a practical guide to sustainable investing
TRANSCRIPT
PowerPoint PresentationA Practical Guide to Sustainable Investing
January 13, 2020 AOA 2020 Conference, Coronado Bay, CA
Graystone Consulting 3562 Round Barn Circle Santa Rosa, CA 95403
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Topics for Discussion
What is Investing with Impact?
Investments made with the intention to generate a measurable, positive social and/or environmental impact alongside a financial return.
Investing with
Impact Goals
Positive social and/or environmental outcomes driven by values and mission
Presenter
MAINSTREAM INVESTORS
Individuals
Women and men across generations, especially Millennials and Ultra High Net Worth individuals and families are seeking to generate a positive legacy with their capital and align investments with impact objectives
Endowments
Seeking risk management, return potential, respond to stakeholder demand and motivated to align investments with the mission statement to maximize positive impact
Donor Advised Funds
Maximize impact of charitable assets by investing in companies that seek to generate positive environmental and social return while waiting to grant out funds
Entrepreneurs
Seeking innovative investment options that mitigate risk, have return potential and provide complementary personal portfolio to corporate interests and assets
Insurance Companies
Seeking to respond to evolving policy/regulations, and utilize social and governance to identify embedded long-term risk and also seek to benefit from opportunities
Religious Institutions
Foundations / Non-Profits
Aligning all pools of capital with the organization’s mission statement to maximize positive impact, mitigate risks and drive long term value
Defined Benefit/Defined Contribution Plans
Seeking sustainable retirement investment options to drive long- term value, mitigate risks. Respond to stakeholder demand and attract talented employees to organizations
Presenter
employment with a
individual investor
individual investor
Source: Morgan Stanley Institute for Sustainable Investing, Sustainable Signals: New Data from the Individual Investor, August 2017
2x 86% 3x
S&P 500 Index
11.1%
The MSCI KLD 400 Index of companies that meet best-in- class environmental, social and governance (ESG) criteria.
May 1, 1990 – September 30, 2019 (Single Computation) Cumulative Return (%)
Proof in the Performance
Source: Bloomberg, MSCI, Morgan Stanley Wealth Management. Past performance is no guarantee of future results. The index returns are illustrative and shown for comparative purposes only. They do not represent the performance of any specific investments. An investor cannot invest directly in an index.
Indices that incorporate environmental, social and governance (ESG) factors have generally performed in line with, or better than, conventional indices. For example, a $1 invested in line with the holdings reflected in the sustainable index in 1990 grew to $1,872 versus $1,674 for a traditional index through September 30, 2019.
Cumulative Excess Returns (Right Axis)
MSCI KLD 400 Index (Left Axis) S&P 500 Index (Left Axis)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
$1,674
$1,872
2019
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RESTRICTION SCREENING
ENVIRONMENTAL, SOCIAL & GOVERNANCE (ESG ) INTEGRATION THEMATIC EXPOSURE IMPACT INVESTING
Intentionally avoid certain companies, industries or countries due to values or risk-based criteria
Proactively consider ESG criteria alongside financial analysis to identify opportunities and risks during investment process
Themes solving sustainability- related domestic and global challenges across sectors, populations or geographies
Investment funds delivering specific positive social and/or environmental impacts through their business model, products and services
Investment Characteristics
• Differentiated by screening criteria including issue area and revenue threshold used
• Differentiated by ESG data integration process – for example ESG momentum, ESG as a screen, ESG as a tool to engage with companies owned and/or ESG as part of the valuation model
• Differentiated by macro- analysis, sustainability research and sector focus
• Differentiated by impact approach, regional focus, liquidity and more
• May have investor qualification restrictions
Investment Examples
• Strategy (mutual fund, exchange traded fund, separately managed account or private fund) that does not own certain companies, industries or countries due to values misalignment or risk
• Strategy (mutual fund, exchange traded fund, separately managed account or private fund) incorporating analysis of ESG performance into equity and fixed income valuation process or using ESG data as a factor to filter investable universe
• Strategy (mutual fund, exchange traded fund, separately managed account or private fund) investing in companies with significant exposure to sustainability themes such as renewable energy, affordable housing, faith-based values etc. across equity and fixed income
• A private market strategy (e.g. venture capital, private equity, multi-asset fund, hedge fund etc.) focused on affordable housing in low-income communities, emerging consumers, workforce training, etc.
PUBLIC + PRIVATE MARKETS PRIVATE MARKETS
MINIMIZE OBJECTIONABLE IMPACT CREATE TARGETED IMPACT
Our framework clarifies the spectrum of approaches that investors of all sizes can pursue
Definition
Shareholder or company engagement and impact reporting play a critical role in differentiating managers across approaches
Presenter
Promote better gender diversity and equality through increased exposure to companies committed to employing and advancing women in high-level leadership roles
CLIMATE CHANGE AND FOSSIL FUEL AWARE INVESTING
Support the transition to a lower carbon economy by considering exposures to climate solutions, environmental leaders and fossil fuel reserves in portfolios
Investing with Impact Thematic Exposure
1. 2017 Sustainability Highlights, Global Sustainable Finance, Morgan Stanley, 2018
MISSION ALIGN 360° INVESTING
Evaluate, align and activate all pools of capital (human, philanthropic and financial) towards the theme of your choice to accomplish your organization’s unique mission statement
FAITH-BASED INVESTING
Align investment portfolio with principles in accordance with specific religious values
We help you clarify the range of approaches and how to implement investment solutions based on theme
Presenter
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• What social and environmental risks and opportunities does my organization help solve?
• How can these be addressed through investments?
• Are there any investments that my organization currently makes that we consider Investing with Impact?
• What are the legal and operating constraints that shape the approach we can take to Investing with Impact?
• How can I work with my Advisor to learn more about the different approaches to Investing with Impact?
• Does it make sense for our organization to develop a mission-aligned Investment Policy Statement?
Questions for Institutions to Consider
FOR INSTITUTIONS
Implementation at the CSU ESG Criteria SRI/Divestment Impact Proxy Voting
Consistent w/Policy
Fund Managers
Bakersfield X Chancellor's Office X Coal X
Channel Islands X X X X X Chico X X Dominguez Hills X East Bay Fossil Fuels Fresno X X Fullerton X X X X Humboldt X Fossil Fuels,
Defense, Alcohol,
Signed UN Principles for Responsible Investment
Long Beach X Los Angeles X X Maritime Made a conscious decision to not pursue ESG, SRI Monterey Bay Made a conscious decision to not pursue ESG, SRI Northridge X Pomona X X Sacramento X San Bernardino X San Diego X San Francisco X Fossil Fuels X San Jose San Luis Obispo Made a conscious decision to not pursue ESG, SRI San Marcos Sonoma X Stanislaus
Source: The California State University
Sheet1
Green Fund
Notes
Bakersfield
X
X
Fresno
X
X
Fullerton
X
X
X
X
Humboldt
X
Redfearn, Lori: Redfearn, Lori: Fossil Fuel, Defense, Alcohol, casinos and tobacco
10% of portfolio
Signed UN Principles for Responsible Investment
Long Beach
Monterey Bay
Northridge
X
Pomona
X
X
Sacramento
X
Redfearn, Lori: Redfearn, Lori: Fossil Fuel, Defense, Alcohol, casinos and tobacco
Redfearn, Lori: Redfearn, Lori: 10% of portfolio
X
San Marcos
Divestment
Affordable Housing
Gender Equality
• Proactively creating a cohesive policy may reduce the need to reactively implement “negative” screens in the portfolio.
• Consider a fully integrated ESG approach?
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• Step 1 – Gauging Interest Set as an official Investment Committee agenda item Educational overview on trends
• Step 2- Mission Alignment & Building Consensus Review mission of institution Search for alignment Additional education Overcoming Objections
• Step 3 – Board Education Educational Retreat
• Step 4 – Investment Policy Development • Step 5 – Implementation
Holdings Analysis Performance Attribution Asset Allocation Considerations Search & Selection Active vs. Passive Considerations Time Line: Carve Out vs. Migration vs. Offset
• Step 6 – Board Recommendation Investment Policy Let’s go!
Implementation Road Map
• Set as an official Investment Committee agenda item • Educational topics
• What is sustainable investing? • History • Current trends • Framework
• Negative Screens • ESG (Positive Screens) • Thematic Exposure • Impact (private markets) • Shareholder engagement & advocacy • Implementation
• Fiduciary Considerations • Performance Considerations
Step 1 – Gauging Interest
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• Meeting Policy Objectives – Mission alignment: What is the mission of the Foundation and are they being reflected in the
portfolio?
• UPMIFA – The “prudent man rule” embodied in UPMIFA requires that fiduciaries act with the care and
diligence so as to avoid making investment decisions that result in unintended outcomes.
• Resources: – Best Interests in the Long Term: Fiduciary Duties and ESG Integration, Susan N. Gary, University of
Oregon February 2018
Step 1 Cont. - Fiduciary Considerations
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• UN Sustainable Development Goals (SDGs) – The Sustainable Development Goals (SDGs) are a set of 17 integrated and indivisible global goals
which are further broken out into 169 targets that balance the three dimensions of sustainable development: economic, social and environmental. The Sustainable Development Goals are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice.
• Future Fit Business – The Future-Fit Business Benchmark offers a holistic framing for companies and investors to
consider all their social and environmental impacts. It provides a robust scientific definition of sustainability, enabling a strategic approach for achieving sustainability, and it aligns with the SDGs.
Step 1 cont. - Educational Resources
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• OBJECITVE: • Build consensus to bring a resolution to the Board
• Review Mission of Institution • Make sure everyone has a common understanding of the mission and how it may be reflected in
the investment portfolio. • Are there any obvious areas of focus?
• Example: Dominguez Hills Philanthropic Foundation focus on minority owned asset managers
• Gathering Perspective • Use a survey tool to poll the key stake holders (include the Board if interested)
• Conduct survey before meeting • Present results at investment committee meeting
• Expect wide divergences in opinion! • Example CSU Foundation: Key Stake Holders
• Build Consensus • Objections?
• Additional Education? • If negative screens are used: Conduct tracking error studies to determine the feasibility
Step 2- Mission Alignment & Building Consensus
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• OBJECTIVE: • Get a green light from the Board to continue the process. • Make sure they understand their fiduciary responsibility and that the process can be delegated to
the investment committee.
• Educational Overview • A retreat is the best case scenario • Requires at least 1 hour of education
• Investment Committee Update • Suggest a “Road Map” for Implementation
• It is important to have a “champion” who will carry the torch. Will it be a committee member or your consultant?
Step 3 – Board Education
• Develop Investment Policy Language
• The statement should set clear goals and objectives related to sustainable investing which are linked to the mission of your institution.
Resources: Sample ESG Language: • Intentional Endowments website > Roadmap for Endowments > Sample Investment Policy
Statements
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• Holdings Analysis • How is the current portfolio activated relative to the newly drafted policies?
• Performance Attribution • Are there any forecasted changes to the performance characteristics? • What is the tracking error budget?
• Asset Allocation Considerations • What do you do with hedge funds, private equity and real assets?
• Search & Selection • Active vs. Passive Considerations
• Develop Time Line: • Carve Out, Migration, and/or thematic exposure?
Step 5 – Implementation
• Fiduciary Roadmap • History of fiduciary process
• Investment Policy • Summary of key changes • Clean document
• Portfolio Construction • Considerations under consideration
• Timeline for implementation • Suggested timeline for implementation
Step 6 – Board Recommendation
• Measuring alignment with sustainability objectives • Manager alignment? • Security level alignment?
• Measuring exposure to areas of concern • Aggregate exposure at manager level? • Security level exposure?
• Measuring activation • How much of the portfolio is currently activated toward objectives?
Monitoring for IPS Compliance
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• $309 Billion *in Institutional Advisory Assets • 50+ teams located across the country, each with a dedicated
specialty including: • Foundation and Endowment • Defined Benefit Consulting • Annuity/401(k) Consulting • Taft-Hartley
• Model delivers national presence by complementing consultants to clients according to specific needs **
• Your Consulting Team: • Understands the uniqueness of the client • Assists in the creation and review of the Investment Policy
Statement • Recommends asset allocation to achieve stated goals • Recommends managers and/or manages the portfolio risk
by leveraging centralized intellectual capital • Evaluates portfolio on an ongoing basis to ensure policy
obligations are being met
• Specializes in Foundation and Endowment Consulting • Extensive experience working with Community Foundation clients • Capacity to ensure Graystone delivers “white glove” service and an excellent client experience
* As of January 17, 2019. Morgan Stanley Fourth Quarter Earnings. **www.graystoneconsulting.com
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70+ Research Professionals Traditional and Alternative Investments
Global Investment Committee
Mike Wilson. Chief Investment Officer and Chief US Equity Strategist
Lisa Shalett, Chief Investment Officer, Head of Wealth Management Investment Resources
7 Member Committee Establishes Macroeconomic themes and asset
allocation inputs
Graystone Advisory Board
12 Member Board
Graystone Consulting Chief Executive Officer
Jodie Gunzberg, Managing Director Graystone Consulting Chief Investment Strategist
John Pratt, Managing Director Graystone Consulting Director of Platforms
Michael DiBiasio, Managing Director Graystone Consulting Director of Business Strategy & Development
Graystone – Santa Rosa Office Todd Au, Institutional Consultant
Tony Parmisano, Institutional Consultant 8 Member Team
Graystone Investment Committee
Chair - Jodie Gunzberg, Managing Director Analysts from 50+ Graystone teams
Bob Mandel, Managing Director Director of Graystone Consulting
Kara Julian, Managing Director Graystone Consulting Chief Operations Officer
CSU Auxiliaries
Sustainable Investing Research & Solutions
84% Women focus at least
partially on making a
positive impact with their
are interested in socially
Women Control More Capital and Seek to Create Positive Impact
Presenter
New Proof of Performance
• Sustainable funds were in line with comparable traditional funds in terms of performance, and there was not a statistically significant difference in total returns
• Sustainable funds experienced a 20% smaller downside deviation than traditional funds
− During the 2018 market downturn, the median sustainable fund outperformed the median traditional fund by 1.44%, 0.84% and 0.22% for U.S. Equity, International Equity and Taxable Bonds, respectively, suggesting that sustainable investment strategies may potentially offer downside risk mitigation in times of high volatility.2
Morgan Stanley’s Institute for Sustainable Investing conducted a proprietary study1 on nearly 11,000 mutual funds over 14 years. The results showed that sustainable investments were in line with the performance of traditional investments1:
1. Morgan Stanley Institute for Sustainable Investing ,Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds, 2019. 2. Compares the performance of sustainable funds to traditional funds from 2004 to 2018 using Morningstar data on exchange-traded and open-ended mutual funds active in any given year of this period. A total of 10,723 funds were analysed. We compared their performance on total returns, a measure of performance net-of-fees, and downside deviation, a measure of risk. For any methodological inquiries, please contact [email protected]. Results for different time periods and different asset classes may be different and not statistically significant.
Presenter
• Shareholder communications and proxy materials are delivered to all clients seamlessly via Morgan Stanley’s eDelivery
• Third party managers on the Investing with Impact Platform employ shareholder engagement on behalf of our clients
• External organizations focused on shareholder engagement issues provide insight on corporate actions for investors
Top 5 ESG Issues by Number of Shareholder Proposals Filed (2016-2018)(1)
Drive positive environmental and/or social change through active and continuous dialogue with corporates
Shareholder Engagement Approaches Include:
• Dialogue with company executives
• Letter-writing and email campaigns
• Shareholder meetings
• Shareholder resolutions
• Stakeholder engagement
A critical tool employed by managers across the Investing with Impact Framework is shareholder engagement. This tool complements investment approaches across the spectrum and provides a way for clients to drive positive change across environmental, social or governance-related areas of concern in their portfolio.
1. Source: ISS, Sustainable Investments Institute
0 50 100 150 200 250 300 350 400
Proxy Access
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Investing with Impact Questions Incorporated into Due Diligence for All Managers
GIMA has dedicated resources to analyze each manager’s approach to sustainable investing. Managers that meet a higher bar across 5 key dimensions are considered for the Investing with Impact Platform.
Sample questions from Global Investment Manager Analysis (GIMA)’s initial request for information
• What Investing with Impact approaches are employed by the manager (Restriction Screening, ESG Integration, Thematic Exposure or Impact Investing)?
• Describe your ESG/impact investment philosophy and investment process.
• How diverse is the manager’s staff and leadership (e.g. gender, multi-cultural, etc.)?
• Which of the United Nations Sustainable Development Goals (SDGs), if any, is an intentional focus area?
9% of Managers
Impact Platform
Process
Shareholder Engagement: Drive positive environmental change through active dialogue with invested companies.
With awareness of the impact of climate change on investments increasing, we can help investors achieve market-rate financial returns while supporting a transition to a lower-carbon economy.
Understanding The Risks & Opportunities
“Know what you own”: assess exposure to fossil fuels / companies with large carbon reserves.
INCREASE CLIMATE OPPORTUNITIESREDUCE CLIMATE RISKS
FOSSIL FUEL-AWARE Eliminate or reduce exposure to companies producing coal, oil and nuclear energy or owning significant fossil fuel reserves.
Investors interested in proactively seeking opportunities to enhance environmental impact without sacrificing market-rate return have access to a range of climate change and fossil fuel aware investments.
Developing A Climate Aware Investment Strategy
EVALUATE DEFINE
Determine any limitations (e.g., comingled funds) that may limit implementation options.
Consider overall climate change and fossil fuel aware objectives.
Integrate climate change and fossil fuel aware objectives with financial objectives through an investment plan or policy statement
CLIMATE SOLUTIONS Focus on investable themes that seek to improve climate change mitigation and / or adaption solutions.
ENVIRONMENTAL LEADERS Exposure to all sectors and industry groups including energy, but only in companies that reflect the best environmental practices relative to industry peers.
Presenter
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The Gender Advantage: Integrating Diversity into Financial Decisions • A growing body of evidence points to better financial performance associated with higher levels of gender diversity, defined as a balance in
representation, empowerment and economic opportunity.
Morgan Stanley’s Global Quantitative Team looked at 1,600 global stocks across five key areas of gender diversity:
Stocks with high gender diversity delivered meaningfully better risk-adjusted returns than those with low gender diversity. (1)
• Equality in Pay • Empowerment • Representation
1. Source: Gender Diversity Continues to Work. Morgan Stanley Global Quantitative Team. 2016.
What Is Gender Diversity? Gender Diversity Makes An Impact Gender diversity is not about advocating one gender over another, but rather an examination of how genders – through a balance in representation and inclusion – can make a social impact and drive value in different settings, including companies you may invest in.
INCREASE GENDER DIVERSITY OPPORTUNITIESMINIMIZE GENDER DIVERSITY RISKS
• Diversity Policies • Work/Life Balance Programs
GENDER DIVERSITY AS SCREEN GENDER LENS INVESTINGGENDER DIVERSITY LEADERS
• Seek companies with leading gender diversity records, including strong policies and programs, diverse boards and management and work / life balance programs
• Gender diversity is both a risk and opportunity to identify long-term outperformance
Proactive approach, intentionally focused on companies or funds seeking to drive greater gender equality through channels, such as: • Workplace equality • Access to capital • Products and services that benefit
women and girls
• Use restriction screens to avoid exposure to companies with poor gender diversity records, such as weak policies, poor supply chain safety records or involvement in the pornography industry
• Gender diversity primarily a risk; not proactively transformative
Presenter
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Understanding Your Portfolio’s Impact Measurement and reporting are central to advancing the positive impact of your investments. You cannot manage what you are not measuring.
Impact reporting has evolved into a complex global network of organizations, data providers and rating systems that can be challenging to navigate.
Current Landscape:
15+ organizations such as the Global Impact Investing Network and the Sustainability Accounting Standards Board are building the infrastructure to drive the effective use of material sustainability information by investors
100+ data providers can now deliver environmental, social and governance (ESG) insights across multiple levels (company, manager and portfolio-level) to help determine ESG-driven risks and opportunities
Emerging ratings systems assess ESG performance, but are either over-simplified, non-customizable and struggle to capture intentional sustainable investing approaches
Solution We have vetted and partnered with leading ESG data providers – MSCI ESG Research, ISS-ESG and Fossil Free Indexes – to deliver a customized impact reporting tool exclusively for Morgan Stanley
Financial Advisors and clients. With us, you can understand and monitor your impact to make informed investment decisions based on your unique impact priorities.
Investors have long sought the ability to understand the environmental and social impact of their investments; however, impact data and reporting is complex.
Problem
The description of Morgan Stanley Impact Quotient and the reports that it generates are solely for informational purposes. You should not definitively rely upon it or use it to form the definitive basis for any decision, contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise.
Presenter
Introducing Morgan Stanley Impact Quotient TM: A Client-Centric Approach to Impact Reporting
Available exclusively to Morgan Stanley clients, Morgan Stanley Impact Quotient TM is a new suite of capabilities designed to help you understand the environmental and social impact of your investments.
The process is designed to capture impact priorities and assess alignment across multiple dimensions:
IMPACT PREFERENCES
Social and / or environmental impacts sought to be aligned within an investment portfolio
ISSUES OF CONCERN
Sectors, issues or business activities found to be objectionable or to be avoided with an investment portfolio
SUSTAINABLE DEVELOPMENT GOALS
United nations supported framework aimed at ending poverty, protecting the planet and ensuring prosperity for all
TARGETED POPULATIONS FOR IMPACT
Geographies or groups intended to experience positive impacts associated with selected investments
IMPACT THEMES & OBJECTIVES
FAITH-BASED APPROACHES
Faith can serve as a lens or set of considerations within an investment portfolio
PORTFOLIO PREFERENCES
Portfolio integration, targeted curve out, portfolio tilt, or integration when new cash or investment changes
AVAILABLE INVESTMENT OPPORTUNITIES
Public markets (e.g., Public equities fixed income, and multi Asset) and/or alternative investment (e.g., Real Assets, Private Equity)
APPROACHES TO INVESTING WITH IMPACT
Restriction screening, ESG integration, thematic exposure, impact investing and shareholder engagement
The description of Morgan Stanley Impact Quotient and the reports that it generates are solely for informational purposes. You should not definitively rely upon it or use it to form the definitive basis for any decision, contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise.
Presenter
your investments with data-driven
insights customized to your
to better align your investments
over time.
Families seeking to align portfolios to their legacies
Why Engage With Morgan Stanley Impact Quotient? Who is Morgan Stanley Impact Quotient Designed For?
Evaluate and Enhance the Alignment of Your Investments
The description of Morgan Stanley Impact Quotient and the reports that it generates are solely for informational purposes. You should not definitively rely upon it or use it to form the definitive basis for any decision, contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise.
Presenter
The Future is Bright for Investing with Impact
1. Morgan Stanley Institute for Sustainable Investing, Sustainable Signals: New Data from the Individual Investor, 2017 2. Vision 2050: The New Agenda for Business, World Business Council for Sustainable Development, 2010 3. Morgan Stanley & Co. Sustainability Research 4. ESG = Environmental, social and governance
of individual investors believe companies with leading sustainability practices may be better long-term investments1
71%
Year that the business opportunities for sustainability-focused companies are expected to be between $3 trillion and $10 trillion annually, or up to 4.5% of global GDP2
2050
and 80% of U.S. money
managers2 say their decision to offer ESG4
strategies is in response to client demand
75%
Morgan Stanley is well-positioned to help deliver impact via customized solutions based on clients’ financial and impact goals
Companies are improving their competitive position by adjusting their business strategies to address long- term global themes / mega- trends, including: Climate Change, Health & Wellbeing, Inclusion, Resource Management, Safety & Security3
Presenter
Jamie Martin Executive Director Global Sustainable Finance
Jamie Martin is an Executive Director in Morgan Stanley’s Global Sustainable Finance group, responsible for delivering sustainable investing products and solutions to the firm's institutional and wealth management clients. In this role, Jamie collaborates across the firm’s Institutional Securities, Investment Management and Wealth Management divisions to drive adoption of sustainable investing strategies seeking to achieve competitive financial returns alongside measurable positive environmental and/or social impact. He is a former representative on the Executive Committee of The Green Bond Principles and B Lab’s Multinational and Public Markets Advisory Council. Jamie started his career at Citigroup, working in the firm’s Global Investment Research division. He graduated from Colgate University with a B.A. and received an M.B.A. after studying at HEC Paris and the Fletcher School of Law and Diplomacy at Tufts University.Direct 212-296-5193
TODD O. AU,CIMA® Senior Investment Management Consultant Senior Vice President InstitutionalConsultant
Todd Au is a Senior Investment Management Consultant, Alternative Investments Director and Senior Vice President for Morgan Stanley's Graystone Consulting business. Since 2000, Todd has focused on portfolio construction, risk management, investment manager due-diligence and investment manager selection as both anadvisor and Outsourced Chief Investment Officer (OCIO). Todd and his team are dedicated to providing exceptional customer care with an emphasis on customized investment solutions for non-profit institutional clients and associated board members. His team regularly designs custom allocations to fixed income, equity, hedge fund, real asset and private investment portfolios in order to achieve their client’s unique risk and return and impact objectives.
Todd has been a guest speaker for the Association of Small Foundations (ASF), Research & Associates and the Association for Investment Consultants. Todd earned a Certified Investment Management Analyst (CIMA®) designation from the Wharton School of Business and holds a Bachelor’s degree from the University of California Santa Barbara and earned the rank of Eagle Scout through the Boy Scouts of America. Todd has served on numerous boards including the Community Foundation of Sonoma County Healdsburg Affiliate, Healdsburg Animal Shelter and Active 20/30 Club #50. Todd currently lives with his wife, Nichole, and daughter Keira in Healdsburg, California. In his free time Todd enjoys restoring cars, playing golf, hiking and yoga.
Direct (707) 571-5704 Toll Free 888-267-5868 [email protected] NMLS # 1268258
Investing with Impact In Action
1 Consists of mutual funds and ETFs only. *ESG = Environmental, social and governance.
PORTFOLIO NAME DESCRIPTION INVESTMENT MINIMUM
Custom Portfolios Tailored to match client-specific financial and impact goals $1,000,000
Firm-Discretionary Portfolios Multi-asset class portfolios that utilize Investing with Impact third-party separately managed accounts, mutual funds and exchange-traded funds
$10,000 (impact portfolios) 1
$750,000 (balanced portfolio) $400,000 (equity portfolio)
Impact Solutions Baskets of individual equities that are fundamentally well- positioned and exhibit positive ESG* corporate practices in addition to having revenue exposure to Morgan Stanley & Co.’s Global Sustainability Themes
$50,000
Morgan Stanley Access Investing Impact Core, Climate Action and Gender Diversity Theme portfolios on digital investment platform
$5,000
Morgan Stanley Global Impact Funding Trust (MS GIFT)
Multiply the impact of charitable giving through Impact pools in Morgan Stanley’s Donor Advised Fund
$25,000
Our portfolio solutions are available and customizable to a wide array of client segments
Presenter
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• Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”) , its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at www.morganstanley.com/disclosures/dol. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
• This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Morgan Stanley Wealth Management recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
• The returns on a portfolio consisting primarily of Environmental, Social and Governance (“ESG”) aware investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.
• Morgan Stanley Smith Barney LLC does not accept appointments nor will it act as a trustee but it will provide access to trust services through an appropriate third-party corporate trustee.
• Asset Allocation does not assure a profit or protect against loss in declining financial markets. • The individuals mentioned as the Portfolio Management Team are Financial Advisors with Morgan Stanley participating in the
Morgan Stanley Portfolio Management program. The Portfolio Management program is an investment advisory program in which the client’s Financial Advisor invests the client’s assets on a discretionary basis in a range of securities. The Portfolio Management program is described in the applicable Morgan Stanley ADV Part 2, available at www.morganstanley.com/ADV or from your Financial Advisor.© 2019 Morgan Stanley Smith Barney LLC, member SIPC. Graystone Consulting is a business of Morgan Stanley Smith Barney LLC.
Important Disclosures
A Practical Guide to Sustainable InvestingJanuary 13, 2020AOA 2020 Conference, Coronado Bay, CA
Topics for Discussion
Sustainable Investing Overview
Mainstream Investors Have a Range of Impact Motivations
Millennial Investors Driven to Sustainable Investing
Proof in the Performance
Investing with Impact Thematic Exposure
Questions for Institutions to Consider
Implementation Framework
Step 2- Mission Alignment & Building Consensus
Step 3 – Board Education
Step 5 – Implementation
New Proof of Performance
Shareholder Engagement and Advocacy
Investing with Impact Questions Incorporated into Due Diligence for All Managers
Climate Change and Fossil Fuel Aware Investing
The Gender Advantage: Integrating Diversity into Financial Decisions
Understanding Your Portfolio’s Impact
Introducing Morgan Stanley Impact Quotient TM: A Client-Centric Approach to Impact Reporting
Evaluate and Enhance the Alignment of Your Investments
The Future is Bright for Investing with Impact
Appendix & Disclosures
Important Disclosures
Graystone Consulting 3562 Round Barn Circle Santa Rosa, CA 95403
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Topics for Discussion
What is Investing with Impact?
Investments made with the intention to generate a measurable, positive social and/or environmental impact alongside a financial return.
Investing with
Impact Goals
Positive social and/or environmental outcomes driven by values and mission
Presenter
MAINSTREAM INVESTORS
Individuals
Women and men across generations, especially Millennials and Ultra High Net Worth individuals and families are seeking to generate a positive legacy with their capital and align investments with impact objectives
Endowments
Seeking risk management, return potential, respond to stakeholder demand and motivated to align investments with the mission statement to maximize positive impact
Donor Advised Funds
Maximize impact of charitable assets by investing in companies that seek to generate positive environmental and social return while waiting to grant out funds
Entrepreneurs
Seeking innovative investment options that mitigate risk, have return potential and provide complementary personal portfolio to corporate interests and assets
Insurance Companies
Seeking to respond to evolving policy/regulations, and utilize social and governance to identify embedded long-term risk and also seek to benefit from opportunities
Religious Institutions
Foundations / Non-Profits
Aligning all pools of capital with the organization’s mission statement to maximize positive impact, mitigate risks and drive long term value
Defined Benefit/Defined Contribution Plans
Seeking sustainable retirement investment options to drive long- term value, mitigate risks. Respond to stakeholder demand and attract talented employees to organizations
Presenter
employment with a
individual investor
individual investor
Source: Morgan Stanley Institute for Sustainable Investing, Sustainable Signals: New Data from the Individual Investor, August 2017
2x 86% 3x
S&P 500 Index
11.1%
The MSCI KLD 400 Index of companies that meet best-in- class environmental, social and governance (ESG) criteria.
May 1, 1990 – September 30, 2019 (Single Computation) Cumulative Return (%)
Proof in the Performance
Source: Bloomberg, MSCI, Morgan Stanley Wealth Management. Past performance is no guarantee of future results. The index returns are illustrative and shown for comparative purposes only. They do not represent the performance of any specific investments. An investor cannot invest directly in an index.
Indices that incorporate environmental, social and governance (ESG) factors have generally performed in line with, or better than, conventional indices. For example, a $1 invested in line with the holdings reflected in the sustainable index in 1990 grew to $1,872 versus $1,674 for a traditional index through September 30, 2019.
Cumulative Excess Returns (Right Axis)
MSCI KLD 400 Index (Left Axis) S&P 500 Index (Left Axis)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
$1,674
$1,872
2019
Presenter
RESTRICTION SCREENING
ENVIRONMENTAL, SOCIAL & GOVERNANCE (ESG ) INTEGRATION THEMATIC EXPOSURE IMPACT INVESTING
Intentionally avoid certain companies, industries or countries due to values or risk-based criteria
Proactively consider ESG criteria alongside financial analysis to identify opportunities and risks during investment process
Themes solving sustainability- related domestic and global challenges across sectors, populations or geographies
Investment funds delivering specific positive social and/or environmental impacts through their business model, products and services
Investment Characteristics
• Differentiated by screening criteria including issue area and revenue threshold used
• Differentiated by ESG data integration process – for example ESG momentum, ESG as a screen, ESG as a tool to engage with companies owned and/or ESG as part of the valuation model
• Differentiated by macro- analysis, sustainability research and sector focus
• Differentiated by impact approach, regional focus, liquidity and more
• May have investor qualification restrictions
Investment Examples
• Strategy (mutual fund, exchange traded fund, separately managed account or private fund) that does not own certain companies, industries or countries due to values misalignment or risk
• Strategy (mutual fund, exchange traded fund, separately managed account or private fund) incorporating analysis of ESG performance into equity and fixed income valuation process or using ESG data as a factor to filter investable universe
• Strategy (mutual fund, exchange traded fund, separately managed account or private fund) investing in companies with significant exposure to sustainability themes such as renewable energy, affordable housing, faith-based values etc. across equity and fixed income
• A private market strategy (e.g. venture capital, private equity, multi-asset fund, hedge fund etc.) focused on affordable housing in low-income communities, emerging consumers, workforce training, etc.
PUBLIC + PRIVATE MARKETS PRIVATE MARKETS
MINIMIZE OBJECTIONABLE IMPACT CREATE TARGETED IMPACT
Our framework clarifies the spectrum of approaches that investors of all sizes can pursue
Definition
Shareholder or company engagement and impact reporting play a critical role in differentiating managers across approaches
Presenter
Promote better gender diversity and equality through increased exposure to companies committed to employing and advancing women in high-level leadership roles
CLIMATE CHANGE AND FOSSIL FUEL AWARE INVESTING
Support the transition to a lower carbon economy by considering exposures to climate solutions, environmental leaders and fossil fuel reserves in portfolios
Investing with Impact Thematic Exposure
1. 2017 Sustainability Highlights, Global Sustainable Finance, Morgan Stanley, 2018
MISSION ALIGN 360° INVESTING
Evaluate, align and activate all pools of capital (human, philanthropic and financial) towards the theme of your choice to accomplish your organization’s unique mission statement
FAITH-BASED INVESTING
Align investment portfolio with principles in accordance with specific religious values
We help you clarify the range of approaches and how to implement investment solutions based on theme
Presenter
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• What social and environmental risks and opportunities does my organization help solve?
• How can these be addressed through investments?
• Are there any investments that my organization currently makes that we consider Investing with Impact?
• What are the legal and operating constraints that shape the approach we can take to Investing with Impact?
• How can I work with my Advisor to learn more about the different approaches to Investing with Impact?
• Does it make sense for our organization to develop a mission-aligned Investment Policy Statement?
Questions for Institutions to Consider
FOR INSTITUTIONS
Implementation at the CSU ESG Criteria SRI/Divestment Impact Proxy Voting
Consistent w/Policy
Fund Managers
Bakersfield X Chancellor's Office X Coal X
Channel Islands X X X X X Chico X X Dominguez Hills X East Bay Fossil Fuels Fresno X X Fullerton X X X X Humboldt X Fossil Fuels,
Defense, Alcohol,
Signed UN Principles for Responsible Investment
Long Beach X Los Angeles X X Maritime Made a conscious decision to not pursue ESG, SRI Monterey Bay Made a conscious decision to not pursue ESG, SRI Northridge X Pomona X X Sacramento X San Bernardino X San Diego X San Francisco X Fossil Fuels X San Jose San Luis Obispo Made a conscious decision to not pursue ESG, SRI San Marcos Sonoma X Stanislaus
Source: The California State University
Sheet1
Green Fund
Notes
Bakersfield
X
X
Fresno
X
X
Fullerton
X
X
X
X
Humboldt
X
Redfearn, Lori: Redfearn, Lori: Fossil Fuel, Defense, Alcohol, casinos and tobacco
10% of portfolio
Signed UN Principles for Responsible Investment
Long Beach
Monterey Bay
Northridge
X
Pomona
X
X
Sacramento
X
Redfearn, Lori: Redfearn, Lori: Fossil Fuel, Defense, Alcohol, casinos and tobacco
Redfearn, Lori: Redfearn, Lori: 10% of portfolio
X
San Marcos
Divestment
Affordable Housing
Gender Equality
• Proactively creating a cohesive policy may reduce the need to reactively implement “negative” screens in the portfolio.
• Consider a fully integrated ESG approach?
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• Step 1 – Gauging Interest Set as an official Investment Committee agenda item Educational overview on trends
• Step 2- Mission Alignment & Building Consensus Review mission of institution Search for alignment Additional education Overcoming Objections
• Step 3 – Board Education Educational Retreat
• Step 4 – Investment Policy Development • Step 5 – Implementation
Holdings Analysis Performance Attribution Asset Allocation Considerations Search & Selection Active vs. Passive Considerations Time Line: Carve Out vs. Migration vs. Offset
• Step 6 – Board Recommendation Investment Policy Let’s go!
Implementation Road Map
• Set as an official Investment Committee agenda item • Educational topics
• What is sustainable investing? • History • Current trends • Framework
• Negative Screens • ESG (Positive Screens) • Thematic Exposure • Impact (private markets) • Shareholder engagement & advocacy • Implementation
• Fiduciary Considerations • Performance Considerations
Step 1 – Gauging Interest
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• Meeting Policy Objectives – Mission alignment: What is the mission of the Foundation and are they being reflected in the
portfolio?
• UPMIFA – The “prudent man rule” embodied in UPMIFA requires that fiduciaries act with the care and
diligence so as to avoid making investment decisions that result in unintended outcomes.
• Resources: – Best Interests in the Long Term: Fiduciary Duties and ESG Integration, Susan N. Gary, University of
Oregon February 2018
Step 1 Cont. - Fiduciary Considerations
17
• UN Sustainable Development Goals (SDGs) – The Sustainable Development Goals (SDGs) are a set of 17 integrated and indivisible global goals
which are further broken out into 169 targets that balance the three dimensions of sustainable development: economic, social and environmental. The Sustainable Development Goals are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice.
• Future Fit Business – The Future-Fit Business Benchmark offers a holistic framing for companies and investors to
consider all their social and environmental impacts. It provides a robust scientific definition of sustainability, enabling a strategic approach for achieving sustainability, and it aligns with the SDGs.
Step 1 cont. - Educational Resources
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• OBJECITVE: • Build consensus to bring a resolution to the Board
• Review Mission of Institution • Make sure everyone has a common understanding of the mission and how it may be reflected in
the investment portfolio. • Are there any obvious areas of focus?
• Example: Dominguez Hills Philanthropic Foundation focus on minority owned asset managers
• Gathering Perspective • Use a survey tool to poll the key stake holders (include the Board if interested)
• Conduct survey before meeting • Present results at investment committee meeting
• Expect wide divergences in opinion! • Example CSU Foundation: Key Stake Holders
• Build Consensus • Objections?
• Additional Education? • If negative screens are used: Conduct tracking error studies to determine the feasibility
Step 2- Mission Alignment & Building Consensus
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• OBJECTIVE: • Get a green light from the Board to continue the process. • Make sure they understand their fiduciary responsibility and that the process can be delegated to
the investment committee.
• Educational Overview • A retreat is the best case scenario • Requires at least 1 hour of education
• Investment Committee Update • Suggest a “Road Map” for Implementation
• It is important to have a “champion” who will carry the torch. Will it be a committee member or your consultant?
Step 3 – Board Education
• Develop Investment Policy Language
• The statement should set clear goals and objectives related to sustainable investing which are linked to the mission of your institution.
Resources: Sample ESG Language: • Intentional Endowments website > Roadmap for Endowments > Sample Investment Policy
Statements
21
• Holdings Analysis • How is the current portfolio activated relative to the newly drafted policies?
• Performance Attribution • Are there any forecasted changes to the performance characteristics? • What is the tracking error budget?
• Asset Allocation Considerations • What do you do with hedge funds, private equity and real assets?
• Search & Selection • Active vs. Passive Considerations
• Develop Time Line: • Carve Out, Migration, and/or thematic exposure?
Step 5 – Implementation
• Fiduciary Roadmap • History of fiduciary process
• Investment Policy • Summary of key changes • Clean document
• Portfolio Construction • Considerations under consideration
• Timeline for implementation • Suggested timeline for implementation
Step 6 – Board Recommendation
• Measuring alignment with sustainability objectives • Manager alignment? • Security level alignment?
• Measuring exposure to areas of concern • Aggregate exposure at manager level? • Security level exposure?
• Measuring activation • How much of the portfolio is currently activated toward objectives?
Monitoring for IPS Compliance
25
• $309 Billion *in Institutional Advisory Assets • 50+ teams located across the country, each with a dedicated
specialty including: • Foundation and Endowment • Defined Benefit Consulting • Annuity/401(k) Consulting • Taft-Hartley
• Model delivers national presence by complementing consultants to clients according to specific needs **
• Your Consulting Team: • Understands the uniqueness of the client • Assists in the creation and review of the Investment Policy
Statement • Recommends asset allocation to achieve stated goals • Recommends managers and/or manages the portfolio risk
by leveraging centralized intellectual capital • Evaluates portfolio on an ongoing basis to ensure policy
obligations are being met
• Specializes in Foundation and Endowment Consulting • Extensive experience working with Community Foundation clients • Capacity to ensure Graystone delivers “white glove” service and an excellent client experience
* As of January 17, 2019. Morgan Stanley Fourth Quarter Earnings. **www.graystoneconsulting.com
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70+ Research Professionals Traditional and Alternative Investments
Global Investment Committee
Mike Wilson. Chief Investment Officer and Chief US Equity Strategist
Lisa Shalett, Chief Investment Officer, Head of Wealth Management Investment Resources
7 Member Committee Establishes Macroeconomic themes and asset
allocation inputs
Graystone Advisory Board
12 Member Board
Graystone Consulting Chief Executive Officer
Jodie Gunzberg, Managing Director Graystone Consulting Chief Investment Strategist
John Pratt, Managing Director Graystone Consulting Director of Platforms
Michael DiBiasio, Managing Director Graystone Consulting Director of Business Strategy & Development
Graystone – Santa Rosa Office Todd Au, Institutional Consultant
Tony Parmisano, Institutional Consultant 8 Member Team
Graystone Investment Committee
Chair - Jodie Gunzberg, Managing Director Analysts from 50+ Graystone teams
Bob Mandel, Managing Director Director of Graystone Consulting
Kara Julian, Managing Director Graystone Consulting Chief Operations Officer
CSU Auxiliaries
Sustainable Investing Research & Solutions
84% Women focus at least
partially on making a
positive impact with their
are interested in socially
Women Control More Capital and Seek to Create Positive Impact
Presenter
New Proof of Performance
• Sustainable funds were in line with comparable traditional funds in terms of performance, and there was not a statistically significant difference in total returns
• Sustainable funds experienced a 20% smaller downside deviation than traditional funds
− During the 2018 market downturn, the median sustainable fund outperformed the median traditional fund by 1.44%, 0.84% and 0.22% for U.S. Equity, International Equity and Taxable Bonds, respectively, suggesting that sustainable investment strategies may potentially offer downside risk mitigation in times of high volatility.2
Morgan Stanley’s Institute for Sustainable Investing conducted a proprietary study1 on nearly 11,000 mutual funds over 14 years. The results showed that sustainable investments were in line with the performance of traditional investments1:
1. Morgan Stanley Institute for Sustainable Investing ,Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds, 2019. 2. Compares the performance of sustainable funds to traditional funds from 2004 to 2018 using Morningstar data on exchange-traded and open-ended mutual funds active in any given year of this period. A total of 10,723 funds were analysed. We compared their performance on total returns, a measure of performance net-of-fees, and downside deviation, a measure of risk. For any methodological inquiries, please contact [email protected]. Results for different time periods and different asset classes may be different and not statistically significant.
Presenter
• Shareholder communications and proxy materials are delivered to all clients seamlessly via Morgan Stanley’s eDelivery
• Third party managers on the Investing with Impact Platform employ shareholder engagement on behalf of our clients
• External organizations focused on shareholder engagement issues provide insight on corporate actions for investors
Top 5 ESG Issues by Number of Shareholder Proposals Filed (2016-2018)(1)
Drive positive environmental and/or social change through active and continuous dialogue with corporates
Shareholder Engagement Approaches Include:
• Dialogue with company executives
• Letter-writing and email campaigns
• Shareholder meetings
• Shareholder resolutions
• Stakeholder engagement
A critical tool employed by managers across the Investing with Impact Framework is shareholder engagement. This tool complements investment approaches across the spectrum and provides a way for clients to drive positive change across environmental, social or governance-related areas of concern in their portfolio.
1. Source: ISS, Sustainable Investments Institute
0 50 100 150 200 250 300 350 400
Proxy Access
31
Investing with Impact Questions Incorporated into Due Diligence for All Managers
GIMA has dedicated resources to analyze each manager’s approach to sustainable investing. Managers that meet a higher bar across 5 key dimensions are considered for the Investing with Impact Platform.
Sample questions from Global Investment Manager Analysis (GIMA)’s initial request for information
• What Investing with Impact approaches are employed by the manager (Restriction Screening, ESG Integration, Thematic Exposure or Impact Investing)?
• Describe your ESG/impact investment philosophy and investment process.
• How diverse is the manager’s staff and leadership (e.g. gender, multi-cultural, etc.)?
• Which of the United Nations Sustainable Development Goals (SDGs), if any, is an intentional focus area?
9% of Managers
Impact Platform
Process
Shareholder Engagement: Drive positive environmental change through active dialogue with invested companies.
With awareness of the impact of climate change on investments increasing, we can help investors achieve market-rate financial returns while supporting a transition to a lower-carbon economy.
Understanding The Risks & Opportunities
“Know what you own”: assess exposure to fossil fuels / companies with large carbon reserves.
INCREASE CLIMATE OPPORTUNITIESREDUCE CLIMATE RISKS
FOSSIL FUEL-AWARE Eliminate or reduce exposure to companies producing coal, oil and nuclear energy or owning significant fossil fuel reserves.
Investors interested in proactively seeking opportunities to enhance environmental impact without sacrificing market-rate return have access to a range of climate change and fossil fuel aware investments.
Developing A Climate Aware Investment Strategy
EVALUATE DEFINE
Determine any limitations (e.g., comingled funds) that may limit implementation options.
Consider overall climate change and fossil fuel aware objectives.
Integrate climate change and fossil fuel aware objectives with financial objectives through an investment plan or policy statement
CLIMATE SOLUTIONS Focus on investable themes that seek to improve climate change mitigation and / or adaption solutions.
ENVIRONMENTAL LEADERS Exposure to all sectors and industry groups including energy, but only in companies that reflect the best environmental practices relative to industry peers.
Presenter
33
The Gender Advantage: Integrating Diversity into Financial Decisions • A growing body of evidence points to better financial performance associated with higher levels of gender diversity, defined as a balance in
representation, empowerment and economic opportunity.
Morgan Stanley’s Global Quantitative Team looked at 1,600 global stocks across five key areas of gender diversity:
Stocks with high gender diversity delivered meaningfully better risk-adjusted returns than those with low gender diversity. (1)
• Equality in Pay • Empowerment • Representation
1. Source: Gender Diversity Continues to Work. Morgan Stanley Global Quantitative Team. 2016.
What Is Gender Diversity? Gender Diversity Makes An Impact Gender diversity is not about advocating one gender over another, but rather an examination of how genders – through a balance in representation and inclusion – can make a social impact and drive value in different settings, including companies you may invest in.
INCREASE GENDER DIVERSITY OPPORTUNITIESMINIMIZE GENDER DIVERSITY RISKS
• Diversity Policies • Work/Life Balance Programs
GENDER DIVERSITY AS SCREEN GENDER LENS INVESTINGGENDER DIVERSITY LEADERS
• Seek companies with leading gender diversity records, including strong policies and programs, diverse boards and management and work / life balance programs
• Gender diversity is both a risk and opportunity to identify long-term outperformance
Proactive approach, intentionally focused on companies or funds seeking to drive greater gender equality through channels, such as: • Workplace equality • Access to capital • Products and services that benefit
women and girls
• Use restriction screens to avoid exposure to companies with poor gender diversity records, such as weak policies, poor supply chain safety records or involvement in the pornography industry
• Gender diversity primarily a risk; not proactively transformative
Presenter
34
Understanding Your Portfolio’s Impact Measurement and reporting are central to advancing the positive impact of your investments. You cannot manage what you are not measuring.
Impact reporting has evolved into a complex global network of organizations, data providers and rating systems that can be challenging to navigate.
Current Landscape:
15+ organizations such as the Global Impact Investing Network and the Sustainability Accounting Standards Board are building the infrastructure to drive the effective use of material sustainability information by investors
100+ data providers can now deliver environmental, social and governance (ESG) insights across multiple levels (company, manager and portfolio-level) to help determine ESG-driven risks and opportunities
Emerging ratings systems assess ESG performance, but are either over-simplified, non-customizable and struggle to capture intentional sustainable investing approaches
Solution We have vetted and partnered with leading ESG data providers – MSCI ESG Research, ISS-ESG and Fossil Free Indexes – to deliver a customized impact reporting tool exclusively for Morgan Stanley
Financial Advisors and clients. With us, you can understand and monitor your impact to make informed investment decisions based on your unique impact priorities.
Investors have long sought the ability to understand the environmental and social impact of their investments; however, impact data and reporting is complex.
Problem
The description of Morgan Stanley Impact Quotient and the reports that it generates are solely for informational purposes. You should not definitively rely upon it or use it to form the definitive basis for any decision, contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise.
Presenter
Introducing Morgan Stanley Impact Quotient TM: A Client-Centric Approach to Impact Reporting
Available exclusively to Morgan Stanley clients, Morgan Stanley Impact Quotient TM is a new suite of capabilities designed to help you understand the environmental and social impact of your investments.
The process is designed to capture impact priorities and assess alignment across multiple dimensions:
IMPACT PREFERENCES
Social and / or environmental impacts sought to be aligned within an investment portfolio
ISSUES OF CONCERN
Sectors, issues or business activities found to be objectionable or to be avoided with an investment portfolio
SUSTAINABLE DEVELOPMENT GOALS
United nations supported framework aimed at ending poverty, protecting the planet and ensuring prosperity for all
TARGETED POPULATIONS FOR IMPACT
Geographies or groups intended to experience positive impacts associated with selected investments
IMPACT THEMES & OBJECTIVES
FAITH-BASED APPROACHES
Faith can serve as a lens or set of considerations within an investment portfolio
PORTFOLIO PREFERENCES
Portfolio integration, targeted curve out, portfolio tilt, or integration when new cash or investment changes
AVAILABLE INVESTMENT OPPORTUNITIES
Public markets (e.g., Public equities fixed income, and multi Asset) and/or alternative investment (e.g., Real Assets, Private Equity)
APPROACHES TO INVESTING WITH IMPACT
Restriction screening, ESG integration, thematic exposure, impact investing and shareholder engagement
The description of Morgan Stanley Impact Quotient and the reports that it generates are solely for informational purposes. You should not definitively rely upon it or use it to form the definitive basis for any decision, contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise.
Presenter
your investments with data-driven
insights customized to your
to better align your investments
over time.
Families seeking to align portfolios to their legacies
Why Engage With Morgan Stanley Impact Quotient? Who is Morgan Stanley Impact Quotient Designed For?
Evaluate and Enhance the Alignment of Your Investments
The description of Morgan Stanley Impact Quotient and the reports that it generates are solely for informational purposes. You should not definitively rely upon it or use it to form the definitive basis for any decision, contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise.
Presenter
The Future is Bright for Investing with Impact
1. Morgan Stanley Institute for Sustainable Investing, Sustainable Signals: New Data from the Individual Investor, 2017 2. Vision 2050: The New Agenda for Business, World Business Council for Sustainable Development, 2010 3. Morgan Stanley & Co. Sustainability Research 4. ESG = Environmental, social and governance
of individual investors believe companies with leading sustainability practices may be better long-term investments1
71%
Year that the business opportunities for sustainability-focused companies are expected to be between $3 trillion and $10 trillion annually, or up to 4.5% of global GDP2
2050
and 80% of U.S. money
managers2 say their decision to offer ESG4
strategies is in response to client demand
75%
Morgan Stanley is well-positioned to help deliver impact via customized solutions based on clients’ financial and impact goals
Companies are improving their competitive position by adjusting their business strategies to address long- term global themes / mega- trends, including: Climate Change, Health & Wellbeing, Inclusion, Resource Management, Safety & Security3
Presenter
Jamie Martin Executive Director Global Sustainable Finance
Jamie Martin is an Executive Director in Morgan Stanley’s Global Sustainable Finance group, responsible for delivering sustainable investing products and solutions to the firm's institutional and wealth management clients. In this role, Jamie collaborates across the firm’s Institutional Securities, Investment Management and Wealth Management divisions to drive adoption of sustainable investing strategies seeking to achieve competitive financial returns alongside measurable positive environmental and/or social impact. He is a former representative on the Executive Committee of The Green Bond Principles and B Lab’s Multinational and Public Markets Advisory Council. Jamie started his career at Citigroup, working in the firm’s Global Investment Research division. He graduated from Colgate University with a B.A. and received an M.B.A. after studying at HEC Paris and the Fletcher School of Law and Diplomacy at Tufts University.Direct 212-296-5193
TODD O. AU,CIMA® Senior Investment Management Consultant Senior Vice President InstitutionalConsultant
Todd Au is a Senior Investment Management Consultant, Alternative Investments Director and Senior Vice President for Morgan Stanley's Graystone Consulting business. Since 2000, Todd has focused on portfolio construction, risk management, investment manager due-diligence and investment manager selection as both anadvisor and Outsourced Chief Investment Officer (OCIO). Todd and his team are dedicated to providing exceptional customer care with an emphasis on customized investment solutions for non-profit institutional clients and associated board members. His team regularly designs custom allocations to fixed income, equity, hedge fund, real asset and private investment portfolios in order to achieve their client’s unique risk and return and impact objectives.
Todd has been a guest speaker for the Association of Small Foundations (ASF), Research & Associates and the Association for Investment Consultants. Todd earned a Certified Investment Management Analyst (CIMA®) designation from the Wharton School of Business and holds a Bachelor’s degree from the University of California Santa Barbara and earned the rank of Eagle Scout through the Boy Scouts of America. Todd has served on numerous boards including the Community Foundation of Sonoma County Healdsburg Affiliate, Healdsburg Animal Shelter and Active 20/30 Club #50. Todd currently lives with his wife, Nichole, and daughter Keira in Healdsburg, California. In his free time Todd enjoys restoring cars, playing golf, hiking and yoga.
Direct (707) 571-5704 Toll Free 888-267-5868 [email protected] NMLS # 1268258
Investing with Impact In Action
1 Consists of mutual funds and ETFs only. *ESG = Environmental, social and governance.
PORTFOLIO NAME DESCRIPTION INVESTMENT MINIMUM
Custom Portfolios Tailored to match client-specific financial and impact goals $1,000,000
Firm-Discretionary Portfolios Multi-asset class portfolios that utilize Investing with Impact third-party separately managed accounts, mutual funds and exchange-traded funds
$10,000 (impact portfolios) 1
$750,000 (balanced portfolio) $400,000 (equity portfolio)
Impact Solutions Baskets of individual equities that are fundamentally well- positioned and exhibit positive ESG* corporate practices in addition to having revenue exposure to Morgan Stanley & Co.’s Global Sustainability Themes
$50,000
Morgan Stanley Access Investing Impact Core, Climate Action and Gender Diversity Theme portfolios on digital investment platform
$5,000
Morgan Stanley Global Impact Funding Trust (MS GIFT)
Multiply the impact of charitable giving through Impact pools in Morgan Stanley’s Donor Advised Fund
$25,000
Our portfolio solutions are available and customizable to a wide array of client segments
Presenter
42
• Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”) , its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at www.morganstanley.com/disclosures/dol. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
• This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Morgan Stanley Wealth Management recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
• The returns on a portfolio consisting primarily of Environmental, Social and Governance (“ESG”) aware investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.
• Morgan Stanley Smith Barney LLC does not accept appointments nor will it act as a trustee but it will provide access to trust services through an appropriate third-party corporate trustee.
• Asset Allocation does not assure a profit or protect against loss in declining financial markets. • The individuals mentioned as the Portfolio Management Team are Financial Advisors with Morgan Stanley participating in the
Morgan Stanley Portfolio Management program. The Portfolio Management program is an investment advisory program in which the client’s Financial Advisor invests the client’s assets on a discretionary basis in a range of securities. The Portfolio Management program is described in the applicable Morgan Stanley ADV Part 2, available at www.morganstanley.com/ADV or from your Financial Advisor.© 2019 Morgan Stanley Smith Barney LLC, member SIPC. Graystone Consulting is a business of Morgan Stanley Smith Barney LLC.
Important Disclosures
A Practical Guide to Sustainable InvestingJanuary 13, 2020AOA 2020 Conference, Coronado Bay, CA
Topics for Discussion
Sustainable Investing Overview
Mainstream Investors Have a Range of Impact Motivations
Millennial Investors Driven to Sustainable Investing
Proof in the Performance
Investing with Impact Thematic Exposure
Questions for Institutions to Consider
Implementation Framework
Step 2- Mission Alignment & Building Consensus
Step 3 – Board Education
Step 5 – Implementation
New Proof of Performance
Shareholder Engagement and Advocacy
Investing with Impact Questions Incorporated into Due Diligence for All Managers
Climate Change and Fossil Fuel Aware Investing
The Gender Advantage: Integrating Diversity into Financial Decisions
Understanding Your Portfolio’s Impact
Introducing Morgan Stanley Impact Quotient TM: A Client-Centric Approach to Impact Reporting
Evaluate and Enhance the Alignment of Your Investments
The Future is Bright for Investing with Impact
Appendix & Disclosures
Important Disclosures