to other investors and possibly generate a dividend yield, depending
on the underlying cash flows of the portfolio companies, [and] could
also raise future rounds of investment as required.
[Nevertheless], as a holding company raises more equity,
existing investors may risk becoming diluted. There are quite a few
details to work out.
MAGAZINER: We launched our Bank Local initiative, which
moves millions of dollars in state deposits to local banks and credit
unions to encourage loans to Rhode Island small businesses. The
amount deposited is determined based on loans these institutions
make to small businesses in the community. These are insured
deposits, which in some instances are earning a better interest rate
than at bigger banks. This is a simple and scalable solution to promote
local economic growth, which could be replicated across any region.
MITCHELL: A few examples include:
• [Some investors] are seeding sustainable and impact strategies—
both public and private—to help grow the field.
• The private markets are maturing, [with] more managers taking
sustainable approaches from early- to late-stage investing.
• Large asset managers are generating an increasing number of ESG
strategies that are more affordable and accessible than years past via
institutional funds and ETFs.
CIO: Are there enough product offerings to meet demand?
Any product gaps?
HAMMEL: No. There is a mismatch between investor demand and
supply of quality product. Many impact funds are too small and too
new to attract institutional interest. Most have high investment minimums that preclude investment by smaller asset managers. They are
typically launched by new managers and lack the track record investors require.
SIDDIQUI: We’ve seen a significant gap in public markets. Many
active investment managers invest with a sustainability impact thesis.
We could invest in many managers to obtain diversification at the
manager level, however, we may have a concentration of specific
public companies in the underlying portfolio of each manager. We
continue to [seek] managers beyond sustainability, for example, an
interesting idea may be a fund manager may build a portfolio based
on the employment practices of public companies.
MAGAZINER: Rhode Island recently became one of the first states
CIO: How can asset owners better collaborate to promote
in the country to offer socially responsible investment options in
government-sponsored participant-directed plans—the Rhode Island
529 college savings plan and our public employee defined contribution
plan. There’s tremendous potential to promote sustainability through
these participant-directed plans, but a lack of socially responsible
target date funds is a major gap that the industry needs to fill to fully
address these opportunities.
MITCHELL: For those that employ hedged or absolute-return strate-
gies for diversification, there could also be more managers that demon-
strate integrated thinking about capital allocation and sustainability.
the scalability of sustainable investing?
HAMMEL: Barriers to scaling include high minimums required
by many funds [and] fees for smaller investors. To scale, we need
to bring [together] asset owners of all sizes so the larger owners can
assist in collaboration to generate sufficient minimums necessary for
managers. This is the secret sauce that enabled the Minnesota collaborative fixed-income bond fund to launch so quickly. In essence, the
larger foundation anchors cleared the way for the smaller investors to
participate on a scale and cost that works for them.
BRIGGS: The Development of the Green Bond Principles among a
group of financial institutions represents an example of collaboration
to make sustainable investing scalable.
MITCHELL: Asset owners can:
• Share information, insights, and lessons learned
• Collaborate to seed ideas that promote more alignment and favor-
able terms for others
• Be clear and direct in pushing their managers and advisers to
address sustainability and impact factors in their respective practices
and processes. —CIO
Susan Hammel Tom Mitchell Seth Magaziner Xavier Briggs Shuaib Siddiqui