The Roadmap to 100% Responsible Investing

The Roadmap to 100% Responsible Investing
Date

August 8, 2020

5 min read

“A journey of thousand miles must begin with a single step”, Lao Tsu.

Australian Communities Foundation (ACF) has had a vibrant history of community giving. Over the last two decades, the Foundation has provided more than AUD $83 million in grants to improve social, economic, cultural and environmental justice in the country.

When Maree Sidey, CEO of ACF took the helm, however, she saw a powerful opportunity to align its grant-giving arm, driven by its socially and environmentally responsible donor group, and its traditional investments. In fact, the donor community was itself expressing a keen desire to see ACF move its $100 million corpus into responsible investments – and do this with the same care and ethos applied to its philanthropic activities. The Foundation recognised that the transition to responsible investing was a long time coming, and started taking steps to bring this vision to life.

The transition was methodical, a step at a time. Buy in from the entire stakeholder group was essential. The foundation trustees, charged with a fiduciary duty of care and responsible for its philanthropy and management of its investments, also needed to acknowledge the opportunity to align all of the Foundation’s resources for greater impact.

The Board also recognised that it was important to have a champion and advocate at the board level. Adam Milgrom was the answer, a board member who came from a donor family within ACF. He brought with him the experience of his own Besen Family Foundation which had already transitioned to responsible investment of its endowment. His family foundation had primarily traditional investments: it began its journey with an initial 5% carveout for impact. The outcomes achieved here convinced the Board to move to a 100% portfolio approach thereafter. Adam, as an experienced Board member who was able to address the fears that accompanied the shift, became a strong ally for the CEO and support for the Investment Committee.

Steps to embedding a long-term strategy

A detailed five-year plan and a road map for the progression to 100% responsible investing was devised. The plan achieved buy in at Board level and was based on the defined values and mission of ACF.

As with any introduction to a new asset class, the Board and the investment committee needed to be open and comfortable with the trade-offs, if any. Any deviations, challenges or concerns were addressed by reference to the underlying strategy and documentation of that strategy.

Considering ACF’s role as a community foundation, the transition needed to be democratic in its approach. It was important to involve and canvass the stakeholder community while bringing their opinions into the strategy formulation. When ACF presented various options to its stakeholders, it was inspiring to witness an overriding consensus for the transition. As with any democratic process, however, there were supporters and challengers.  Although there was very strong support for the transition, ACF had to accept that not everyone would agree with the strategy.

Over the next two to three years, there has been a clear commitment to the divest invest pledge. Divest Invest is a diverse, global network of individuals and organizations united in the belief that by using their collective influence as investors to divest from fossil fuels, and invest in climate solutions, it is possible to accelerate the transition to a zero-carbon economy. In this way, it supports the agreement made by governments in Paris at COP21 whilst protecting the investment returns. In addition to shifting their own capital, some investors and investment advisers now provide additional support to help others make this important shift. It sees the transition as a moral imperative, and considers it financially prudent and emphasizes the legal obligation to do so.

Adopting this model, ACF gradually shifted towards ESG investing and implemented negative screening.  It started selecting fund managers that were signatories to the various responsible investing bodies, but the turning point came when there was an opportunity to put the investment services out to tender. The key criterion was ensuring that it had strong financial performance credentials, a track record with responsible investment, aligned values, and wasable to work in partnership with the Board and management.

Finding the right investment management partner: Aligned values are key

Being clear that its values are at the centre of everything it does, ACF has made a commitment to not only align its investment strategy with the values of its giving community, but also ensure that 100% of its investment portfolio is responsibly invested by 2021.

Brightlight Investment Management is Australia’s leading specialist advisory firm in responsible investing, with a deep history in integrating ESG across portfolios, engaging shareholders, encouraging active ownership and achieving impact outcomes. It recognises that SDGs, while providing a direction and overview, do not necessarily provide details of the intensity of impact being achieved. Instead, Brightlight uses different frameworks for different investments, measuring outputs as well as outcomes of impact being achieved.

It soon became clear that Brightlight was the right fit for ACF, and it was appointed investment advisor for the Foundation, with Tim Macready at the helm. As Brightlight’s CIO, Tim restructured ACF’s existing investment portfolio, and has been seeking out investments with not only a strong financial return but also a positive social or environmental impact, guided by the UN Sustainable Development Goals.

Amidst the COVID-19 environment, ACF is continuing to stay accountable to its stakeholders by having regular conversations with the investment committee and planning for the liquidity constraints required in a grant giving foundation.

What this journey takes: Brave leadership

In reflecting on her journey, Maree noted that being a leader was about being brave. Strong leadership involves envisioning your organisation in the next five or ten years and breaking down into concrete steps the actions needed to take on what appears to be a very daunting journey. It is an iterative process, taking place in a constantly changing environment (as witnessed by the bushfires, followed by a pandemic) that requires foresight and open communication with the community. “Doing so with a moral conviction and authenticity, however, will find you renewed support and champions,” says Maree.

The journey to 100% responsible investment is a challenging yet worthy process. While not everyone’s journey to 100% responsible investment objective will follow the same path as ACF, this transition is entirely doable with any sized portfolio. To hear more from the speakers, watch the webinar recording here.


About Author
Komal Sahu
Komal Sahu Chief of Sustainable Finance AVPN

Komal serves as Chief of Sustainable Finance at AVPN. She leads AVPN’s engagement with family offices, HNWIs, private wealth holders, corporations and financial institutions across Asia. In this capacity, she helps these stakeholders achieve their objectives of investing within a framework of impact and sustainability.

Komal brings over two decades of diverse work experience in Europe and Asia to her role. She began her career as an investigator with the British Civil Service and was focused on the SME sector in London. She subsequently worked for KPMG where she specialized in the fund management industry. Komal has completed numerous assignments at top tier banks and insurance companies in the UK. She has tax expertise in structuring entities and funds and taking companies and funds to listing on the London Stock Exchange.

Over the last decade, Komal has provided support to a number of social enterprises and charities across Asia. She is an angel investor and an LP in early and late stage funds. Many of her investments have focused on generating societal good. Komal has served as a mentor at a number of incubators and accelerators and has worked with startups including at A Star, a Singapore government led accelerator for science and technology companies that are improving lives through innovation and discoveries.

Komal is a Fellow of the Institute of Certified Accountants and Associate of the Institute of Taxation. She has an FT certification as a Non-Executive Independent Director. She has a BA Honors in Economics.