Today is the 50th anniversary of Earth Day. And it is being celebrated at a time of heightened enviromental awareness. During the coronavirus pandemic, we have all become more aware of the restorative powers of nature, as even a short walk in the park help us regain a sense of calm and well-being. That we cannot take nature for granted is something that many environmentalists, including Seattle’s Denis Hayes (Earth Day founder and president of the Bullitt Foundation since 1992) have been saying for more than 50 years.
Still, one could ask: Given the health and economic devastation wrought by Covid-19, shouldn’t the environment be less of an issue right now? We think not, as the two issues are not mutually exclusive. Covid-19 will continue to create winners and losers in the marketplace due to shifts in demand and supply, regulations, and consumer habits. Our Investment Strategy & Research team is actively seeking to identify and take advantage of those shifts. However, Covid-19 will be controlled over time. But the risks posed by threats such as global warming and environmental degradation are ongoing and increasing. So companies need to continue to assess those risks and adjust their operations accordingly to avoid long-term damage to operations.
At LNWM, we have long advised clients on how to invest in a way that reduces environmental impact and/or has positive impact on the environment. One the most basic things we do is provide analysis (based on outside ratings services) on how current portfolio holdings rate in terms of impact on the environment, as well as corporate governance and social factors. From there, we offer various ways to invest, in the public and private markets, that align with each client’s environmental priorities.
We realize that many clients have specific investment return requirements. Clients who are foundations, for example, usually have mandatory payout rates of 5% annually (plus inflation), so we tend to aim for market-like returns when making impact investments. Other clients tell us: I want maximum impact and don’t care as much about return. In those cases, we can propose a wider range of options.
Usually, it’s an incremental process. Most clients who take the first step into impact investing like the intentionality of it, and from there it usually builds. For instance, a portfolio that is free of fossil fuels is a big first step. Then clients often say, “I want to do more.” Next steps could be a positive screen portfolio that includes funds that invest according to ESG (Environmental, Social and Governance) factors, with an emphasis on the issues they care about, and even further, direct investment in private funds that target specific issues, such as renewable energy or affordable housing.
In the trusts we manage, especially multi-generational ones, the clients who set up the trust can specify that they want us, the trustee, to prioritize impact investing and ESG, and then we look for ways to implement that.
Read this Q&A with LNWM CIO Gino Perrina and Jeanne Goussev, Managing Director of Fiduciary Services.