Family Foundations Maximize Social Impact

September 28, 2017

Midwest Family Foundation Webinar Series Susan Hammel, CFA, CEO Cogent Consulting Executive in Residence, Minnesota Council on Foundations

Agenda

1. Do good, do well investing

2. Impact investing trends

3. Implementation

• Negative/positive screening

• Collaborations

• Program Related Investments

• Other tools

• Questions/discussion 1

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• Insert alphabet soup here

• ESG, negative screening, exclusionary screening, SRI, sustainable, responsible, impact investing, etc

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Poll Question 1

• Do you use any social impact screens (positive or negative)?

• Yes

• No

• Not sure

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Socially Responsible Investing

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US Investment Funds Incorporating ESG Factors

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ESG Universe

(insert graphic here – not sure if SASB is proprietary or could put list in table format i.e. CFA – ESG guide for investment professionals pg. 4)

CFA 2015 Survey Dispels ESG Myths

Myths Reality CFA Survey (2015)

Myth #1 Firms offer ESG for reputation.

#1 Reason Manage risk

• 63% to manage risk • 44% client demand • 38% proxy for quality management • 37% fiduciary duty • 37% investment opportunity

Myth #2 ESG issues are mostly environmental & climate change.

#1 Reason Board accountability – governance issue.

• 78% Board accountability • 62% Human capital • 61% Executive compensation • 54% Environmental degradation • 47% Supply chain • 41% Board diversity • 40% Climate change

Myth #3 Implementation through exclusionary screening.

Reality ESG Integration

• 57% ESG integration – investment analysis & decision making.

• 38% Best-in-class investing • 36% Exclusionary screening • 23% Thematic investing • 21% impact Investing

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Is a Stampede into ESG forthcoming?

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What would Cause to consider ESG? (CFA 2015 Survey)

Fast Forward Today Resources

Client Demand (57%)

+$59 T AUM +1400 Investor

signatories +4 T U.S. Funds w/

ESG factors

PRI - Principles of Responsible investment (UN + consortium of institutional investors committed to ESG issues) (April 2015)

Proven Performance (48%)

6.01% Alpha* Material ESG factors vs 0.60% Immaterial ESG factors

*Annualized

HBS: Corp. Sustainability – First Evidence on Materiality

Better info on Risk/Reward (25%)

o Standardization evolving for metrics/tools

o Disclosure/transparency issues

o Company (SASB, IIRC)| Investor (IRIS, GIIN)

o SSE Initiative – SEC ESG filing

Clarity about Fiduciary Responsibility (22%)

ESG investment doesn’t violate ERISA fiduciary duty

Oct 2015 DOL ruling

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Impact Investing Across Asset Classes

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Cupcakes are on the rise with the help of Sunrise Bank

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Village Trust Financial Cooperative 15

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Otto Bremer Trust

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Minnesota Impact Investing Initiative

A collaborative place based fixed income bond fund

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Shareholder Advocacy

• Sundance family foundation • Palo Alto Networks — Board diversity

• Amended governance guidelines, hired first woman to its board of directors

• Tile Shop — Gender diversity • Improved policy guidelines

• SPS Commerce — Gender diversity • Improved policy guidelines

• Target Corporation — Food waste • Expanded food waste reduction efforts including gathering

data, new programs, setting targets, and public reporting

• Dentsply Sirona — Board diversity • Improved policy, agreed to publicly report on progress

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Contraceptive Implants Volume Guarantee

Bill and Melinda Gates Foundation

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Poll Question 2

• Do you make program related investments (PRIs)?

• Yes

• No

• Not sure

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Faith based lending

Sisters of Mercy

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The Saint Paul Foundation

• East Metro Job Creation Loan Fund

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where charity and investing meet TM

Venn Foundation

Account 1 Account 2 Account 3 Account 4

Donation Grant or PRI

Grant or PRI Donation

Individuals Businesses Private Foundations

Donor-Advised Funds

PRI Deal Flow

Mission Investors Exchange

Baltimore, May 2016

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Definition

An Impact Investment is an investment that seeks to create both positive financial return as well as positive social or environmental impact that is actively measured

-World Economic Forum

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Impact Investing Snapshot

• Asset owners: banks, financial institutions, foundations

• Foundations: private, family and community

• International scale

• Housing, microfinance, financial services

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2014 2015 2016

Assets Under Management $60 billion $77.4 billion 113.7 billion

Capital Committed $10.6 billion $15.2 billion 22.1 billion

Challenges and opportunities

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Impact washing

Seeking alpha

Irrational exuberance

Professionals

Equity

Impact Reporting

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PUBLIC EQUITY

PRIVATE EQUITY/DEBT

COMPANY LEVEL

Poll Question 3

• Are there sufficient investment opportunities that meet your criteria for both social and financial returns?

• Yes

• Enough, would like more choices

• No

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Twin Cities Impact Investing Ecosystem

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Twin Cities Ecosystem Map

Sources of Capital, End Users, Intermediaries

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Millennial Impact Investing Trends • Breaking down silos

• All-in and holistic mindset

• Believe change is constant

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Phillips Foundation

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Aligning assets for positive impact is the Future 39

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COGENT CONSULTING: DO GOOD WELL

Susan Hammel, CFA

shammel@cogentconsulting.net

@susan_hammel

Direct 952.237.5427

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