The Franciscan Sisters of Mary always administered our investments within a socially responsible framework. We excluded investments in companies that failed to “conform to moral, ethical and social issues and values,” including makers of abortifacients and contraceptives, nuclear weapons and tobacco products, among others. FSM also strove to improve corporate practices by filing shareholder resolutions and proxy voting, and we made some investments in below-market-rate community development and housing loan funds.
But was responsible investing enough? Was our investment program’s design sufficiently aligned with FSM’s Mission and Focus? Moreover, did it further that Mission and Focus? Follow our journey to impact investing.
- The Challenge
- Search and discovery
- Hiring an impact advisor
- Building our portfolio
- Fossil fuel divestment
FSM’s investment guidelines included a list of mandates to produce positive social and environmental benefits. During a review conducted in 2009, the CFO identified that the positive impact generated by our investment program was limited, well below the degree called for by the guidelines. The challenge became: either find an effective means to adhere to the guidelines or significantly tone down those positive mandates.
Search and Discovery
In our investigation, we discovered a video from a session on mission-related investing at the 2008 SoCap Conference. Mission-related investing was defined as “encompassing any investment activity designed to generate a positive social or environmental impact in addition to providing a financial return.” (Now the more commonly used term is “impact investing.”) Speakers gave examples illustrating how their investment practices were tangibly furthering their institutions’ missions. The video opened up a world of possibilities for FSM.
Our CFO attended the SoCap 2009 and 2010 conferences. SoCap, with its tagline “The Intersection of Money & Meaning,” created a platform to bring together investors, entrepreneurs, and social impact leaders who believe that an inclusive and socially responsible economy is needed to address the world’s toughest challenges. From these gatherings our CFO brought back evidence that other mission-driven organizations (mainly secular) were moving beyond traditional socially responsible investing and using profit-seeking investments to generate social and environmental good.
Because of major congregational undertakings in 2011, the move into impact investing was delayed until 2012. The timing proved providential, for FSM’s 2011 Chapter refined the congregation’s Mission and Focus:
The Mission of the Franciscan Sisters of Mary is to be the presence of the loving, serving, compassionate, healing Jesus. Flowing from our Mission, we focus the power of our intention on compassionate care of Creation in collaboration with others.
Hiring an Impact Advisor – Imprint Capital
Because impact investing adds elements of “impact” to the usual complex blend of risk/return considerations, effectively integrating impact investing requires advice from dedicated experts in the space. Following an advisor search, in 2012 FSM hired Imprint Capital to fill the role. (FSM continued with an existing consultant relationship for its portfolios of securities in public companies.)
Imprint is an investment advisory firm exclusively focused on impact investing. Their services to FSM fit into three categories: strategy development, portfolio construction, and monitoring of financial and mission/impact performance. (Though Imprint Capital was acquired by Goldman Sachs Asset Management in mid-2015, GSAM’s Imprint Division remains exclusively focused on impact investing.)
Impact Strategy Development
GSAM/Imprint worked with our CFO and Leadership Team for several months to produce a revised investment policy that strategically integrated impact investments. That work involved:
- Consideration of FSM’s mission interests, financial parameters and organizational context.
- Presentation of broad impact investing options with specific examples relevant to FSM’s interest/context. (Imprint provided actual investment examples to elicit key guidance on questions central to shaping its recommendations.)
- Review, refinement and approval of the proposed strategy by the Leadership Team. That strategy addressed financial parameters, mission objectives and organizational approach for sourcing, reviewing, diligencing, executing and managing investment.
Reflected in the revised policy was a $10 million impact investment carve-out, with $8.3 million allocated to impact opportunities with a moderate risk profile and $1.7 million to “deep mission” investments that seek substantial effect and tolerate greater risk.
The full impact allocation would be placed in private investments, including private equity, credit, and real assets, all asset categories previously absent from FSM’s asset mix. So from a Modern Portfolio Theory investment perspective, these private investments enhanced FSM’s risk/return profile in terms of both impact and economic/financial factors.
In terms of alignment with FSM’s Focus of “compassionate care of Creation,” the impact investments fall into one of the following categories:
- Addressing climate change (renewable energy, energy efficiency, cleantech)
- Responsible stewardship of natural resources (conservation/sustainable forestry, sustainable agriculture, mitigation banking)
- Detoxing the environment (waste-to-value)
- Community development (microfinance)
Building Our Portfolio
Imprint helps FSM build and manage our impact portfolio. They do so by identifying, conducting due diligence on, and recommending managers, products and direct investment opportunities consistent with the parameters and goals in our investment policy. Imprint also provides information to and coordinates documentation and communications from prospective investees with FSM to support investment closings. FSM’s CFO and Treasurer approve individual investments.
FSM made its first impact investment in May 2013. Our current portfolio of 13 investments has a cumulative committed capital of $7.99 million, with $5.4 million of that called.
Monitoring Portfolio Assets
Imprint provides quarterly investment reports on the portfolio assets and an annual portfolio impact assessment.
As of September 30, 2016, FSM’s impact portfolio had 32% allocated in private credit investments, 23% in private equity and 45% in real assets. Since inception the portfolio has generated an IRR of 4.1%.
Fossil Fuel Divestment
With the impact investing processes in place and largely focused on restoring the environment, in August 2014 the Leadership Team announced its pledge to divest from companies that profit from fossil-fuel production. In doing so, FSM formally signed on with the Divest-Invest Movement, a strategic initiative to mobilize billions of dollars in capital as a financial lever for confronting climate change.
By the end of that calendar year, FSM had fully implemented this divestment strategy, employing a customized indexing strategy for all its core equity portfolios. Aperio Group is the asset manager that carries out this strategy, which enables FSM to achieve market-rate returns and reduce fees while fully adhering to its enhanced social responsibility guidelines.Learn about our Fossil Fuel Divestment process