metrics and standardization for non-financial performance. For
example, the Global Impact Investing Network (GIIN) developed
a taxonomy for impact metrics called IRIS, and many early-stage
ratings systems have emerged. Organizations like the Sustainability
Accounting Standards Board (SASB), and others are working to
incorporate data into accounting standards for materiality.
With the [recent] launch of the MRI portfolio, the foundation
is committed to developing an impact evaluation framework and
assessment tool, drawing on leading practices in the industry, and
supporting the foundation and the field, not only in pipeline development, but learning over time.
MITCHELL: We use various inputs to help clients assess non-financial characteristics of their sustainable investments. We seek
to understand how [managers] consider ESG and impact factors
in their investment process and reporting. We work with clients to
develop expectations around non-financial factors, and evaluate
performance against those expectations over the duration of an
investment. We also employ a combination of manager-reported and
CIO: What are some challenges in scaling sustainable
SIDDIQUI: One challenge revolves around defining impact investing as a sector. A common long-term challenge is ensuring that
impact investments generate returns that are commensurate with the
risk. Many organizations are forced to ask themselves, for example,
whether an ESG Index Fund can deliver similar returns to a traditional Index Fund.
MAGAZINER: The turnover in state treasurer’s job can be as short
as two to four years, which is dissimilar to the longer tenure at endowments or investment firms. Additionally, the governance structure
at state treasuries can make it difficult to incorporate ESG factors
into investment decisions. It’s a challenge that requires constant and
perpetual education of treasurers, investment boards, and staff.
BRIGGS: While sustainable investing is not new, it remains a
nascent market. Challenges include:
• Lack of high-quality, standardized data.
• Lack of supportive policies that would help investors to engage.
• [Lack of prepared investors]—there are far more interested investors than prepared ones, so the act of building familiarity and capability goes hand in hand with tackling these other, fairly common
In order to scale, sustainable investing will need to become
mainstream in finance. Financial professionals need to look not only
at risk, return, and liquidity, but also impact, which requires education and culture change. Responding to [investors’] demand for
impact “products” is just good business for the investment industry,
so we expect that literacy, experience, and capacity will grow significantly in the next five to 10 years.
MITCHELL: Interest in sustainable investing continues to grow
CIO: How can asset managers and other market partici-
rapidly. Our concern is that there could be a rush of the wrong form
of capital into a sustainable market. For example, previously, venture
capital investments into capital-intensive clean power generation
were one such mismatch of capital and opportunity. Investors should
learn from the past, while seeking the sources of future value and
where capital is needed, rather than saturated.
pants help in scaling sustainable investing?
HAMMEL: Asset managers that freely share their results are an
enormous resource to those just starting out in sustainable investing.
The McKnight Foundation sets the standard for comprehensive
transparency in sharing both its strategic framework and investee
list. Showing investor commitment and experience across various
asset classes is also helpful in moving away from the false notion that
sustainable investing is a separate class rather than a strategic overlay
to asset management.
SIDDIQUI: One of the most effective ways that rating agencies and
sell-side equity analysts can help is to prioritize ESG factors when
asssessing a company to make investment decisions. It’s crucial
for investors, for example, to be cognizant that companies without
robust governance practices may carry more risk.
BRIGGS: Market participants could significantly impact the scale
of sustainable investing by decreasing the time and transaction cost
involved with fundraising. For example, Community Development
Financial Institutions (CDFIs), regulated institutions, typically raise
capital by engaging banks and foundations individually for private
investment. This is typically a time-consuming process.
In this vein, the Local Initiatives Support Corporation (LISC),
a CDFI, recently issued a $100 million bond that was oversubscribed. The bond represents the first public offering of its kind, and
was rated by S&P and underwritten by Morgan Stanley. This shows
the potential for CDFIs to raise capital more quickly and at scale,
using instruments and pricing that the mainstream capital markets
are very familiar with.
CIO: Can you share any unique ESG strategies that can be
HAMMEL: The Minnesota Impact Investing fund is a great
example of foundations of all asset sizes, experience in sustainable investing, and risk/return profiles coming together to invest
in the community. For many, it’s a first step for CIOs and investment committees in thinking differently about asset management.
Through a six-month collaborative process, it enabled a dozen foundations to work together in a meaningful way that resulted in a $17.1
SIDDIQUI: Consider creating a holding company that directly
invests in private companies for return and impact.
In theory, a holding company structure would allow companies and fund managers greater flexibility in building a company in
several ways: reducing the need to scale and exit companies in a relatively short timeframe (three to six years), and would allow businesses
to create long-term value rather than scaling too quickly. It would
limit the need for fund managers to raise a significant amount of
capital all at once.
Such a holding company would allow investors to sell shares