HOME     RESEARCH    360 Views Webinar Replay: Implementing ESG Strategies

360 Views Webinar Replay: Implementing ESG Strategies

Jun 25, 2018 / ESG / Impact Investing, Trending

On June 20, Litman Gregory's Chad Perbeck, CIMA®, moderated a roundtable discussion and live Q&A session featuring Aniket Shah, Head of Sustainable Investing, and Glen Yelton, Vice President, ESG & Impact Analyst, both from OppenheimerFunds; and Martha Strebinger, CFA®, Investment Strategist, Parametric Portfolio Associates. The panelists discussed the implementation of ESG strategies, introduced responsible investing, and answered questions from attendees.

Here is a replay of the discussion:

  • Webinar Transcript

    Chad Perbeck: Hello, everyone. Thank you for joining us today. This is Chad Perbeck -- Senior Research Consultant at Litman Gregory.


    This webcast seeks to leverage our 360 Views Program, in which we aggregate valuable research content from Litman Gregory's Research Alliance Members; centered around a focused theme, then distributed as a value-add to subscribers of our research-publishing service.


    We're combining this series with our Study-Group Webinar, where we address pressing topics that are impacting our business, and share our experience in an effort to better serve our clients.


    We've been hearing more and more from our network that clients are asking questions about responsible values-based ESG-impact investing. One of the things we hope to get to today with the panelists is what these different nomenclatures and definitions are.


    Investors overall just seem to increasingly desire investment results that are measured by both financial and sustainable outcomes. A recent survey of institutional asset owners by Morgan Stanley, that was published in "Pensions and Investments," showed that 84% are considering ESG factors when evaluating new strategies.


    The latest impact investor survey by the Global Impact Investing Network, which is a survey of banks -- asset managers -- foundations -- pension funds -- insurance companies -- family offices, et cetera -- showed that the impact-investing industry is growing. In 2017, over $35 billion went into over 11,000 deals. They indicated that they planned to increase capital by 8% in 2018.


    That shows that investors are committed to the United Nations' Sustainable Development Goals. 76% of the respondents in that survey have set impact targets for some or all of their investments to attract progress toward their goals.


    Also noteworthy is that impact investors say challenges remain that need to be addressed as the industry continues to grow. The most commonly-sighted challenges facing the growth of the industry are the lack of appropriate capital across the risk-and-return spectrum, and the lack of a common understanding of the definitions and segments of the market, which I just alluded to earlier.


    Today's webinar is going to be a virtual panel that I'm going to moderate with friends from Oppenheimer Funds and Parametric Portfolio Associates and you, our audience. It's really designed to help all of you gain valuable insight and perspective on the evolution of SRI/ESG impact investing. How to address client questions around the topic, and how to think about implementing strategies, where appropriate for clients.


    Here's a quick snapshot of our agenda. I'm going to briefly introduce each speaker and then pass the mic to them for their prepared remarks, each of which will last approximately 10 minutes. After each panelist has presented his or her views, we're going to open up the "Go To Webinar," control panel for a virtual q-and-a session.


    This is when you, the attendees, will be prompted to submit live questions for the panel. Of course, if you think of questions as they're presenting, please feel free to just submit them at that time. I'll aggregate them here to be addressed at the end, time-permitting, of course. If we get too many questions to cover in the allotted timeframe, we'll certainly follow up with you after the webinar.


    Now to introduce our first two panelists from Oppenheimer Funds.


    Aniket Shah is head of Sustainable Investing at Oppenheimer Funds. He's responsible for building and integrating sustainable investment principles throughout the firm's operations. Aniket brings an extensive range of experience in the sustainable finance and investment space to Oppenheimer Funds.


    Prior to this role, Aniket was the program leader of the Financing for Sustainable Development Initiative at the United Nations Sustainable Development Solutions Network, where he was responsible for working with governments, investors, corporations and non-governmental organizations on ESG-integration and sustainable-development financing issues.


    Before that, Aniket was an investment specialist and strategist at Investec Asset Management, an emerging-markets-focused investment firm based in London and Cape Town.


    Aniket is a graduate of Yale University and is completing his doctorate at the University of Oxford's Smith School of Enterprise and the Environment. He currently serves as Chairman of the Board of Amnesty International, USA.


    Glen Yelton serves as an ESG & Impact Research Analyst on the SNW Investment Team, with analytical responsibilities for the Impact Strategies. He served in a similar capacity at SNW Asset Management, which was acquired by Oppenheimer Funds in 2017.


    Prior to joining SNW in 2015, Glen managed the ESG Research Program at IW Financial. Before that, he oversaw ESG data-collection at American Values Investments. Additionally, Glen has provided competitive-intelligence research for a variety of Fortune 100 clients across several industries, and served as an interrogator for the US Army.


    Glen holds a BS from East Tennessee State University.


    Welcome, Aniket and Glen! Aniket, if you'll please take it away.


    Aniket: Thank you very much. It's really a pleasure and a privilege to be here with all of you.


    What we want to do at the beginning is just lay out our firm's perspective on sustainability. What it means, where it's going -- its implications for the investment-management industry and for all of you as investors.


    If we go to the first slide, please.


    We are firm believers that the current push for sustainability is real. It's persistent across the world; across different sectors. Unlike in the past, this has legs in a whole bunch of different channels.


    In terms of public policy, in 2015, all 195 governments of the world signed onto the Paris Climate Agreement, which was the first time ever global consensus was made around the need to decarbonize our world economy over the next 50 to 100 years.


    In the business sector, we are seeing significant movements forward on sustainability from both an environmental as well as a social perspective. There are today over 1,700 financial institutions that have signed onto the principles for responsible investing. That's happened just in the past 12 years.


    Alphabet, which is second- or third-largest company in the world by market-cap, today operates fully from renewable energy. This is only going to increase in the years to come.


    From a technology perspective, the world has experienced more advancements over the past three decades then perhaps in the centuries before. These advancements make a lot of the underlying aspects of sustainability possible.


    Just to give you one example, the cost of a solar PV cell has dropped by a factor of 100 in the last 35 years or so. That makes, again, on the environmental side, a push toward a low-carbon economy possible.


    Finally and perhaps most importantly, there really is a generational paradigm shift that's underway. A recent study by Nielsen found that 73% of millennials are willing to spend more on a product if it comes from a sustainable brand. This is a really generational imperative, I'd say, that's increasing more and more as time goes on.


    Next slide, please.


    How you actually implement sustainable investing or ESG for portfolios is not a simple task. Later on in the presentation, we're going to talk about some of the nuances of implementation. Before we get there, it's important to note that there are nuances in definition.


    One way to break down this huge space around sustainable investing or ESG is in the following three buckets. Values-based investing, ESG-integration and Impact Investing. There is overlap between the three, but one can think about them as three distinct areas.


    Let me just say a few words about each.


    On the left, "Values Based Investing." This is really the oldest and longest-running part of sustainable investing. The fundamental purpose of values-based investing is aligning one's personal or institutional values to an investment philosophy.


    This approach mainly has to do with exclusionary screens, from consciousness that certain groups of people may have for certain sectors. In other words, "I don't want to invest in tobacco. I don't want to invest in alcohol," et cetera.


    That really is values-based investing in a nutshell.


    ESG-integration is about intentionally integrating environmental, social and governance considerations into both investment decisions and also into your engagement with companies after you make an investment -- through your proxy-voting and proactive engagement efforts of you as an investor. This is really a growing part of the market. More and more, it's become mainstream across the asset-management industry.


    How different portfolio managers and asset-management firms do ESG integration -- there's a whole spectrum of that. But really, the key point here is that investors who are actively considering environmental, social and governance issues into their investments and into how they hold their securities after investment.


    Then third and finally is this impact-investing space. Very simply, impact-investors are thinking about two goals, concurrently. One is a financial goal, and another is a social or environmental outcome that they are pushing for.


    Impact-investing also has a fairly broad umbrella. Some impact-investors operate for commercial returns. Some operate for sub-commercial returns. But impact investing -- one could consider it as really consciously trying to have an outcome that is both financial and non-financial in its nature. Whereas ESG-integration is really driven by maximizing shareholder value for the end investor.


    Next slide, please.


    We spoke about the push for sustainability, which we at Oppenheimer Funds believe is persistent and is only going to increase. We then spoke about different ways of thinking about the space -- this very large space.


    The final point I want to make here is really that there are many aspects of sustainable investing, in any of those three buckets that we talked about before. This is why it's really important for all of you as investors to keep your eyes out on this space.


    There are more investment products with ESG or sustainability out now than ever before. In fact, according to Morningstar, there have been more ESG products released in the last five years than the preceding 25 years, put together. This is really a space that is growing; growing with different investment approaches, and different investors who are trying to think about how they can integrate these issues in a commercially-viable way.


    There are also many new investment instruments. Green Bonds is one example of that, where there are now dedicated fixed-income instruments that help issuers. Whether it's companies, countries, municipalities -- to direct resources from investors into green projects, and still provide a commercial return to investors. That's one of many, many examples of new investment instruments that are available to investors.


    Third is that there are new investment platforms. As everyone on this call knows, investors are accessing investments through many different channels. What we're seeing is a lot of interesting direct-to-consumer investment platforms for sustainability. Companies like Swell and Motif are really doing a great job doing these themes to the end investor.


    Finally, new risk measurement. One of the most useful trends over the last five to ten years has been an improvement in data -- allowing us to understand embedded risks within portfolios in a better way. This whole movement toward ESG allows us to do so for non-financial risks that may be in our portfolios.


    I'll stop there and hand it over to my colleague, Glen.


    Glen: Thanks, Aniket.


    That's a great lead-in to actually as we transition from more of the strategic into the tactical evaluation of ESG-integration.


    Recall the three categories that Aniket was talking about. The value space, the ESG-integration and the impact-investing.


    You can consider values-based investing in shorthand to be about the investor. ESG-integration about the portfolio. And impact-investing is about the community.


    Next slide, please.


    To do those sorts of strategies, there are factors that have to come in. There's a lot of nuance that is in play here.


    The four items you see in front of you -- data, corporate-level performance, corporate-level performance and market-size -- they're all interfacing to allow for the integration of these types of factors, to meet those investor needs.


    I'm going to focus on one part of this quadrant in the subsequent slide, which is about data.


    Data is an important component of ESG-integration. I would argue that it is the availability of data today that is allowing for the growth of the investment platform, the investment products and the investment solutions that we are seeing.


    If you'll look at the data -- the environmental and social-governance data -- the S&P 500 in 2017, 85% of the S&P 500 actually disclosed sustainability reporting. They voluntarily disclosed data.


    That's up from 20% of the S&P 500 an 2011. So, significant growth in less than a decade, in the amount of disclosure that we were seeing there in large-cap domestic US companies.


    If you move out and you look into the MSCI ACWI Index, 45% of the MSCI ACWI Index currently has voluntarily-disclosed ESG data. That is a significant increase; over 20% in roughly three years in the amount of disclosure in the MSCI ACWI index.


    We're beginning to see a significant amount of data that allows for the building of these types of products and these types of solutions.


    It's not a small space. Chad remarked and provided data on the size of the impacting-investing market at the beginning. Roughly $40 billion.


    If you look at Green Bonds, which Aniket mentioned, in 2017 we saw a record level of release in issuance in that space. Over 155 billion in total, itself labeled Green Bond.


    Next slide, please.


    If you look at the entire market itself, we're talking at over $8.7 trillion as of 2016 that is using some sort of environmental, social or governance screening strategy, ESG-integration approach, shareholder-engagement or a combination of those types of strategies.


    This is data provided by USSIF. It's data that will be updated later in 2018, so stay tuned; we already know that there will be a much higher figure in the new report.


    $8.7 trillion and up in assets in this space means that roughly $1 out of every $5 that's invested in the United States has some sort of environmental, social or governance criteria that's being integrated into it.


    As RIAs, and as investors, this is important. We need to know how these portfolios are being constructed, what they actually mean, and how they are addressing the nuances that we were discussing earlier between values-based, ESG integration and impact investing.


    Next slide, please.


    We're going to take a few minutes and actually talk about a practical example of how we at the SNW team within Oppenheimer Funds have done this.


    I want to preface this. There were some questions that you should be asking investment managers as you're evaluating these types of strategies for inclusion in client portfolios or in your own portfolios.


    That white space that I talked about -- the data -- earlier. 85% of the S&P 500 -- 45% of the MSCI ACWI. The flip side of that is that 15% of the S&P 500 in 2017 still did not disclose their sustainability report. The flip side is that 55% of the MSCI ACWI index currently still does not voluntarily disclose environmental, social or governance data. There is a data whitespace.


    Prudence demands that we ask questions of investment managers who are providing ESG-type strategies, so that we can better understand how they are addressing that white space.


    Those questions include, "Does that investment manager actually acknowledge that there is a lack of data that things will [inaudible] data?" And, "How do they deal with that?"


    What is their approach to filling in the white space as an estimate? Is it ignoring that white space? Is it just avoiding the datapoints where there's not sufficient data?


    Finally, if they're using an external data-provider like MSCI or Sustainalytics, do they actually understand those methodologies?


    In that external dataset for ESG -- environmental social and governance -- data, there are currently over 115 data-providers globally on that, who are working in that space, providing this type of data. So while there is white space, there is a very active and energetic movement to fill in a lot of that white space.


    We're going to talk about one area in this case-study, where that white space is very, very predominant.


    Next slide, please.


    For context, SNW is an investment-grade bond manager. We do only USD-denominated debt. We only do it in separately-managed accounts. We run roughly $3 billion under the SNW label within the $250 billion-plus that Oppenheimer Funds runs. A significant amount of those monies are invested in municipal bonds.


    When we looked to implement this strategy in 2014, based on client-demand, looking around to see if there was available data, we went to MSCI. We went to Sustainalytics. We went to IFS Ethics. No one at that time and to this date actually provides ESG data on municipal bond markets.


    The municipal bond market, as you are aware, is a significant component of the investment options that American investors use. It is a safe, coupon-yielding part of the market. It is vanilla ice cream, but it is a very reach, creamy part of the vanilla ice cream that should be in everybody's portfolio.


    When faced with this lack of data, we decided to build an approach to collecting data on municipal bonds. The way we did that was by being very pragmatic. Working from the end back to the implementation.


    What I mean by that is, we defined at the very outset of this program, "What in fact were our investors looking for in this type of strategy?" What they were looking for -- they wanted to have portfolios that were allocating capital in a way that yielded a measurable positive social or environmental impact. But yet provided market or above-market rate-return. That was our end goal.


    To meet that standpoint -- to meet that end target for the portfolio management, we had to build out a system that could actually support the first components of positive social and environmental impact.


    We did that by evaluating the municipal bond market and breaking it into over 24 categories of separate issuers who are thematically grouped.


    K-through-12 school systems. City. City agencies. The type of categories that you see in the lower left-hand corner of this slide.


    For each of those, you build a methodology that allows you collect data that's in fact actionable. To make the determination about whether there's a measurable positive social or environmental impact from that investment option.


    You have to be pragmatic and realistic about the data that is available. To do this, we rely on publicly-available data through financial reports. The [cappers through the] websites, et cetera. As well as through private datasets and one-off datasets. You can see that illustrated in the lower right-hand corner of this slide.


    Our rule of thumb for including datapoints in this strategy was that the datapoint had to be available for at least 20% of our samples set within each of the categories that issuers were evaluating.


    It had to have time-series availability for multiple years. It had to be in a unified-disclosure standard, so that we could in fact provide comparable evaluations across all of the issuers within the category that we're evaluating.


    This was the approach we were taking at SNW to evaluate municipal bonds.


    Next slide, please.


    That same methodology, if you step away from this particular case study and look at what Sustainalytics does, what MSCI does and what ISF Ethics does -- the big three ESG data providers -- they all take a very similar approach to what they're doing on the corporate side, and the sovereign data that they're providing.


    It's looking for that data that's consistently disclosed, that has a common metric, that is material and relevant to the issuers that are being evaluated, and that hopefully exists in multi-year format, so that you can provide a comparison and evaluate a delta performance within that particular indicator, itself.


    An example of how this actually plays out is in the City and County of San Francisco. This is a rating that we created at SNW before, using that methodology for cities. We use a zero-to-5 scale for rating on 0.5 increments. The City and County of San Francisco scored a 3 on that scale.


    You'll see on the lower left-hand corner a box that outlines the different axes of the valuation. Maintenance infrastructure, programs and policies, transparency, governance and environmental impact. And how this particular issuer performs on those; average, better, good, good-better.


    If you're familiar with the City and County of San Francisco, you know it has strengths; it has weaknesses. Its infrastructure in the congestion of some of the highways is average.


    It does very well whenever we talk about environmental issues. When we talk about transparency. When we talk about its approaches to long-term resiliency.


    This is a practical example of how you can actually break out and build a system to do this sort of evaluation. For the audience attendees here that are investors and RIAs, those questions come back into play. So we can articulate here how we're acknowledging the white space and how we're dealing with it. If we're using an external data-provider, how we're actually integrating that in.


    Those are key questions that should be asked.


    I know that our third panelist on this was Parametric; they address those questions very readily with their strategy. I look forward to hearing how they're going to talk about it.


    Next slide, please.


    Finally, Oppenheimer Funds provides a number of resources available to this audience on ESG integration. This is through our registered investment advisor site that you can see here. Those range from white papers to more in-depth case studies. City and County of San Francisco is also included in this through podcast examples that provide a little bit more detail on the approach that we're taking at Oppenheimer Funds.


    I'm looking forward to q-and-a. This was a very surfaced treatment on this. Chad, I'm going to hand it back over to you so we can hear from Parametric.


    Chad: Great! Thank you, Glen. And thank you, Aniket. I really like the way you both covered -- Aniket, more from a top-down, defining the space. What "sustainable investing," means. The different quadrants. To Glen -- you really talked about the bottom-up issues to consider with data.


    I really learned -- I wasn't aware of the vast difference in voluntary contribution of data in both the S&P and the ACWI. That's just amazing. But to your point, there're still a lot of firms and companies within those indices that aren't reporting. So I appreciate you raising that as something to be aware of.


    Now I'd like to move on, as you mentioned, to introduce our third panelist. Martha Strebinger of Parametric Portfolio Associates. Ms Strebinger is responsible for assisting in the continued evolution of Parametric's Responsible Investing and Custom-Core strategies.


    Prior to joining Parametric in 2016, Martha worked at Truepoint Wealth Council in Cincinnati Ohio, as an investment specialist.


    Prior to Truepoint, she worked in Boston at Wellington Management Company, and GMO.


    She earned a BS in Human Biology, Health and Society from Cornell University. She is a CFA charterholder.


    Welcome, Martha. I'm just going to go ahead and try to give you control of the slides, here.


    Martha: Okay. Thank you, Chad. And thank you everyone for your time today. We really, truly appreciate the opportunity to participate on this panel.


    Chad: Yes! Pleased to have you here!


    Martha: Just trying to see if I have control, here. Maybe. There we go! Perfect. Okay.


    So before I dive in, I thought I'd spend just a quick minute on Parametric. We're a Seattle-based asset-manager who's been in business for just over 30 years. We got started in the business when a high-net-worth family took a look at their equity portfolio and discovered that a lot of the alpha their managers were generating was actually going to pay capital-gains taxes.


    So we cut our teeth on the concept that within a separately-managed account structure, we could deliver for clients benchmark-like pretax performance, and better-than-benchmark-like after-tax performance. A product that we today call Custom Core.


    To this day, that family remains a Parametric client. Our investment philosophy also remains the same. That is to say you don't need to predict the future of the market to deliver real long-term results.


    As the slide indicates, we have over 20 years' experience and currently manage over $20 billion an responsible investing mandates, for a very diverse mix of high net worth individuals, pensions, foundations and endowments; for members of groups such as the PRI -- Principles for Responsible Investment theories -- the Interface Center on Corporate Responsibilities and the Council of Institutional Investors. And we have a dedicated in-house responsible-investment team.


    Over the years, we've seen and heard a lot of things from clients. I thought I'd share with you guys just a few of my favorites.


    One's from a dental group that wanted to divest from companies whose products are promoting teeth decay. Another from a vegan, who wanted a vegan portfolio.


    Others we received in the same week -- one who wanted an anti-Trump portfolio and another that wanted a pro-Trump portfolio. Finally, some of our clients wanted to support Parenthood and others wanted to exclude companies who support Parenthood.


    Later on I'll go through how we tackle these types of questions. For now I'll just say that our experience has made three things very clear to us. One is that the words, "No one size fits all," ring very loud and clear. Both our clients and what matters to them are very diverse.


    2 -- it doesn't have to be a performance debate. "Will it or won't it help -- or hurt -- my portfolio returns?"


    Our goal for our clients is to minimize deviation from whatever market-like exposure they've chosen. Instead of talking about, "Will this fossil-fuel reserve screen cause my portfolio to out- or under-perform?" We frame the conversation around tracking-error.


    There's so much uncertainty around returns by investment into cap.


    3 -- there's often an immediate focus on the portfolio. "What's in and what's out?" The concept empowers active-ownership, which is using your ownership in the company to influence outcomes. This typically is forgotten.


    I'll spend more time on this later on the next slide, but the key point here is to understand and begin the conversation with the client.


    On this slide, I'd like to begin by saying that if I only have a few minutes with a client, I typically will choose this slide. I think it really helps to clearly lay out the path toward decision-making.


    I like to open up the conversation with, "What are their goals?" Is it to ensure that you do or don't own something? Do they have a very strong opinion about what should be in or out of the portfolio?


    There are two portfolio techniques that we can employ. Screens and inspiration. I'll spend a quick minute on each.


    Think of "screens" as an overlay to an exposure such as the S&P 500 or MSCI EAFE.


    Many of the responsible investing products available today use screens. Honestly, because screens are very effective tools. And typically, clients have very strong opinions about what they don't want to own.


    The data available to [inaudible] your clients, as Oppenheimer think very well noted, has only grown in terms of its quality and quantity. For example, our definition of "civilian firearms," breaks out what is direct involvement with the manufacturers from what is indirect, of retailers. It allows us to create separate revenue thresholds for each.


    Screens are very effective. It's also important to understand that while they clearly separate what is eligible for investment versus what isn't, they tell us nothing about how to weight the eligible constituents on our lists.


    Integration, on the other hand, is a technique that helps determine the weights to place on a name.


    We run a proprietary strategy today that overweights companies with high ESG scores and underweights those with low ESG scores. It uses an integrated optimized approach to its USITs. Important to keep in mind that, unlike a screen, we don't know what will be held versus not held with an integrated portfolio. Rather, what is eligible to be invested is a fallout of the technique.


    For this reason, integration's best used when there's not a strong opinion on what should not be held.


    Let's go back to that client in the room. Once set, the goal is influence company behavior. To encourage a company to switch to compostable packaging, or to consider the effects of climate change.


    When divestment is a screen for efficacy via integration, it's not likely to move that needle. That's when you want to guide the client toward the concept of active ownership; using your investment in what you already own to affect change.


    Proxy-voting and filing shareholder resolutions are two techniques that public-equity owners have at their fingertips. Proxy-voting is a reaction to what's already on a ballot. For, against, abstain votes -- both what management and what you as a shareholder care about or don't care about.


    Filling a shareholder resolution is a proactive technique that helps to shape the voting attendance. Perhaps you feel that management should adopt a supply-change oversight committee. Filing a resolution asking for such would be a way to achieve that goal.


    Know the portfolio-construction and active-ownership can be combined. We do see this among our clients. A good example would be the civilian firearms screen I mentioned earlier.


    At the thresholds we accept, there are no firearms manufacturers that are eligible for investment, but there are some large diversified retailers such as Kroger and Wal-Mart that remain eligible under our standard civilian-firearms definition.


    This leaves active-ownership opportunities to influence who, at what age and what the companies sell.


    That said, some issues lend themselves more toward one approach over the other. For example, you're unlikely to get tobacco companies to abandon how they primarily derive revenue. So a tobacco screen may likely be your best avenue.


    On the other hand, you're unlikely to motivate a company to adopt more LGBTQ-friendly practices by choosing not to own a stock.


    Finally, it's always a good idea to keep in mind that some issues are simply not well-suited for the public equity space.


    Some recent examples from my own experience -- when asked to invest into a women-led startup company, and another asked to invest an companies that provide third-world access to medicine -- these are best-suited to venture-capital in the private space.


    I'll use my last slide to take all of this talk and put it into practice.


    I'll use my remaining minutes to talk about three recent themes we've heard from our client-base, and ways that we've been tackling these issues, from both a portfolio-construction and active-ownership perspective.


    I'll start with Gender Lens.


    Gender Lens has a lot of meanings to a lot of people. But generally we find that clients want to see more women in management, pay-equality, et cetera. From a data perspective, there's not a lot reported today.


    One metric we have available is the number of women on the board. It's one of a few datapoints that we have that can be applied to a global all-cap portfolio.


    From an active-ownership perspective however, there are many opportunities. From supporting management proposals that look to incorporate a diversity-mindset, as well as casting votes for diverse board nominees.


    To focus on a shareholder resolution perspective, there were about 460 shareholder proposals an 2018. 31 of those resolutions were asking for gender and minority data to be reported.


    Of those 31, 23 were successfully withdrawn, and four received double-digit support.


    The second theme I'm hearing a lot about is climate-change. Again, much like Gender Lens, there's no consensus on exactly what that definition looks like. It typically involves a company's carbon footprint.


    From a data-perspective, there's a lot that we can use in client portfolios. Carbon-emissions, fossil-fuel reserves, potential emissions. Revenues from alternative energies and green-building are some examples.


    From an active-ownership perspective, there are many proposals that I see from shareholders, asking to report on stranded-asset risks. There were actually four shareholder resolutions filed in 2018 looking for board-oversight and reporting on climate-change. Two of which were successfully withdrawn. One received nearly 50% support, which I can tell you, 50% is phenomenal in the shareholder-resolutions space.


    The third theme we're hearing a lot about is ESG, which is really a catchall term that refers to an overall company assessment. This can really encompass just about any type of metric you can think of, from what a company discloses to shareholders, what internal assistance and committees are in place, to what outcomes have been as measured by many carbon-emissions controversies or lack thereof.


    On the portfolio-construction side, Oppenheimer astutely mentioned that there are over 100 managers that are creating these ESG rankings today. Three of which, we subscribe to. Sustainalytics, MSCI and Calvert. Each has its own methodology and approach for scoring companies.


    From an active-ownership perspective, I just mentioned that virtually anything on the ballot or anything you'd like to file, could be deemed ESG. When we look at the shareholder resolutions today of the 460 today, we see that many have received more than double-digit support. Again, that just signals to management that there's a lot of interest.


    With that, to summarize, I think you can see that even in these examples, there's no one-size-fits-all. There's not even one definition.


    Clients may have the same mission, but different goals.


    Our experience points to a separately-managed account structure, which allows for the maximum amounts of customization. Not only for portfolio-construction, but it also allows the clients to be direct owners of equities, and really leverage the power of active-ownership.


    With that, I'll hand it back to you, Chad.


    Chad: Excellent. Thank you very much, Martha. We really appreciate that perspective, thinking about the goals of the end client. I'm thinking as an advisor sitting across the table from either a prospective client in a discovery phase or a current client that wants to start thinking about issuing their capital toward responsible initiatives -- it's that conversation with the client about what matters to them. Then discussing the tradeoffs about their decisions. How to implement them.


    It just seems like it's an interesting opportunity for advisors to deepen the relationship with clients as they explore it. I appreciate you sharing those.


    Now that all three panelists have presented their views, I want to allow the audience to pose questions for our panelists.


    You can ask questions by typing them in the "Go To Webinar," interface, or you can raise a virtual hand. I'll go ahead and unmute your line, and you can ask the questions directly.


    It looks like the first question we have here reads, "It seems there are options for passive, exclusionary screens, and more active or rules-based ESG integration strategies in the public capital markets. Or maybe separate accounts, as Glen talked about. But impact strategies seem to be only available in the private space."


    Any comments? Or are there any publicly-available impact vehicles that we're aware of?


    Glen: This is Glen. Go ahead, Ani.


    Aniket: No, go ahead! Glen, you go -- I'm going to shut up, now.


    Glen: There are a handful of options that we're aware of that are out there, and they range from very direct investing vehicles to funds that allow for asset-allocation. Aniket, I was actually going to ask you to share one or two of the examples that I know you've engaged with recently.


    Aniket: Sure. Yes. To answer the question, yes, there are ways for public-equity and public-fixed-income investors to invest for "impact." But it is generally done on a thematic basis.


    For example, we have a fund here at Oppenheimer Funds -- our Global Environmental Solutions Fund. It invests in companies that derive a certain percentage of their revenues from solutions to environmental problems.


    That, to some, would be considered an impact-investment product in the public-equity space. Because again, it allows you to consciously allocate capital to companies that have products that are solving environmental issues.


    Many, many other firms have similar thematic products for impact themes.


    There are also channels by which you can do this through some of these direct-to-consumer platforms. Swell Investing is another one, which is owned by Pacific Life.


    They have sort of positioned themselves as an impact-investing platform that allows you to allocate capital to certain themes that may be interesting to you. Whether it's renewable energy or disease-eradication -- again -- they try to link companies' revenues to those different themes.


    The final thing I'll say is just to respond to Glen's point. There are absolutely private-investment vehicles in the impact space that are quite interesting. Many of them are only available to qualified investors. Some of the large private-equity firms have set up their own very well-established, now impact-investment vehicles.


    What we're seeing and what we're very excited about is there are many small impact-investment firms in the private space that are opening themselves up to smaller-ticket-sized investors.


    It's not easy to get access, but it's possible. RIAs -- we would be happy to talk to anyone that wants to understand that space a little bit more.


    Chad: Great. Thank you Aniket and Glen. Martha, do you have anything to add?


    Martha: Sure. I think both Aniket and Glen handled that very well. I'd just add I think that the whole term, "impact investing," has kind of morphed, over the years. I think traditionally it was really rooted in the private space. Looking for that alignment of true measurable outcomes alongside financial performance.


    But I do think that terms change and vocabularies change. It's becoming a little bit broader now. But I think a lot of the examples they point out are absolutely relevant and good examples of impact vehicles.


    Just from our perspective at Parametric, if we hear the term, "impact," we immediately start thinking about active-ownership opportunities for the client. Thinking about the portfolio-construction itself, it's unlikely to move the needle. But proxy-voting, fling shareholder resolutions -- arguably are impact strategies.


    Glen: Chad, if I can add something here --


    Martha hit something very appropriate and relevant to what we're talking about today, which is the evolution of the terminology in this space. Impact investing, when Rockefeller coined the term about a decade ago, did have a very defined and very narrow meaning. That meaning has expanded.


    We've seen there is an alphabet soup associated with what we're talking about. The ESG integration, socially-responsible investing, values-based, mission-aligned, green-investing. There are all of these terms that have turned about.


    Sometimes people who aren't very exposed to this space lump them all under one header. They all think they're exactly the same term. But there is a reason that that nuance has evolved. They do mean different things to the investors that are bringing them to you.


    For any investment advisor that's working with these clients, that's important to understand. The financial advisor is literally the last person that this client is talking to about these issues that are close to his heart.


    They will talk to their friends and family. They'll change their giving. They may have changed diet or the car that they're driving. The way they voted in the past election. All of these different changes have happened before they come to the financial advisor and say, "I want to do values-based investing." Or, "I want to be biblically-responsible investing." "I want to do impact-investing."


    At that point, the advisor can start keying in on that nuance so that they can understand a little bit better what the end goal is.


    Parametric has a very good question in their approach to eliciting that nuance, I think, in what the client is bringing to the advisor whenever they're asking for the solution.


    Chad: Terrific. Thanks, Glen, for that clarification and additional points. I appreciate your sharing some of those resources, and all of you making yourselves available to the audience, if they want to investigate further. It's very helpful.


    Moving on to the next question we have. The question reads, "Are clients investing in full-ESG impact portfolios or just allocating a portion of their overall portfolio to a certain values-based cause that's meaningful to them?"


    I think this is a great question for both firms. Martha, do you want to kick us off?


    Martha: Sure; happy to.


    Quite honestly, the answer is that we see both happening. We see clients come to us for just a piece of their portfolio. And we run about $12 billion in separately-managed accounts. We're just talking about a slice of their overall allocation.


    But there's another $5 billion to $6 billion that sits outside of that in what we run as a type of unified managed-account structure, where they'd like to employ an ESG -- whether it's a screen or an integrated approach -- across their entire portfolio. The passive, the active -- all lumped into one portfolio.


    We really do see them come to us with both.


    Chad: Okay; great.


    Aniket: Hi. This is Aniket. I'll just add one thing, which is my personal view about this. There's a huge amount of latent demand from investors in this space. Every survey from Morgan Stanley, our own work here at Oppenheimer. A different wealth segment -- different geographies -- they have some interest in having their investments aligned with some part of their values.


    What I've seen is that from the RIA perspective or from the financial advisor perspective, the key point is to figure out how to most painlessly get them on the bandwagon a little bit. To convert that latent interest which is there in a huge segment of the population. Into just seeing what this space is all about.


    There are lots of vehicles -- active and passive -- that can give you pretty much market exposure, very low tracking-error; the non-ESG version of benchmark. But they're bringing you along on the journey for ESG.


    We have a couple of these products. Other firms have a couple of these products in the passive space for sure. But even as Glen has pointed out as in the municipal bond and investment-grade fixed-income space.


    I think the key point is for the financial advisor and RIA is that there really is quite a bit of interest in this latent in the client. How do you get people onto the journey as painlessly as possible? That will open up lots of interesting conversations between you and your client.


    Aniket: If I can add one thing, I would suggest for the advisor that there is an opportune time to have that conversation for existing clients, which is at your annual review with the client.


    There will be investment strategies that are in their portfolios that have performed less well than they'd expected. If you have an option available in that particular asset class, be it passive or active funds or SMA that has this type of characteristic, transitioning into an ESG product in that sleeve of the portfolio at that time could be a way to begin that overall transition. Just like when you're becoming more energy-efficient in your house, you start by changing your lightbulb and do it in small steps, rather than completely rebuilding the house.


    There are as Aniket mentioned, a ton of good products out there from Oppenheimer and other firms that allow you to do that.


    Chad: Thanks, Glen. I love that simple actionable advice.


    Next question actually is posed for you, Glen. But I assume Martha and maybe even Aniket have some thoughts on it. I know Martha, you said Parametric subscribes to a few different data sources.


    The question was posed for Glen, and it reads, "What kinds of issues are you seeing with data-integrity or reporting standards?" You mentioned a lot of white space and just voluntarily reported data. But of the data that's being reported, are you seeing any issues with data-integrity?


    Glen: Yes. There are issues.


    Part of the driver behind that is that there is no unified standard for disclosure. Even in the US market. There's no regulatory required set of ESG criteria that could be disclosed on an ongoing basis by companies -- outside of certain regulated industries.


    That's where working with some of the data providers like MSCI and Sustainalytics, ISF Ethics, and assets where those come into play. They do some vetting of the data. They do the initial data-collection from the publicly-disclosed information from the companies. Supplement that with specialized datasets. They then engage with the companies to get a validation of the data that they're using.


    Then they will keep that ongoing quarterly, annual ongoing type review.


    Additionally, one of the things to bear in mind is part of the reason there's such an ecosystem of ESG data providers now --


    This data is very difficult to pull together. If you look at the publicly-traded market and developed, emerging and frontier markets, you have very different language sets. Different geographic responsibilities. Different sectors and materiality within those sectors. There are very few shops that can do it all very, very well. You get this plethora of entities out there collecting the data.


    That's a positive for us. We're also seeing consolidation. MSCI and Sustainalytics and ISF Ethics have all been on a buying spree recently, where they acquired other firms.


    Those three big players do each have their own personality. If you look at MSCI, they're very much a quantitative type ESG data firm. If you look at Sustainalytics, there's more of a qualitative early-warning type aspect to the data that they provide to their users. ISF Ethics is very much about disclosure and governance.


    I'm not an advocate of using any one in isolation. I believe you should always use multiples, just like you would with credit-rating agencies on the bond side. So yes, there are challenges.


    Long-term solutions --


    I think that's a whole other presentation for everybody.


    Chad: Okay. Great. Thanks, Glen.


    Martha, do you have any comments on data or data-integrity, or reporting standards?


    Martha: I do. I really appreciate this question coming up, and I also appreciate Oppenheimer's bringing it up in their presentation.


    Couple of thoughts just to add. Couldn't agree more with multiple providers. Today we get data and a lot comes from MSCI. Quite honestly, there's a lot there that they offer. Sustainalytics has been a great provider for us.


    I'd also mention dedicated [inaudible] values provider. Also [inaudible] indices has been a great provider for us. Amongst some others on the active-ownership side.


    Just because the data is there doesn't necessarily mean that it's quality data. For us, we're looking to make sure that the methodology behind it is reasonable, but also very transparent. We have to be able to explain how MSCI derived the fossil-fuel-reserved ownership of the company to clients.


    We really vet our providers. Even though we're not doing the research in-house ourselves doesn't mean that we're not taking a hard look at the data.


    There's a lot of data that we are not practically putting out to clients, because we don't feel it's robust enough, and it doesn't really meet our sniff-test for quality. Thanks for the question, and for the opportunity to kind of make the distinction between being a passive asset-manager. It doesn't necessarily mean that we just accept everything that walks through the door.


    Chad: Great point; thanks, Martha.


    We had another question come in, and I can read it. Actually, it looks like it's suitable for everyone, again.


    The question reads, "As the robustness of corporate ESG data available continues to grow, it seems that advisors are now left to grapple with how to best evaluate the qualitative decisions made by each asset-manager when constructing their strategies."


    Assuming that this vary greatly across firms, the question really is, "Is there any council or oversight body that audits ESG or impact strategies and certifies that they're delevering on their investment mandates and living up to the United Nations' standards?"


    Aniket: This is Aniket. I'll just say that the short answer to that question is, "No." There are large bodies like the Principles for Responsible Investing and US SIF and others -- industry bodies that have tried to put some language and a framework around this. But in reality, what's happening -- or the way that I see it -- is that a lot of these data-providers are actually becoming the organizations that are then defining what is and isn't ESG. There are huge problems with that. It is as subjective for them as it would be for anyone else.


    A recent study by a very interesting company out in the UK found that it took 20 different ESG strategies and they have a framework to understand their impact or the underlying real-economy impact. There was a huge divergence, even though all of them say that they are ESG/sustainable impact funds.


    I don't think we're going to see broader standardization around this. I do very much agree with the premise of the question, which is that this is going to be one additional way that fund managers engage with their investment due-diligence. Therefore, the way that we as investors or people that are allocating into these funds -- the way you do your due-diligence on them. I don't think that's going to happen in a standardized third-party way. I don't see that happening.


    Glen: Yes. What I'd add there is that investment professionals, as this type of strategy becomes more prevalent and their clients are asking for it more and using it more in those client portfolios, you need to be doing your due-diligence on it. There are very straightforward questions to ask. We hit a couple of those in our part of the presentation.


    Do they understand what the data looks like? How are they impacted addressing the lack of data? If they're using an external data provider, how are they vetting that? From Martha of Parametric, talking about the "sniff-test." That matters.


    There's data out there and there are data-providers that are just not up-to-snuff, yet. An investment professional should be asking every investment manager and every portfolio manager that they're using, "How are you going through these different steps?"


    There are some guidelines out there. We get RFPs from large institutional prospects on an ongoing basis that are asking very clear and discrete questions about how we're doing ESG integration. The data we're using. How we're measuring our outcome. CalPERS [accounts] or those sorts of institutional investors.


    A lot of their questionnaires are actually publically available. We'd be happy if anyone wants more data on that, we can provide some sample questions of how those are asked.


    Chad: Perfect. Yes, go ahead, Martha.


    Martha: I have maybe a quick minute? Yes --


    Just to quickly add a few things -- I'd echo the PRI. But I'd also add in FASB, I think, as another entity that's really been working toward a little bit more consistency; at least on the reporting side.


    Other watchdogs and actually other sources of data come from NGOs -- from the media. From shareholder- advocacy groups like Series ICCR, the Council of Institutional Investors. Those groups that I said we're members of.


    Even though there may not be an oversight governing body, I do think there are a lot of eyes and voices that are trying to keep companies honest.


    Chad: Appreciate that. Thanks, Martha.


    has really been a refreshing and educational presentation. I really want to thank everyone for joining us today. And really a special thanks to our Research Alliance panelists, Aniket, Glen and Martha, for being with us and sharing their wealth of experience and their perspectives.


    If you'd like stay current on Litman Gregory's views and strategy -- as well as those of our research alliance members, you can certainly visit our website www.AdvisorIntelligence.com. Or give us a call or send us an email.


    Of course, don't forget to review our important disclosures. Thanks again, everyone. Have a great day!



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