Transcript Socially Responsible Investing

Wisconsin Planned Giving Council
March 3, 2015
Johnson Bank
Colleen Johnson, CFP®, CRPC ®
Richard Sals, J.D. CFP®
Reinhart Boerner Van Deuren s.c.
Keith L. Johnson
Megan Jackson
Agenda Items
• Defining Social Investments
• SRI- Now a Fully Formed Investment Discipline
• Approach to Sustainable, Responsible & Impact
Investing
• Overview of Non-profit Fiduciary Duties
• Comparison: Ethics and Earnings
• Developing Trends in Incorporating ESG into
Investment Practices
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Colleen Johnson, CFP®, CRPC ®
Richard Sals, J.D. CFP®
Socially Responsible
Investing
WI Planned Giving Council
March 3, 2015
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What are Social
Investments?
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What are Social Investments?
•
A Social Investment seeks both financial and social returns as a result of
making a single investment. This differs from a more traditional investment
model that seeks a financial return only. The key to understanding Social
Investment is that the good intention and the actual analyses and
structuring of the investment are to be made targeting both types of return,
the financial and non-financial which, in this case, is social.
•
The ultimate focus for this type of investor is for investment capital to help
build a sustainable and equitable economy worldwide. The aftermath of
the financial crisis of 2007-2011 opened the door for a reassessment of
the contribution of finance to economic progress and its impact on the
public.
•
SRI is the now commonly used acronym for Socially, or Sustainable,
Responsible Investing. The thought that Socially Responsible Investing
has only a limited purpose and, a limited return, is quite outdated.
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SRI
Now a Fully Formed
Investment Discipline
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SRI
Now a Fully Formed Investment Discipline
•
Originally, SRIs screened out certain investments that were contrary to the
investor’s beliefs by eschewing companies primarily involved in or
manufacturers of military armaments, nuclear weapons, tobacco, alcohol,
gambling and the like.
•
As the number of mutual funds increased in the 1980s, so did the choices
for investors. Investors could choose to invest in a manner consistent with
their core values; however, at that time, they often had to accept only
average or below average returns.
•
In the early 2000s, SRI expanded this traditional screening approach to
one that is now a fully formed investment discipline that considers
environmental, social and corporate governance (ESG) criteria to
generate long-term financial returns and positive societal impact.
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SRI Industry Overview
• SRI (or ESG) industry assets totaled $6.57 trillion in 2014 – These assets now account for more than
one out of every six dollars under professional management in the United States.
• There are 480 registered investment companies, including mutual funds, variable annuity funds,
exchange-traded funds (ETFs) and closed-end funds, that accounted for $1.94 trillion in ESG assets, a
significant increase from the $644 billion in registered investment companies identified in this study in
2012.
Source: US SIF Foundation
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Approach to Sustainable,
Responsible & Impact
Investing
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Walden’s Approach to Sustainable, Responsible &
Impact Investing
Comprehensive ESG Research
& Portfolio Screening
Identifying securities consistent with
client’s values or organizational mission,
and avoiding companies of greatest
concern
Shareholder Dialogues & Resolutions
Engaging companies to effect change
Proxy Voting
Aligning annual meeting votes with
organizational mission
Public Policy Advocacy
Pressing lawmakers and regulators in
areas of concern to a range of
stakeholders
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Walden’s ESG Research Framework
Informs Portfolio Screening and Shareholder Engagement
•
•
•
•
•
•
•
•
Climate change
Resource efficiency
Waste reduction
Water risk
Environment
Compensation/benefits
Diversity
Labor relations
Safety and workplace
conditions
Workplace
Sources of information
• Company
• Government databases
• Independent research providers
• Issue-based technical experts
• Major media and trade journals
Core
Products &
Services
•
•
•
•
Corporate
Governance
Board structure
ESG reporting
Executive compensation
Political spending and lobbying
ESG Considerations
• Demonstrated accountability
• Management systems
• Peer group comparison
• Trends over time
Community
• Capital reinvestment
• Human rights
• Local impacts
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Engagement Case Study:
Climate Change
Why investors care:
•
“The U.S. faces significant and diverse economic risks from climate change. The
signature effects of human-induced climate change—rising seas, increased damage
from storm surge, more frequent bouts of extreme heat—all have specific, measurable
impacts on our nation’s current assets and ongoing economic activity.” – Risky Business
Project
•
Mercer estimates climate change and related policy uncertainty could add as much as
10 percent to portfolio-wide risk
What investors are doing:
•
Asking for increased disclosure (e.g. Carbon Disclosure Project)
•
Seeking best practice performance managing risks and opportunities (e.g. ColgatePalmolive)
•
Engaging fossil fuel companies (e.g. Carbon Asset Risk)
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Examples of Progress through Shareholder Engagement
Adopted inclusive non-discrimination policy and expanded website disclosure
Transparent discussion of progress and challenges regarding work standards in its
supply chain (Foxconn focus); committed to resume responding to CDP climate survey
Committed publicly to reduce global greenhouse gas emissions by 25% by 2020 and
50% by 2050, consistent with IPCC recommendations
Expanding ESG disclosure and developing a sustainability strategy and corporate
structure
Agreed to update palm oil procurement policy to incorporate sustainable sourcing
practices
Increased accountability through a comprehensive “How We Do Business” report
addressing risk controls and corporate ethics in the aftermath of numerous investigations
and settlements with regulatory agencies
Stated publicly that ALEC’s model legislation on climate/renewable energy does not
represent the company’s view; subsequently did not renew membership
Increased disclosure of lobbying activities and expenditures, including trade association
memberships
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Where Are We Headed?
• $41 trillion wealth-transfer expected to occur from Baby Boomers to
Millennials, who are values-focused investors
• ESG integration and fiduciary duty for institutional investors
» UN Principles for Responsible Investment represent $45 trillion in assets
» CDP supported by 700+ investors representing $92 trillion
• Ever evolving business environment:
» Moving to a low-carbon future
» Shifts in economic power to developing nations
» Changing expectations of the role of corporations in society
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Data Demonstrates No Need
to Give Up Ethics
for Earnings
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Data seems to demonstrate there is no need to give
up ethics for earnings
•
One continuing misconception surrounding Social Investment is that sustainable and
responsible investments have lower returns. Research studies have demonstrated that
companies with strong corporate social responsibility policies, programs and practices
can be sound investments.
•
A 2012 study by Deutsche Bank determined that incorporating environment, social and
corporate governance (ESG) data in the investment analysis is “correlated with superior
risk-adjusted returns at a securities level.”
•
Further, a recent report by the United Nations Finance Initiative reviewed 36 academic
studies and 10 industry research reports regarding SRI performance and determined
that “there does not appear to be a performance penalty from taking ESG factors into
account in the portfolio management process.”
•
Finally, the growth of sustainable and responsible investing in recent years,
strongly suggests that an increasing number of investors believe that returns
from SRI-related strategies are comparable to those of more traditional
investments.
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15 Year Risk & Return Comparisons
Walden vs. Market Benchmarks
16%
Small Cap
12%
Annualized Return
Mid Cap
Russell
Midcap
8%
Balanced
60/40
S&P500/BCAG
4%
Russell
2000
Core Equity
S&P 500
0%
5%
10%
15%
20%
25%
Risk (Annualized Standard Deviation)
Walden
Indices
Over the past 15 years, we have produced better returns with lower volatility for Walden clients
All information as of 12/31/2014. Past performance does not guarantee future results. See composite disclosures in appendix.
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ESG/SRI Fund Performance
Ticker
Morningstar
Category
Total Ret
1 Yr
Total Ret
3 Yr
Total Ret
5 Yr
Total Ret
10 Yr
Std Dev
5 Yr
Sharpe
Ratio 5 Yr
Treynor
Ratio 5 Yr
Parnassus Core Equity
PRILX
Lg Blend
15.15
18.92
14.98
10.31
11.95
1.23
16.79
TIAA-CREF Soc Choice
TISCX
Lg Blend
11.50
16.26
14.56
7.72
13.45
1.08
14.10
DSI
Lg Blend
12.23
16.81
14.17
12.72
1.10
14.49
Lg Blend
11.55
15.92
13.96
6.92
13.58
1.04
13.66
8.13
13.75
1.11
15.05
14.53
1.13
15.39
14.47
1.03
14.00
12.97
1.19
16.36
15.73
0.97
13.21
15.27
1.12
16.01
17.38
0.87
11.81
17.10
0.59
8.68
16.87
0.39
5.38
Name
iShares MSCI KLD 400 Soc
US OE Lg Blend
Neuberger Berman Soc Rspns
NBSLX
Lg Growth
14.26
17.34
15.38
Parnassus Endeavor Fund
PARWX
Lg Growth
18.10
20.39
16.63
Lg Growth
10.89
16.36
14.81
Mid Blend
12.37
16.40
15.69
Mid Blend
8.13
15.53
14.88
Small Blend
5.87
18.15
17.31
Small Blend
3.58
13.89
14.52
Frgn Lg Value
3.55
13.41
8.98
Frgn Lg Value
-2.18
7.51
5.34
US OE Lg Growth
Parnassus Mid-Cap
PARMX
US OE Mid-Cap Blend
Pax World Small Cap
PXSIX
US OE Small Blend
Domini Intl Soc Eq
US OE Foreign Lg Value
DOMOX
7.84
7.87
7.48
3.73
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Other Types of
SRI Investing
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Other Types of SRI Investing
•
In today’s world, a sustainable and responsible investor focuses on the
consideration of ESG in the investment analysis and portfolio construction
across asset classes. An important segment of ESG incorporation, called
community investing, seeks explicitly to finance projects or institutions that will
serve poor and underserved communities in the United States and abroad.
•
Microfinance is another new solution which offers a financial system at the
bottom of the population pyramid that broadens access to capital for
individuals with low income. This concept changed the view of the poor from
merely being recipients of public assistance to becoming productive
entrepreneurs capable of not only building wealth, but also, taking part in the
mainstream economy.
•
The manner in which asset managers and asset owners can actively
incorporate ESG issues into the investment process can occur in a number of
ways.
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Corporate Social Responsibility
as a Factor in SRI Investing
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Corporate Social Responsibility as a Factor in SRI Investing
•
An example of this was recently highlighted in an interview in the September 8, 2014
edition of Barron’s with Todd Ahlsten, portfolio manager for Parnassus Investments. He
was quoted as saying,
» ”When you are looking at two similarly valued energy companies,
and one has a good track record for worker safety and one doesn’t,
which do we invest in? That’s a no-brainer.” Ahlsten’s Parnassus Core Equity
Fund, for example, has 40 mid-size to large company stocks with average annualized returns of 10% over the
past 10 years, beating 97% of its large-blend peers and two percentage points ahead of the S&P 500.
•
As Ahlsten’s quote illustrates, acceptable criteria for SRI investments have expanded
beyond the ESG concept to incorporate review of work-place policies, board diversity,
green-house gas emissions and efficiency of water usage, as well as whether a
company is involved in certain geographic regions such as Sudan, etc.
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MEET THE EXPERTS
professional qualifications
Colleen enjoys working with clients to understand their long-term
financial goals and transferring this knowledge into a financial plan and
investment strategy with long-term results. Keeping the client informed
and making decisions in their best interest is Colleen’s primary goal
when working with her clients.
COLLEEN JOHNSON, CFP®,
CRPC®
Vice President, Wealth
Management
A 10 East Doty St., Suite 320
Madison, WI 53703
P 608.250.7228
E [email protected]
experience & expertise
Colleen has over 20 years of experience in the financial service industry
including personal lending, private banking, branch management,
financial planning and investment management. She specializes in
developing comprehensive, integrated strategies that help individuals
and families meet their goals. Colleen has an in-depth understanding of
financial and retirement planning and is able to translate that knowledge
into solutions for her clients.
additional accomplishments
Colleen earned a bachelor’s degree in finance and financial planning
from the University of Wisconsin-Whitewater. She has obtained her
Certified Financial Planning designation CFP®, Charted Retirement
Planning Counselor designation CRPC® and her Wisconsin insurance
licenses for Life, Accident & Health.
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MEET THE EXPERTS
professional qualifications
As Senior Vice President, Wealth Investment Advisor, Richard utilizes a
holistic approach centered around your specific needs. Leveraging
quantitative and qualitative data, he is able to fully understand your
financial picture and what it takes to meet your goals. He specializes in
retirement planning.
RICHARD SALS, CFP®, JD
SVP Wealth Investment Advisor
A 10 E Doty Street, Suite 320
Madison, WI 53703
P 608.250.7132
E [email protected]
experience & expertise
With over 35 years of experience in the wealth management and financial
planning industries, Richard joined Johnson Bank in 2005. He is a Certified
Financial Planner professional. Richard also earned his Juris Doctor
degree from the University of Wisconsin Law School.
additional accomplishments
Richard is active in the community and currently serves YWCA and
Community Shares of Wisconsin.
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