Can Investing in Sustainability Be the Source of Long Term Value? Rebeca Ehrnrooth 10 September 2014
Jul 12, 2015
Can Investing in Sustainability
Be the Source of Long Term
Value?
Rebeca Ehrnrooth
10 September 2014
Equilibrium CapitalThe Leader in Sustainability Driven Real Assets
• Founded in 2007, now over $830M of committed AUM on platform, growing with
• Four funds and other institutional-grade investment strategies offerings
• New strategies under development launching in Fall ‘14 and Spring ‘15
• Real Assets Sectors:
• Sustainability Driven: Whole systems approach and disciplined risk management builds
long-term assets value
• Productive, long-term, and active use of resources / real assets
• US-based Global Platform: Portland (OR), San Francisco, London
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The Next Generation of
Real Assets Funds
Confidential
Renewable
Energy
Sustainable
Agriculture
Green
Real Estate
Water
Management
Land
Stewardship
Momentum in Real Assets Investing
• Increasing Investors Interest in Real Assets
• New publications and conferences, and increased audience
• Wall Street firms staking out their positions – JP Morgan’s new
research, Morgan Stanley’s initiatives, etc., Goldman Sachs’
impact bonds
• Continued allocation shifts into real assets
• Changing Conversations: increasing focus on current return needs vs. long-term capital returns, investment horizons,
alpha generation, and managing future long-term risks
• Sustainability as Economic Principle:
• Activities generating near term productive returns build long-term
capital values
• Productive long-term operating strategies enable financial flexibility
3
Next Generation Real Assets Strategies
Addressing Returns and Terms Requirement
Confidential
Defining Impact & Sustainable Investing
• Using market and investment tools to
drive positive impact on environment
and community, and deliver a return to
the investor
• 3 components to Impact:
Additionality
Intentionality
Permanence
• Executed in public policy, public interest, and regulation
• Monetization of trust and authenticity
• All asset classes
• Spectrum of returns and impact
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PUBLIC
EQUITY
PRIVATE
EQUITY / VC
FIXED
INCOME &
CREDIT
REAL
ASSETS
Advisors &
Intermediaries
Fund
Managers
AssetsCapital
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EnvironmentSocial
Global Challenges and Opportunities in “Market Failures”*
• Bottom of pyramid
• Food & hunger
• Financial inclusion
• Health
• Affordable housing
• Education
• Energy gap
• Clean water access
• Climate change
• Global demographics
• Resource constraint &
productivity
• Agriculture and food
• Environmental services
• Water
• Energy
* But not all problems can be solved with markets
4 Billion MORE People Eating Meat and Driving Cars
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• Global macro trends:
Developing world population & middle class
Natural resource consumption
Pollution and Climate change costs
Income disparity and inequality
• Massive market shifts = new risks,
opportunities, & value
• It’s “just” smart macro-trends investing
7
Impact Investing, a 40 Year Evolution
1970’s – 1990’s: SRI, Religion as innovator, Vietnam, apartheid, environment
• “NO”
• Significant innovation
• SRI funds & shareholder activism
• Microfinance
• CRA
• Community banking & CDFIs
• Clean Air Act
• Clean Water Act
• SOX & NOX cap & trade
• Labeled with underperformance
The 2000’s
• “IMPACT AND/OR RETURNS”
• Awareness, debate, and education
• Network: GiiN
• Metrics: IRIS/GiiRs
• JPM report legitimizes the field
• Kyoto carbon credits
• MFI Nobel Prize & IPOs
• Foundations: More than Mission
• Social enterprise & VC model dominate impact investing
Today
• “RETURNS FROMIMPACT”
• Transition from “ideal” & early adopters…
• Institutionalization & professionalization
• Shift to breadth of “impactful” strategies and asset classes
• Scale and big levers
1st Wave
SRI2nd Wave
Blended Return
3rd Wave
Impact Drives
Returns
Today, The Conversation is Changing
• Return to investment basics: risk allocation,
risk appropriate returns, and duration
• Sustainability and resources constraints are
economic shifts
• Community and environmental problems are
opportunities for financial innovation
• ESG and sustainability are performance
drivers…in the long term
• Institutions entering (Sustainable Investing)
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Resources
CALPERS ESG research database:
http://www.calpers.ca.gov/index.jsp?bc=/about/pres
s/pr-2013/june/finance-symposium.xml
CALPERS Protocol (September 2013):
http://www.calpers.ca.gov/eip-
docs/about/press/news/invest-corp/board-
offsite.pdf
Equilibrium Forum – Alan Emkin (Pension
Consulting Alliance): http://vimeo.com/69999326
WEF Report:
http://www.weforum.org/reports/margins-
mainstream-assessment-impact-investment-sector-
and-opportunities-engage-mainstream-i
Shift into Mainstream: Institutions, Risk & Scale
• Bloomberg ESG on main screen (2012)
• Munich Re September 2012 links climate
change to natural disasters…risk
management issuehttp://www.munichreamerica.com/mram/en/publications-
expertise/knowledge-publications/severe-weather/index.html
• Morgan Stanley Institute for Sustainable
Investing, November 2013, targets
institutional investorshttp://www.morganstanley.com/sustainableinvesting/
• Equilibrium’s assets are 90% institutional
(pensions), with no sustainability mandate
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Shift to Mainstream
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Movement Across the Investment Eco-System
• Institutions see the economic opportunity
• Experienced fund managers entering
Across asset classes and strategies
Maturing of structures
• Advisors applying rigor & research
Cambridge 700-800 funds in database
Imprint 1000+ funds in data base
Mercer, NEPC, PCA…
• Fiduciary duty – “loyalty & care”
Risk and value in context of duration
(liability)
Benefit Corp laws: 20 US states, including
DE
• Corporations shift from PR to strategy
Capital
Advisors &Intermediary
FundManagers
Assets
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Impact Investing is Smart Investing
• Growth story
• Seeing value where others don’t
• Identifying and monetizing a market inefficiency
• Arbitraging different views of risk
• Re-aligning benefit and “currency” for each part of value chain to produce returns.
The “hidden strategies” in
successful impact funds are
really just investment
fundamentals.
Sustainable & Impact Investing, Today
• Entering the mainstream
• Institutional grade products across the
asset classes…across risk, impact & returns
• Advisors emerging
• 3rd wave: “returns from impact”
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It’s YOUR values…
YOU define the value you seek
Equilibrium
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Come for the returns,
Stay for the impact
The information contained herein and any other forms of communication related thereto are forinformation purposes only, and should not be regarded as an offer to sell or a solicitation of an offer toinvest in any security. Past performance is not indicative or a guarantee of future performance.Equilibrium Capital is not a registered investment advisor and does not provide tax, accounting, or legaladvice. Investors are advised to consult with their tax, accounting, or legal advisers regarding anypotential investment. This information and all the material shared in conjunction with it whether verbalor oral are confidential. Equilibrium Capital Group Europe Limited is an Appointed Representative ofSapia Partners LLP, a firm authorised and regulated by the Financial Conduct Authority.
Disclaimer and Forward-Looking Statements