operator, we want to provide an environment that encourages sustainable practices among our market participants.”
Shenzhen-based Ping An has developed an ESG ratings framework it says is “suited to China” that “builds on the ESG compliance disclosure requirements of the Hong Kong Stock Exchange (HKEX) and the Shanghai Stock Exchange, as well as international guidelines.”
Saudi Arabia’s stock exchange, TADAWUL aims to launch an ESG index by the beginning of 2021.
“I perceive a sense of urgency on mainstreaming sustainable finance,” said Marcos Ayerra, chairman of the Securities and Exchange Commission of Argentina
The New Zealand Government has announced bold new plans to prevent default providers of its ‘opt-in’ retirement provision, KiwiSavers, from investing in fossil fuels.
During a fairly recent visit to the Serengeti, I would visit the gift shops at the safari camps we stayed at and marvel at the tags: “made by a women’s cooperative that supports education for Maasai girls,” “fair trade chocolate for dignity” were among them. Younger readers may not realize that this is new. Until at least the 1980s, such items were sold to tourists as much less expensive than American counterparts. Selling for cheap and not selling for purpose was the messaging. The world has shifted. Significant numbers of consumers make purchase decisions by a desire to support. Would this have come about without socially responsible investors? Perhaps, but probably not. Years of advocacy raised awareness.
Beyond a purchase decision, the acceptance and even mandating of responsible investment practices has begun to harness and use financial asset management systems for good. By influencing these financial systems to consider the need for a healthy planet with healthy citizens, the responsible investment field has done what no single government (nor the United Nations) has been able to accomplish. The old model of profit-at-any-cost, including the planet, has a counterweight.
It was not an accident nor a natural outcome of the past. Cultural anthropologist Margaret Mead’s famous observation “Never doubt that a small group of thoughtful, committed, citizens can change the world. Indeed, it is the only thing that ever has” is proving true through this concept we alternate between calling responsible and impact investing. Forty years ago there were a relatively few of us working to help the public to connect the dots. We wanted investors involved in the efforts others had begun to ensure the twin goals of universal human dignity and ecological sustainability. Tim Smith was then the Executive Director of Interfaith Center on Corporate Responsibility, motivating a global investor focus on South Africa, through the use of shareholder resolutions. Chuck Matthai was a veritable Johnny Appleseed of community development lending. Joan Bavaria had just launched the Valdez principals, which grew into a global environmental accounting movement. Joshua Mailman advocated for financing businesses that through their practices would achieve these goals. Each of these people did more than what they did. They shared strategy, respect and efforts. They built networks. There was no discussion of the best way. All ways were needed.
Early on activists focused on three approaches: 1. Set both ecological and human standards for what one would buy, 2. Engage with companies as an investor, and 3. Find ways to incubate and build grassroots economies that could alleviate poverty and bring more people into the mainstream.
After my book, Socially Responsible Investing, was translated into Japanese, Korean and Chinese, I travelled to financial centers in each of those countries and spoke out for this way of investing. In each location I followed the commitments early members of the then-named Social Investment Forum had made to each other. These standards included some simple ideas. One was that we would not play a game of which of our three core strategies was “better” since only when all three were used did we see the results we needed to see. Another was to remember the Southern hemisphere and to use it in examples and to support it in our work. A resolve not to use the word “black” to mean bad was agreed to. Recognition that a focus on the role of government was important to our work was acknowledged.
By agreeing to discuss the same issues in much the same way, a small group of committed individuals was able to appeal to investors from around the world and to make a relatively new and somewhat wobbly idea into the powerhouse it is today. Now we see that global impact investors practicing in a manner which is culturally appropriate but utilizing the three approaches is widespread and approaching seamless.
This all matters because we have a purpose. We are not advocating for our field because we think it might help you make better investment decisions, though it might. We are advocating for this approach because we believe that only an engaged investor class can prevent complete collapse of the fragile ecology of our planet, and provide universal dignity to all people. We recognize that global stock markets alone are as large as global GDP. We know that when you consider bond markets, currency markets, derivatives markets, and so on, the world of finance dwarfs the real world’s financial resources. We recognize that finance is sophisticated, interconnected, immediately reactive and limitlessly resourced. It is a magnificent tool for good or for evil. Building a vast investor class that places responsibility for the future squarely into every value proposition is our purpose. The trends in global SRI give us hope.
She is widely recognized as the leading voice for socially responsible investing. In 2005, Time magazine named her to the Time 100 list of the world’s most influential people. In 2006, she was awarded an honorary Doctor of Business Administration degree from Northeastern University College of Law. Yale University’s Berkeley Divinity School presented Ms. Domini with an honorary doctorate in 2007. In 2008, Ms. Domini was named to Directorship magazine’s Directorship 100, the magazine’s listing of the most influential people on corporate governance and in the boardroom.
Ms. Domini is a past board member of the Church Pension Fund of the Episcopal Church in America; the National Association of Community Development Loan Funds, an organization whose members work to create funds for grassroots economic development loans; and the Interfaith Center on Corporate Responsibility, the major sponsor of shareholder actions.
Ms. Domini holds a B.A. in international and comparative studies from Boston University, and holds the Chartered Financial Analyst designation.
The intersection of a global pandemic and reinvigorated demands for racial equity and social justice has created a gut-check momentfor communities across the country, one that calls for a “new model” of place-based philanthropy. Now is the time to re-imagine a community and economy that work for all and re-invest to make them happen. What would our communities look like if our local economic organizing principles were people and prosperity-centered? How would that shift impact the work of grantmakers and philanthropy? Would the work be more joyful and less pressured by resource scarcity?
In my mind, there are three distinct actions that will define this new approach for place-based foundations:
1) unlocking endowment assets to root wealth in place, 2) embracing community-determined solutions and 3) investing in the work and capacity of organizations advancing equitable economies. Doing the work of philanthropy in this manner – where equity is the visible driver of investment – will involve new structures and result in new outcomes. What should our foundations be willing to disrupt to better address economic inequality – financial return, investment security, control or ownership of local agenda-setting efforts?
Recent conversations with leaders across the country leave me inspired and encouraged by early signs of the bold action that will be the staple of “new philanthropy.”
• Unlocking endowment assets to root wealth in place. By our estimates, roughly 25 percent of a community foundation’s assets are derived from local sources – dollars that were gifted to the foundation that were previously held in homes and local businesses. Holding that to be true, the traditional community foundation model – taking gifts from local donors, investing those funds or endowment resources in traditional capital markets and distributing four to six percent in annual grants – actually results in a net divestment from the local community.
Our current economic climate – where small businesses struggle to stay afloat, and economists fret that our country is on a raft waiting for the next great wave of evictions and foreclosures – calls for additional capital in our communities. The Hutchinson Community Foundation is answering this call by investing in the broadband infrastructure needed in rural communities in their county to enable equitable access to virtual learning this fall and better equip remote workers to stay employed. When asked about assuming this leadership role, HCF President Aubrey Abbott Patterson said, “One thing the pandemic has made clear is that we’re going to have to leverage our own resources to address many of the challenges we face because help isn’t coming from anywhere else. To that end, we’ve been exploring for a while now how Hutchinson Community Foundation might invest a portion of its assets locally to better serve our community. We’ve long known about the gap in internet access in our rural areas, so when the pandemic forced all of us to rely more heavily on the internet, it made sense to seize this opportunity to level an inequity. We have committed to make a loan to a locally owned broadband company that has a plan to expand access to those underserved areas, and in doing so, we will help a local business address a community problem in a timely manner instead of waiting for government funding.”
Embracing community-determined solutions. Marian Kaanon, President and CEO of the Stanislaus Community Foundation, describes SCF’s commitment to making the local economy work for all as “leading from the middle.” She acknowledges that the Foundation has access to local power and a moral obligation to lift-up resident voices as the collective community defines strategies that move residents from the economic margins toward greater economic prosperity. In addition to advancing community-determined solutions, the Foundation is investing in the capacity of local organizations to become Community Development Corporations and Community Development Financial Institutions. These actions ensure Stanislaus County has dedicated community actors that will continue to address economic inequality. For inspiration, check out SCF’s “Building Shared Prosperity” work plan here.
Investing in the work and capacity of organizations advancing equitable economies. The Community Foundation of Louisville (CFL) has layered racial equity assessment into its due diligence process with the goal of providing more resources to businesses and organizations serving communities of color, women, immigrants and refugees – particularly those employing wealth-building strategies in the community. For CFL, this goal of advancing a more equitable economy means investing in organizations like LHOME – a CDFI on the frontline of community-based investing in historically red-lined neighborhoods of South and West Louisville. Recently, CFL was able to fully realize the benefit of its early investment in a well-networked, front-line organization like LHOME. When COVID-19 halted the local economy LHOME quickly pivoted to response mode – raising $1.5 million of new capital to deploy in small business assistance loans and life-line assistance loans for low-income residents. CFL Senior Program Officer Mary Grissom shared the following insights on the shift in CFL Impact Capital’s investment strategy. “2020 is the year that we dedicate our entire Impact Capital fund to equitable economic development – investing in affordable housing, Black- and Brown-owned small businesses and entrepreneurship, and community facilities in underinvested neighborhoods. We are kicking off that commitment with [a second] loan to LHOME – Louisville’s intentionally inclusive lender. Lending a portion of your tax-deductible philanthropic funds in a way that increases ownership and opportunity for neighbors while earning a social and financial return, is something you can only do locally with the Community Foundation of Louisville. Local impact investing is a tool that allows our foundation and donors to directly confront persistent racial wealth and capital gaps.”
For the purpose of visioning this new way forward, I believe a place to start for place-focused foundations is to answer these questions:
If half of the seats on our investment committees were held by leaders of minority business councils, urban leagues, local community development corporations, credit unions or community development financial institutions, would we be allocating more of our portfolio to local impact investing?
If our impact investing committees and task forces were led by residents, would our neighborhood-level investments look different?
If we value equity, has our foundation designed grantmaking and local investing systems that are transparent and accessible to everyone in the community?
If our foundation is interested in investing in entrepreneurship, should we prioritize investment opportunities with entrepreneurs of color by offering creative financing that builds ownership assets, e.g. revenue-sharing agreements vs. equity investments?
If our foundation’s portfolio includes significant local real estate holdings, would we consider structuring those investments with a profit-sharing mechanism so that as markets improve, community organizations can benefit from the increased value?
While this is a gut-check moment for our foundation partners and LOCUS, we recognize that this is more than a moment – it is a long-term commitment. Transformative and equitable change for communities requires defining a new way of doing and investing for place-based philanthropy. LOCUS is committed to being a partner in defining this new way forward. Is place-focused philanthropy ready to join us?
Article by Sydney England, Solutions Consultant,LOCUS Impact Investing. Sydney joined the LOCUS team in 2017 after working for several years at a $300 million private foundation in Florida. While at the foundation, Sydney oversaw a $5.5 million place-based PRI portfolio, a $300,000 small grants program, and New Markets Tax Credit relationships with four CDE lenders. Previously, Sydney worked in communities across Arkansas and Virginia to mobilize grassroots coalitions aimed at civic participation. Sydney’s migration from coalitions to philanthropy to place-based capital systems is a reflection of her evolving understanding of what it takes to advance a more equitable, just society. At LOCUS, Sydney works to match interested philanthropic parties with the right place-based impact investing solutions and on-ramps
Sydney graduated summa cum laude with a BA from a small liberal arts college in southwest Virginia.
The climate emergency is driving innovation that philanthropy can fund, and is funding, with foundation investment capital. With the lived-experience of forest fires, major hurricanes, coastal flooding and other recent, tangible consequences of a rapidly warming planet, the urgency to deploy more capital to find solutions is activating more immediate action. The disproportionate impact that environmental injustice has on communities of color and low-income communities in the United States and around the world expands the universe of foundations seeking to change how they deploy capital.
Many foundations are responding by reaching beyond grantmaking and reconsidering their investments in traditional asset classes, creating new models and collaborating, all while keeping the future of planet Earth and the people who populate it as their central missions.
Foundations also have a unique ability to provide capital to ramp up new technologies, catapult “moonshot” ideas to fruition, influence corporate behavior and activate other funders to participate in projects that might have otherwise been considered too risky for business or government, accountable to a different set of external stakeholders.
With some 100,000 private foundations in the U.S., just a small percentage are the size of the Bill and Melinda Gates Foundation. No matter the size of the foundation, all of them can combine grantmaking and sustainable investing now for immediate benefits to climate.
GreenMoney Journal has covered the merits of sustainable and Environmental, Social and Governance (ESG) portfolios for several decades. Foundations that align their endowments to climate missions are demonstrating the financial benefits. Rockefeller Brothers Fund (RBF) just underscored that point, when in May 2020 it detailed how its investment returns beat market benchmarks since divesting from fossil fuels five years ago. The case study Investing in Our Mission shows the RBF posted an average annual net return of 7.76 percent over the five-year period that ended December 31, 2019. Over the same period, an index portfolio made up of 70 percent stocks and 30 percent bonds—including coal, oil, and gas holdings—returned 6.71 percent annually. With more than $1.22 Billion in assets, RBF’s experience provides a proof that gives other foundations the encouragement to model.
Look Close to Home
Foundations are not limited to aligning their endowments to an ESG lens. The old adage, think global and act local has taken on a new moniker: place-based impact investing. Installing renewable energy generators like solar and wind projects are already proven to ease carbon consumption while providing a financial return to its investors in specific locations, both urban and rural parts of the country. Foundations can help amplify those outcomes by investing in building an ecosystem of stakeholders, knowledge-holders and investors.
Community Development Financial Institutions (CDFIs) are reliable and effective intermediaries for channeling mission-focused fixed income allocations to specific places relieving foundations of the work of sourcing projects, conducting due diligence and monitoring performance. CDFI’s are known for lending to local environmental projects that struggle with securing conventional bank financing, often because of the profile of the borrower. CDFIs have knowledge of the local nuances relating to natural resources, policy and cultural considerations that make foundation investments better perform. For instance, the Maine-based CDFI CEI deploys philanthropic capital toward lowering the cost of municipal solar projects in non-wealthy rural communities.
Collaborate for Innovation
The climate emergency is daunting and leaves many boards of directors overwhelmed with evaluating best paths to make the greatest, fastest impact. Collaboration helps to amplify a single foundation’s investment and encourage others to participate, especially when it comes to new ideas.
For instance, there is an enormous pipeline of exciting new technology designed to cut carbon emissions in development across the U.S., much of it happening at college campuses. From designing floating offshore wind turbines to capturing storage from the air, these dramatic projects are at risk of never leaving the laboratory because the path to commercialization is expensive and risky. That is the formula for what’s known as the “valley of death,” – the period where great ideas fail to take off due to lack of financial support.
Philanthropic capital helps bridge that gap. Prime Coalition is a public charity that partners with mission-aligned investors to support extraordinary companies that combat climate change, have a high likelihood of achieving commercial success, and would otherwise have a difficult time raising adequate financial support to scale. This spring Prime announced a $50 million impact fund to support such high-risk, high-reward climate ventures with support from family offices, corporations, and foundations such as the Sierra Club Foundation and the David and Lucile Packard Foundation.
Influence Corporate Behavior
As share owners of public companies foundations can behave as active owners, using their voices and proxy to help change corporate behavior on climate change – from pollution emission caps to limiting use of certain chemicals and pesticides, to influencing the influencers, as in voting for more women and more people of color to serve on corporate boards. Even though most shareholder proposals are advisory and don’t require companies to respond, companies will react to pressure if proposals are highly publicized or receive a majority vote. One victory for this kind of effort occurred this summer, 2020, when JP Morgan Chase agreed to disclose how much its loans and investments contribute to greenhouse gas emissions.
No Time to Wait
Foundations trustees and boards of directors have the discretion to mobilize quickly. During the COVID pandemic and racial justice reckoning of 2020, plenty of foundations called emergency meetings to re-direct capital to make an immediate impact. The results of this will reverberate over time as foundations keep and grow their commitments.
There is myriad support available to foundations seeking to put more investment capital to work on climate. Here are some of them:
Mission Investors Exchange is the leading impact investing network for foundations dedicated to deploying capital for social and environmental change. Members connect for best practices, new investment opportunities, deal partnerships, and innovations in impact investing.
Article by Christen Graham, Founder and President of Giving Strong, Inc. Christen brought together her head and her heart when she founded Giving Strong. In previous tenures as a journalist, public relations professional and executive, she intentionally incorporated social impact into her work. Christen has worked with pioneers of the Corporate Social Responsibility movement, leading academic institutions, modern foundations and influential media. She has given voice to underserved people and built programs that foster opportunity. Christen advocates for immigrants by serving on the board of ProsperityME, activates women to be impact investors by serving on the steering committee of Invest for Better, and mentors young people as a Fresh Air Fund host. She is a Tufts University graduate.
Homeownership is one of the most important ways that Americans create financial security and build wealth, which are critical to a family’s financial well-being and quality of life. According to the Federal Reserve’s 2016 Survey of Consumer Finances, the median net worth of a homeowner is $231,400 compared to $5,200 for renters, barely two percent of the homeowner’s wealth. Federal Reserve data tell us that the typical white household owns 10 times the wealth of a Latino household and researchers at Brandeis University found homeownership was the most important factor explaining the racial wealth gap. Homewise serves an economically distressed population who are mostly low-income living in the greater Santa Fe and Albuquerque areas of New Mexico. The majority of our clients identify as Latino (69 percent of households) and 42 percent are members of foreign-born households.
Many families, especially those in the immigrant and Spanish-speaking population, face obstacles that lock them out of the long-term economic benefits of homeownership. Homewise addresses these obstacles through a two-pronged strategy that combines Spanish-speaking financial capability and homebuyer education with access to affordable capital through our unique New American Mortgage Lending Program.
Advancing Family Financial Capability: Financial Capability and Homebuyer Education
There is a high need for quality financial capability and homebuyer education serving the Spanish-speaking and immigrant populations to enable individuals and families to achieve their financial and homeownership goals. Homewise offers these courses for free to help underserved clients manage money, reduce debt, repair credit, and build savings in order to build long-term financial wellbeing. Our curriculum is aligned with the comprehensive Homewise homeownership process, which also includes non-commissioned real estate services, affordable mortgage lending and down payment assistance, refinance and home improvement lending, high-quality energy-efficient home building and disinvested property rehabilitation, to support clients on an affordable and sustainable path to successful homeownership.
Through this program, over the last three years we helped an average of 51 immigrant households per year who had no traditional credit history to establish a credit profile. And for immigrant clients who came to us with financial obstacles and went on to achieve homeownership, they increased their credit score by an average of 83 points, decreased monthly debt by $171, and increased savings by $5,151. These results are a testament to the power of financial capability and homebuyer education as a tool for making measurable impact on family assets and building financial resilience and stability.
Access to Affordable Mortgage Lending Capital: New American Mortgage Lending Program
Many immigrants do not have a Social Security number and most have limited credit history, which often disqualifies them from obtaining an affordable mortgage loan. In many cases the only creditors who will lend to borrowers without a Social Security number are those with products offering high interest rates and unfavorable terms. And research shows that particularly during the subprime lending boom, risky and predatory loans were made to minority borrowers at a far higher rate than to similar white borrowers. This has led to a general cycle of families being locked out of an affordable and accessible path to homeownership. Homewise is interrupting this cycle by making it easier for people to buy a home and build assets by unlocking access to affordable mortgage lending capital. The New American Mortgage Lending Program offers a competitive, fixed-rate 30-year mortgage for clients with an ITIN (Individual Tax Identification number) instead of a Social Security number.
Since 2014, Homewise has made 724 loans totaling over $57,101,474 to 403 new homeowners through the New American Lending program without a single defaulted loan, proving that offering affordable, responsible financing coupled with focused, high quality financial capability education can result in a high-quality loan portfolio.
How Can You Help?
The Homewise Community Investment Fund offers an impact investment opportunity for investors seeking to bridge the gap between social impact and their investment portfolio. Investments in the Fund offer a source of capital for Homewise and can be targeted to support the New American Mortgage Lending program, helping to break down barriers to homeownership for this underserved population. With a minimum investment of $1,000, investors can select a term of one to 15 years with corresponding interest rate returns of one to four percent, dependent upon the term. Learn more about the Homewise Community Investment Fund.
Homewise is a New Mexico-based nonprofit Community Development Financial Institution (CDFI) founded in 1986. Our mission is to help create successful homeowners and strengthen neighborhoods so that individuals and families can improve their long-term financial wellbeing and quality of life. Our services include financial literacy education and coaching, real estate services, affordable mortgage lending and down payment assistance, loan servicing, refinance and home improvement lending. We strengthen neighborhoods by increasing homeownership through real estate development, property rehabilitation, and revitalizing communities to benefit existing residents. Since Homewise was founded in 1986, over 17,000 New Mexicans have attended our financial capability and homebuyer education workshops. During that time, we’ve helped over 5,600 New Mexicans purchase homes, over 2,300 make energy efficient home improvements, and more than 800 refinance their mortgages. We’ve also built over 800 high quality, energy efficient and affordable homes. To learn more, visit the Homewise website.
Article by Laura Altomare, Chief Communications Officer at Homewise. Laura leads the organization in developing and implementing marketing and communication strategies, is responsible for securing grant and impact investment funding, and oversees the organizations human resources functions. Ms. Altomare earned a B.A. from Colorado State University.
Homewise Community Investment Fund Notes are offered to both individual and institutional investors who reside in states in which our Notes are registered or exempt from registration. This currently includes: Alaska, New Mexico, California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Maine, Massachusetts, Mississippi, New Jersey, New York, Rhode Island, Texas, Utah, Vermont, Washington, West Virginia, Wyoming. This notice is not an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities in any state in which such offer, solicitation, or sale is not authorized. The offering is made solely by the Prospectus, which more fully describes certain risks involved in a purchase of securities. The securities are not FDIC or SIPC insured, are not bank deposits, and are not guaranteed by any federal agency.
A new economy of interdependence is emerging all around us. That’s why Faith+Finance is convening online, exactly 2 weeks after the election because “whatever the outcome, we must all choose
A new economy of interdependence is emerging all around us. That’s why Faith+Finance is convening online, exactly 2 weeks after the election because “whatever the outcome, we must all choose to come together in hope.” The online gathering will center on four pillars: Creating a Culture of Change, Catalyzing Creative Funding, Reimagining Real Estate, and Accelerating Entrepreneurship. Come share your story and passions with people who believe a different world is possible – impact entrepreneurs and faith congregations, social investors and a spectrum of community leaders, artists and philanthropists.
The Bloomberg Sustainable Business Summit Global will bring together business leaders and investors globally to drive innovation and scale best practices in sustainable business and finance. This global event will
The Bloomberg Sustainable Business Summit Global will bring together business leaders and investors globally to drive innovation and scale best practices in sustainable business and finance. This global event will span key markets and time zones, leveraging Bloomberg’s unrivaled markets expertise to convene conversations uniquely focused on the risks and opportunities for corporate executives and forward-thinking investors in a 21st-century economy.