Microfinance - Investing for Social Impact

RACHEL: Well, welcome.
Welcome to Panel B for today's session.
I don't know if any of you have been able to make it to
any of the others, but it's been quite an exciting day and
we hope that this panel provides a lot of information
for you about your options in social impact investing.
Today's panel includes Timothy Freundlich who's Director of
Strategic Development for Calvert Social Investment
Foundation which is a nonprofit social enterprise
finance company managing a range of projects that bring
together the philanthropy and social investment spaces.
Tim has been with Calvert Foundation since 1997, and
manages business development, strategic partnerships, and
new product development.
Also on the panel is Rick Mordesovich from Neuberger
Berman and Lehman Brothers.
Mr. Mordesovich is a Senior Vice President with Neuberger
Berman Lehman Brothers, responsible for advising
individuals, families, and their foundations on asset
management, asset protection, philanthropic initiatives,
risk budgeting, and wealth transfer strategies.
His practice centers on building sustainable business
relationships rooted in integrity through values based
planning and socially responsive investing.
And finally we have Blaine Townsend who is VP and
Portfolio Manager for Trillium Asset Management.
Prior to joining the firm in September of 1996, he worked
with the San Francisco political consulting and
communications firm, Staton, Hughes and Scheffer.
He was Assistant to the Executive Director of Earth
Day in 1990, and Assistant Director of Marketing and
Social Research for the Mirror investment Trust, the first
socially screened municipal bond fund.
Now I would like to invite you to hear our panel.
And again, please feel free to ask questions at the end.
Thank you very much.

TIMOTHY FREUNDLICH:: Thanks, Rachel.
I'm Tim Freundlich from the Calvert Foundation, and I
wanted to just find out quick, has anybody been at any of the
other sessions today, or what's the breakdown here?
Sort of 50/50.
All right, that gives us a little bit of intelligence as
to previous ground covered.
We've been talking a lot today about microfinance in
particular, and then in the last panel sort of opened that
up across a very broad spectrum of the sort of
socially responsible investing, screening out of
publicly traded stocks and bonds and looking for good
companies, and community development, social
enterprise, microfinance.
So what I wanted to do was sort of start from there, and
we're going to move through a progression where I kind of
start with micro credit pretty close to the ground, but then
also sort of extend that spectrum.
And then I think we're going to go and extend it even
further, with Blaine and Rick, into some of the broader,
socially responsible, social purpose investment strategies
and how people deal with that with portfolios.
I think what's been interesting today and is
always interesting in these conversations, is that we
first have to start by bringing ourselves to the
conversation before you can even make
sense of the landscape.
So it becomes really variant, like there's micro credit,
there's affordable housing, there's stocks and bonds that
are screened out and in and all this stuff.
And until you really start with getting clear about what
your motivation for even giving two kiddies about it,
it's neither here nor there.
At least that's been my experience in dealing with a
lot of people, and myself and my wife being the
first of those two.
So what I wanted to do is actually just do something a
little bit different for me.
This is a bit of a prototype, so we get to play
here which is fun.
And Kevin Jones actually is in the back in the xigi.net team,
XIGI team, which is doing some really cool market landscaping
in the space, and then in my capacity with Calvert also
bringing some of their intelligence, has been playing
around with the next generation of how do we
approach these questions?
And so we sort of took a crack at a little bit of what I was
just saying, which is what are these archetypes of people?
Or what are the facets that we bring?
And we kind of came up with three of them.
They're sort of three modalities and I'm not saying
these are mutually exclusively, you're not just
one, or the other, or the other.
I know for a fact myself I have at least all three of
these and a couple others as part of my personality, being
pretty schizophrenic.
The the first one is the sort of a conventional, but not
quite conventional investor, who is really looking to bring
social purpose and sort of rationalize that stuff and the
stuff they care about a bit to their portfolio, but is pretty
attached to mainstream
understanding of risk and return.
Meaning yeah, I want to mix in the social and environmental
stuff and purpose, but I don't want to give much up for it.
That's perfectly valid, and that's a great mode to be in.
The second one is a bit of what we might call
euphemistically as the concessionary investor.
And there's a lot of good in here too, which is somebody
who's really thinking about a bit of a departure from sort
of that market rate-ness of financial return and risk.
Who really wants to dig down a bit and figure out how to
incorporate social purpose and value creation at the
community level into the decisions they're making with
their money, and is willing to actually sort of walk away a
bit from the conventional wisdom of what return and
market rate is in doing that, to create this
kind of social value.
And then the third person is a pretty radical catalyst sort
of person, which is saying, you know what?
I don't buy the whole thing.
With at least some of my money, I really want to
totally fuse philanthropy with some recoverable investment
capital, and I'm going to reach down and fill the
biggest gaps I can find in the capital market, but it's
almost like recoverable grants, I want to get a lot of
leverage, I want to go to countries where it's really
unstable, or I want to go to really early stage stuff that
has a big chance of blowing up.
So you just kind of see a spectrum.
So it's not just that there's this incredibly wide range of
sectors and geographies to deal with as a sort of
socially aware investor, but there's also a range
of modes to be in.
So I thought we just actually pick one of these.
Let's start with this nice looking person.
And we're putting a million bucks to work for a year.
I don't know people saw that, but there is sort of a million
dollars down here.
And I think that she's interested--
and normally we'd play around with and interact with the
audience, but we're really on sort of like little 10 minute
blocks here--
in international stuff in microfinance.
Again, this is a person who's pretty interested in getting
into this hybrid space, but is at the same time really
concerned about the risk and return and how that's-- this
is not philanthropy, exactly.
This is taking their normal investment mindset and
bringing it in.
So this person puts a whole bunch of money out there and
it's sort of like, well, what have I got going on?
These are some people that we've already heard from
today, I mean, Maria Otero was talking earlier about Acxiom.
They have a wide range of individual investors who are--

this would be the prototype part?
This is fine, it's me that's the problem.

All right, so here's our return conscious investor
interested in microcredit, interested internationally.
There's an increasing amount of really cool microcredit
stuff out there to invest in.
And in this example, and this is just pulled from the data
sets that we have in this new online set up at XIGI.net,
there's a developing world markets Blue Orchard out of
Netherlands.
They've securitized a really rich set of a lot of Latin
American microfinance groups that are creating impact by
making small loans to mostly women in Latin America.
They had a debt offering in the last time that actually
returned 4.8%, so it was like the treasury bill plus a
little bit of extra, and it had an OPEC guarantee.
An OPEC guarantee is a sort of overseas private investment
corporation, it's like a quasi government agency in the
United States.
It's not like FDIC insurance but, heck, it's not bad.
So that's actually pretty good, I mean, you're not
taking a huge haircut.
It's a stable investment, you're getting better than
T-Bill, Treasury Bill matched term, you know, like six years
to six years plus a little bit extra.
MicroVest is another one that we've met today.
They actually have an equity investment that's still really
well diversified and has about 8% return.
So there's another example of an investment that is a little
difference, a little higher risk and higher return.
Interestingly, Blue Orchard has another trench where you
can do equity in the same offering.
So you've got an equity transfer, you get 12%, and on
and on and on.
I mean, these are just an example, but this just shows
that these are pretty--
let's skip the equity one just because we only need one Blue
Orchard, there's no reason to invest twice in that--
each one of these has an incredible portfolio of
stories and impact.
And I guess the idea here, the high level take away-- and
obviously we're just sort of running through this-- but
there is a rich landscape here that can really be matched to
this investor's sort of mindset, their risk and return
appetite, and they can choose, they can move quite a lot of
money to it, and each one of these will have a certain sort
of social and financial return associated with them.
In MicroVest's portfolio, according to the information
that we gathered from them, if you put in a third of a
million dollars, that's $333,000 per year, you'd
finance a 184 microenterprises and create about
twice that many jobs.
You haven't given away a penny.
This is pretty close to a market rate return, so that's
good news, and you get a nice financial return.
And so if you put out a million dollars into this kind
of a portfolio, you would have a total return on a year of
about $70,000, annualized, across that mix that we were
looking at, and on a million that's 7%.
Now this is about as good as it gets, I won't kid you, when
you start to get into this hybrid, high impact stuff.
But importantly, you're also going to have created, on each
one of these, 200, looks like 184, 400, 500, there's like
1,500 jobs, 1,500 families whose lives you've changed,
all without giving away money.
This is per million dollars, per year.
You leave it out 10 years, multiply it 10X.
You put out $10 million, is it going to be your company or
whatever, you get more.
So I think that's pretty cool all in all.

You know, obviously I don't want to take up too much time
because we've got to move through two more, but let's
just take one other one just to see.
This guy looks nice, he's very well kept.
And I don't know any of these people, by the
way, just so you know.
These are not real people.
We protect the innocent.
But here's our sort of concessionary, we like to call
him a haircut investor, jokingly, not just because
he's got a good haircut.
And this is somebody who's willing to get a little more
creative in terms of their risk return.
They want to take a little bit more to create more impact.
And this guy, he's a little more interested in what's
going on at home I think.
And he likes these guys with the ketchup bottles.
No.
In social enterprise--
I mean, microfinance is a great set of investable, high
impact stuff.
But it's part of a spectrum, and we just sort of in this
prototype have focused across affordable housing, social
enterprises, which are sort of new hybrid businesses that do
work force creation and match people to really great
products, and services, and communities, and then
obviously microcredit.
But let's just look quick at this.
This is one of my favorite stories.
Evergreen Destination Holdings is actually two GSB Stanford
grads who joined with a 20 year veteran of Outward Bound.
They started a for-profit business that was incubated
out of Juma Ventures, which is the Ben and Jerry's Scoop Shop
Franchisee, the Nonprofit Youth Development Services
Group in San Francisco.
So it was birthed out of a nonprofit.
It took this Outward Bound guy, these two GSB MBAs, they
started this company, they bought a 1950s mom and pop
sort of lodge that they turned into an eco-lodge, and they
took it from half a million dollars of revenue in the
first year they took it over, in three years to $5 million.
So they did 10 times--
and that's kind of nice.
It's a socially responsible business, eco-lodge, whatever.
But they're taking a third of their employees are Hunter's
Bay Viewpoint at risk inner-city
San Francisco youth.
And they're giving them wraparound social services,
Outward Bound trading, a living wage, hospitality
services, it's just such a great story.
And they've taken debt and equity, in this case we're
just looking at a profile of a 12% IRR on the equity, which,
it's not venture returns.
I mean, this is not like super charged stuff, so that's why I
wouldn't call it exactly market rate.
If people are taking direct exposure in one company it
could blow-up on you.
So I think that it's a little bit hard how to bucket these
things out.
In Calgary where I work you can see it's totally
different, it's only 3% return.
Gosh, that seems crazy, why would I only want to make 3%
when I can get 12%?
Well, 12% is in one company that, if something goes on in
that microeconomy, it could blow up.
In the Calgary Community Investment Fund that
specializes in social enterprise domestically, we've
got a whole diversified portfolio where you're taking
on hardly any risk, and it's got a big security
enhancement, a big kind of insurance thing.
So there's just an example of two things that maybe have a
somewhat rationalized risk return comparison, even though
you're not making nearly as much.
But again, all of these things have their own sorts of--
I mean microcredit, where as you saw the jobs in the
hundreds in the United States, you're talking about
interventions in people's lives in the 10s.
So the social return, the financial return have a bit of
a complicated relationship, but again, if you blend these
two together, you're still making $75,000 a year on that
million, that 7.5%.
You've probably taken on a little more risk though for
that than perhaps some of the other ones we were looking at.
So that's just an example again of how
variant the space is.
But again, the takeaway here is none of this stuff, these
are not recommendations.
This is just sort of looking at this landscape, and it's
about a discovery very much at this point, both in terms of
what motivates an investor and how they want to look at the
return, and also what the heck they want to invest in.
And I think with that I want to turn it over.
But I do encourage-- if anybody wants to be kept in
the loop as we're developing some of this landscaping
stuff, give me your business card afterwards and I'll make
sure to shoot-- or maybe I'll even send it to you and you
can send it out to the people, because we'll be rolling out
some of this stuff that you can play around
with yourself soon.
Thanks a lot.
And there's also some materials over there.

RICK MORDESOVICH: While they're going the quick
switcheroo, I'm Rick Mordesovich of Neuberger
Berman, and I was hoping to have a wandering mic, more
Oprah Winfrey style.
That's OK, I can just stand.
While we're doing that, my legal department insists that
I read a disclosure: The material in this presentation
is not intended to address every situation, nor is it a
substitute for legal accounting or financial
counsel for your professional advisers with respect to
individual circumstances.
Any stocks I talk about today are not recommendations, but
for examples only.
So with that we're going to sort of switch gears a little
bit and talk specifically about US Domestic Equities
with sort of a socially responsive bent.
I'm not sure if you've heard of Neuberger Berman, but we've
been around since 1939 managing money.
Today we're a $105 billion shop, and we're a wholly-owned
subsidiary of Lehman Brothers.
We've been in a socially responsive space
for about 20 years.
We are doing a balancing act of how do we create an
investment return for our clients as well as doing
social good?
And we believe we can do well and we can do good.
It's been a terrific day here hearing about microfinance,
and Lehman Brothers is also at the forefront of that.
We're in the process of launching our own
microfinanced backed fund that will be a little bit different
than what we've heard about today.
We're going from, instead of the top 50 microfinance funds
that are out there, we're going to start with 51 to 250.
So going a little further down the food chain, but stay
tuned, more on that in the next probably 90 to 120 days.
I must say since I'm here at Google, it is absolutely true
that you can make money without doing evil.
I know that is one of your business principles here, and
I just had to say that and get that out on the table.

SRI, Socially Responsive Investing, is not a
one size fits all.
Everyone in this room comes to this meeting with different
ideas, different objectives, we were all raised
differently.
And when I bring in a client, I like to really understand
what their history is with money, how they view money.
Were you raised with money?
Were you raised without money?
If you were raised in a family with
money, were your parents--
did they like to display their wealth?
Did they get a new Jaguar every couple years, or did
they drive a 10 year old Ford Taurus and were they
embarrassed by money?
And I think it plays an important role when we start
to talk about money, what it means to our values and how
that lines up with our investing, and that's what
we're going to talk about today.
Generally money is good for three things.
I think you can spend it, you can invest it, or
you can give it away.
When you think about social change, or social good, or how
do we have an impact, I think we're all very familiar with
grant money, writing a check, you give it to a 501C3 to a
worthy organization and you do some good, but we can also do
good in other ways.
I think there is now tons of information on the websites
out there about where do you spend
your money as a consumer?
If I want to buy a new Apple laptop, where do I go?
Do I shop at Walmart, do I shop at Costco?
So having some power with how we spend our money, we have
that same power in how we invest our money.
So just thinking a little bit more clearly and a little bit
more wisely, trying to align our values with our
portfolios, and that's really what we're doing at Neuberger.

This is a quote from the economist from a week ago, and
I think it's a very, very timely as we start thinking
about how we create change.
And one way to create change, which we're going to talk
about on this panel is through our proxy values if you're a
shareholder in a company.
And I think the slide on shareholder democracy is a
little bit deceiving in the United States today.
We all sort of think, you own a share of
stock, you have a vote.
That's not necessarily true.
We're going to get into transparency and
accountability, and a lot of our votes as a shareholder
when it comes to executive compensation, when it comes to
the makeup of our boards, are more precatory where a vote is
more of an advisory vote.
And if you're voting against someone, your vote doesn't
even count.
The votes just for candidates are counted, and that's a
little disheartening, but we can talk about that more if
you have questions on that later.
Investors are really concerned over financial markets,
corporate management, and ethics is playing a larger and
larger role.
Who here, by a show of hands, has either read the book or
seen the movie, The Smartest Guys in the Room?
If you haven't, you really should put it on your Netflix
list. It's a great, great movie, and it's very timely.
It's about the Enron scandal, and it's in the courts right
now, and I think you'd enjoy it, it's a great documentary.
But I think Americans as investors are really
wondering, are the leaders that we're putting in place
and the companies that we're investing in, are they
ethical, and is the financial performance real or not, and
how do we know?
So I think families, and individuals, and family
foundations are coming to us more and more.
They want us to do due diligence, not just on the
financials, this is a good company to invest in, can I
make money in my portfolio with this investment?
But also are they ethical?
Are they telling us the truth?
How do we create a positive change, or positive force with
our portfolios?
And for each of us that's different.
Recently I met with the head of a major US foundation, and
by major I mean $400 million.
And we're talking about SRI, we're talking about creating
social change with our portfolio, and I did my
presentation he came back and said, Rick, I don't care.
I want to make as much money as I can so I can give to the
causes I believe in.
And I was really taken aback by that.
I said, you know, this is a foundation, so I was quickly
trying to think of an answer to that and I said, so did I
hear you right?
So if I were to tell you that there's a company in Tanzania
that works 6 to 10 year old children 20 hours a day in a
factory but the return is a 100% year over year, you'd be
interested.
And he said, don't be ridiculous.
And I said, well, no.
You've just told me you want the highest return you can
get, you don't care.
Obviously, he did care and obviously the truth is that
was a little bit outrageous of a statement, but it was to
prove a point.
So socially responsible investing really started with
the anti-war movement, the apartheid in South Africa
really put a spotlight on it in the media.
Today it's very, very visible in environmental concerns and
workplace issues.
Diversity, worker safety, and health care as costs in health
care start to soar.
What sorts of benefits and things are companies giving to
their employees.
It's important to note that 20 years ago when you talk about
SRI or socially responsible investing, it was really about
negative screens.
You know, let's screen out tobacco, let's screen out
firearms, let's screen out all these bad
things, or sin stocks.
That's evolved in 20 years to where we're still conscious
about social screens, but also being more proactive.
How to identify good companies with good values, and how do
those values align with our values as investors?

If you heard Jackie [? Cours' ?] presentation
earlier, she sort of laid this out to put it in context.
The total professionally managed universe of all
dollars out there is 24.4 trillion.
Of that, 2.29 trillion are SRI, or socially responsive.
The majority of that is falling on the right hand side
on institutions with 1.49 trillion, and of that about a
$179 billion are in mutual funds.
The left side of this equation, individuals, is
about $17.3 billion dollars and it's very,
very rapidly growing.
The first dot up there in our practice we're seeing as women
come into wealth.
And women making money in the workplace are coming to us
saying, I want to invest in companies where women are
playing senior roles in management, where women have a
place on the board, where there's
more control in companies.
We have religious organizations that come to us
and some of their concerns are they don't invest in companies
that manufacture contraceptive devices or anything to do with
birth control.
We have the LGBT community that is coming to us with
diversity issues, and how do you get more diversity in the
workplace and worker rights.
So it's a whole wide array.
Socially responsible investing is not one size fits all.

To give you some context, this is the same data, shareholder
resolutions are up 16% from 2003, there were 299
proposals, in 2005 there were 348.
So investors are wanting to have more of a voice at the
table and want more of a say in what their investment
portfolios look like, and companies are listening.
Companies want to know what their investors are thinking
and how they're going to keep them as long-term investors.

Investment policy and social policy.
This is a really interesting one and has evolved over the
past 20 years.
It would not be unusual 20 years ago, that if each of you
were a wealthy family or in a family foundation, that you
would have an investment policy for your investments,
and you'd have a social policy or a mission statement for
your foundation or for your family of how you wanted to
gift that money out, and the two did not meet.
So you could have, 20 years ago, a family foundation.
Your mission statement could be to save or protect the
environment, you'd look at your investment portfolio and
the top five stocks could be the largest polluters of the
environment, and they didn't match.
So we've started to create a link between social policy and
investment policy, where the two should really be linked
and they should be consistent.
There's a relationship there that we all need
to be mindful of.
I think in any relationship, whether it be a work
environment, a marriage to a spouse, or in your investment
portfolio, there are three things you can do when you see
a situation that isn't working for you.
Number one, and probably the easiest, is do nothing.
You kind of hold and hope and hope the problem
will correct itself.
And you're probably all thinking about your spouse or
thinking about your boss or thinking about
your investment portfolio.
You could cut and run, it's easy to leave, sell the stock,
get out of the portfolio, and move on.
Or the third which is the most difficult, is try and create
change and try and do something about it, and sort
of call that push and prod.
Have dialogue, do something, take action, and a lot of
times that is much, much more difficult.
Wilshire did a study in 2001, and it was on CalPERS which is
the California State Pension Fund, and it took 13 years of
data from 1987 to 2000.
They looked at 95 companies that CalPERS had identified to
have an intervention on, they felt that there was some need
there of various types.
They looked at the performance of these companies five years
prior to the intervention, and their performance
lag, the SMP 500.
Post-intervention, over the next five year period, on
average these companies outperformed
the SMP 500 by 14%.
So having a say or taking action does pay off.
And again, that was a Wilshire study.
This slide I'm not going to spend a whole lot of time on.
I met someone when I first sat down today
Google and we were chatting.
He was a young employee, a young Googler.
And we were chatting and he said, you know I've looked at
different SRI funds and I struggle with how
to pick a good one.
And we're talking about, do you measure it by performance?
What makes a good fund?
I would just caution everyone not to look strictly at
performance, but to look at risk adjusted returns and
other elements when selecting investments.

Again, screening.
Step one of the industry has really evolved from negative
screens or screening out sin stocks, to more qualitative
aspects of a company.
Our belief system at Neuberger Berman is it starts with
management.
If you have good management that's ethical, they're kind
to their employees, they're kind to the communities in
which they do business, it trickles down through the
whole company, you have happier workers and it shows
in performance.
Once in awhile companies do sort of stumble.
Recently in the news, Whole Foods-- how many people here
shop at Whole Foods?
It's a great place to shop, I shop at Whole
Foods and love it.
And they have been kind of a darling of SRI investors for
quite a while because of their business principles, although
for us it's been a little bit pricey, the stock.
We haven't found a lot of value there.
There were three recent resolutions that were injected
at their most recent shareholders' meeting.
And typically when there's a resolution, a representative
will be allowed to stand up in a forum like this and sort of
talk about it for at least 30 to 60 seconds.
And for some reason Whole Foods did not allow that to
happen, they just basically came out of the meeting and
said all three were rejected, thank you very much.
Not only was that not a great practice, but it also possibly
is in violation of SEC Rule 14A8 which can be problematic.
When someone stood up and asked a question, why didn't
we at least have a discussion around these three resolutions
to open the floor?
The CEO, Mackey, was quoted as saying, if you don't like it,
buy another stock.
Not the best way to keep investors happy or to really
endear yourself to the investment community.
So again, even a great company sometimes makes mistakes but
again it's accountability and transparency.
Good corporate citizens, and I think that's sort of what
we're all looking to be.
How can we be better?
How can we do good?
How can we have social change?
Some obvious ones, workplace, community, environment.
Community beyond this community that we work in here
in northern California, but we can also think outside our
borders, you know, human rights violations in the
Sudan, we can think about state sponsored terrorism.
There are screens that are put on portfolios, people come to
us with some very specific screens and things to think
about in a much broader, a much larger picture.
Corporate governance is a huge one right now, when we touched
on The Smartest Guys in the Room and Enron, looking at
majority voting and issues like that, just being aware of
those things.
Recently two corporations voluntarily have taken on
majority voting on their own, Intel and United Technologies
sort of leading in that space.
Social screening and potential results, again, looking at
companies' diversity.
We have a company in our portfolio, Toyota, we love
Toyota for a lot of different reasons.
Great car company, their use of raw materials, the assets
they put to work they put to work very wisely.
One of their top 10 business principles is diversity in
their workforce.
However, when we looked at their board of directors,
guess what?
100% Japanese men.
So we brought that to their attention.
And we're a little bit different in our social
activism, we tend to engage management more in a
diplomatic way as opposed to shareholder advocacy or
drafting resolutions and things.
We have done that in the past, but we like the first step to
be sort of just an open dialogue.
So there are ways to create change and to talk to
companies without being a total activist, and there are
many, many different ways.
That's just one example.
Also, Danaher is another portfolio company.
They create all of the tools made at Sears and hardware,
and the company's 100% men for the most part,
and that's a problem.
And they realized it and hired a consultant, and with some
pressure from investors to create change.
Also community good can be done to the bottom line
through various charitable giving, employee volunteer
programs, community outreach, also in environmental
management areas, waste reduction.
Dell is a company, when you think of toxic waste you don't
really think of a Dell computer as being that.
But looking at their product line, and looking at a full
market cycle as technology changes, and life of a
computer is, what?
I don't know, maybe five years.
I seem to go through them a little faster than most, they
get banged up and break, and technology changes.
But really just thinking about recycling, battery power,
different things that are not obvious.
We tend to think of things as being toxic chemicals.
Intel and their use of water was another big one that came
out of a SRI dialogue, and use of natural resources for a lot
of companies.

The two biggest things, I think, to sort of keep in mind
as you think about SRI, think about investing, transparency
and accountability, and being able to see what's happening.
I think with the EPA and things of that nature, having
transparency and sort of the oversight and just
accountability for actions of companies is key in creating
change through socially responsive investing.

Dialogue with management proxy voting.
At this point I'm going to turn it over to Blaine
Townsend from Trillium, and he's going to touch on some of
the things I just scratched the surface on.
Thank you very much.

BLAINE TOWNSEND: All right, thank you very much.

I have to use the mic, I can't stroll either.
So, real quick question.
How many people here have actually done what you'd call
socially responsible investing?
Choosing mutual funds, doing anything like
that in your own personal--
little bit?
A little bit?
And how many people here sort of buy in to the age old
conventional wisdom that if you do socially responsible
investing it will cost you money?
Excellent.
Oh, I spoke too soon.
Let me ask again.
How many people here think that if you do some socially
responsible investing it'll cost you money?
So we've got a smattering of hands.
Obviously that's something that everyone in this field
has heard for many, many years.
I think 20 years ago, when Trillium was founded-- almost
25 years ago--
that was the conventional wisdom.
A lot like Google, thankfully Trillium's founder and
Trillium's employees did not follow the conventional
wisdom, and 25 years later, we are the oldest and largest
independent investment adviser.
All we do is socially responsible investing, it's
all we've ever done, we're an independent firm so we're not
owned by anybody, it's all we're every going to do.
And it's very interesting in the long arc of time to see
how that conventional wisdom--
I think if asked that same question 10 years ago, it
would have been every single hand in this room, and we
would have had to spend most of our time maybe talking and
dispelling that myth a little bit.
So what I want to do now is just give a little bit of
overview of Trillium.
What I thought I would do is just, in a sort of rapid fire
way, really take you through Trillium's investment process.
How do we pull in community investing which
we heard about today.
Bonds, cash, stocks, shareholder advocacy
screening, all the things that Trillium does, and all the
things that you're able to do out there, whether it's with
Trillium or Neuberger.
Essentially it's the soup to nuts of what's available.
I'll use Trillium as our example.
So Trillium, as I mentioned, we're an independent
investment advisory firm focused on individual
investors and small institutions.
Essentially we manage people's money.
In our world, it's high net worth individuals and small
institutions, but essentially everything that I'm talking
about here today you could apply to any investor as the
concepts are pretty broad.
We have four offices in Boston, San Francisco, Boise,
Idaho, and Durham.
We have about 36 employees.
We are a majority employee-owned and woman-owned
firm, we're a firm founded by a woman.
We have about a billion dollars under assets under
management now, which given the big numbers that you heard
today seems like maybe a small amount, but every one of these
is in a customized, separately managed portfolio whose main
goal was to balance the client's financial and social
objectives.
This is, in fact, our specialty.
I think everyone at Google can identify working for a firm
that has tried to throw out there some social values as
part of their business practices, even though they're
a for-profit firm.
25 years ago when our firm was founded, we were founded with
this specific mission, and it really permeates everything we
do to meet the financial, social, and environmental
goals of individuals and institutions, to fund all
means of social progress in the capital markets and
educate in their use, to maintain a work environment in
which ownership responsibilities and rewards
are broadly shared, and to support those working to build
a just and better world.
I think nowadays we're pretty familiar with this kind of
language and these kind of ideas.
In Wall Street 20 years ago, this was pretty strange stuff.
So essentially, as I mentioned, we manage
individuals' portfolios.
Our style-- and I'll just go very briefly over investment
things-- we're long-term investors, long-term core
equities that more or less behave like the broad market,
bonds the same, municipal bonds, high quality corporate
bonds, US government bonds, a big component of community
investing which we heard about today.
We expose our clients to international funds through
mutual funds and ADRs.
What makes us very distinctive is the shareholder activism,
the proactive approach that we use.
Rick painted some very great, broad pictures about what's
contained in that world.
Trillium really does that work every day, it's a huge
component of what we do as investors.
So this is our approach essentially.
How do we deliver a portfolio to clients that balance their
social and financial objectives?
We do it by looking at socially responsible investing
as really a process.
As Rick said, it's no one size fits all system.
But what Trillium does is we concentrate on all the tools
that we think are really available.
Our investment process starts with social screening, so they
are fully integrated in everything that we do
financially, we then further customize for clients if
that's what they're interested in.
Everything that we invest in, and inherited wealth that our
clients bring in, we put a lot of our resources into
shareholder activism.
We're trying to change the capital markets over a long
period of time.
It's work, it takes a lot of resources, you have to fight a
lot of small battles over and over and over again to get
incremental process, but over 25 years you've seen the
landscape really change incredibly.
The whole idea of corporate social responsibility,
transparency, environmental reporting, Trillium's had a
hand in all those campaigns every step of the way, and we
really feel that in order to really balance your financial
and social goals, this has to be a critical component.
We then weave in community investing.
We don't just weave it in by exposing our clients to it,
it's part of the investment process.
We create total portfolios that expose you to stocks,
bonds, cash, community investing vehicles as part of
your fixed income portfolio, so we really tailor those.
And then as a little firm with 35 or 36 people, our public
policy work is pretty incredible.
It's definitely something that we try to really engage the
capital markets as investors, as individuals, as
professionals, and try to change it over this long
period of time, as I mentioned.
So how do we do the portfolio screening?
The first step, and I'll go pretty quickly, we have an
in-house staff that does social screening, does
shareholder activism, does dialogue, we have three
full-time people that--
actually four, we have an open position--
four full-time people that what they're doing is they're
adding to our financial research, the social
components of all the stocks that we're looking at, and
they engage in company dialogues, and they file
shareholder resolutions.
We were part of the stakeholder group that got
shut-off at Whole Foods.
Those kind of things unfortunately happen to us
more frequently than you would think, and I've moved
resolutions at Chevron, for example, where
I've had my mic cut-off.
So like I said, these battles are long and hard.
And hard avoidance screens, the sin stocks that Rick
talked about, those are absolutely out.
Proactive companies that we think have innovative
products, and good financials, and are contributing to
society are in.
The vast majority of companies it's not black or white, and
that's one of the first things that you have to accept.
That you're not going to get an all good, publicly traded
equity portfolio, or all clean publicly traded equity
portfolio, which is why we believe it's so important to
engage management to try to change the companies.
Because in a diversified portfolio that really helps
you control risk, and Rick that was an excellent thing to
point out, that when you're looking at mutual funds or any
investment, risk adjusted deterrents.
Return is on one side of the equation, how much risk they
took to get the return is very important, but if you have a
diversified portfolio that can behave like the broad market,
even if the companies have been screened there's going to
be a lot of issues there.
Whole Foods is a great example.

I won't even begin to touch the investment side of this
and talk about our investment process.
Just to say that the social input, the social research we
do, goes essentially parallel to all of our evaluation
screens, our alpha generation screens, everything we do in
the investment side to look for good companies.
We're looking for growth potential in companies, we're
looking for good valuation, however, we really integrate
all the social screens.
So by the time that we get a buy list that as investors
we're going to construct our portfolios for financial
reasons, they've already been screened for social reasons.
And again, we can go additional with our clients to
create specific customized social screens, but everything
we do is socially screened.
It's completely integrated into our investment process.
The second and very important component is the
active stock ownership.
Again, very broadly diversified portfolios, big
companies, big footprints, the issues change all the time,
we're going to engage the companies all the time.
Google is a great example, it has wonderful qualities, we
really think it's going to be a leader in corporate social
responsibility but all of us know in even the last month,
new issues have arised.
New questions about Google China, ethics, information,
media, I mean these issues are always evolving.
It's not a static business, it's always changing, the
landscape is always moving.
We engage in companies and dialogue, we file shareholder
resolution, we work with NGOs and stakeholders and other
groups, to try to help them power down.
We create proxy voting guidelines for clients to make
sure that they're voting their proxies consistently.
This is really important for foundation's mission based
organizations for our clients that create family
foundations.
Proxy voting is something that's overlooked.
We also engage in proxy voting campaigns to get big
institutional investors to vote for our resolutions.
We also use the resolutions, the annual meetings to create
media attention for issues, just escalate these issues.
Do essentially everything we can as we're investing to try
to elevate issues, change the capital markets, help our
clients balance their financial and social
objectives.
This is just some quick recent highlights.
In 1999, investment banks didn't even look at the social
environmental impact of their underwriter, so you'd have
large Western investment banks for example, funding of Three
Gorges Dam in China, without ever looking at the financial,
the social, and environmental impact of that.
That's changed now.
Through the work of Trillium and other stakeholders, we've
actually been at the table with investment banks, they're
starting to incorporate these things.
We might really not see the full effect of this for 10 or
20 years, but you have to get the work going, you have to
start changing these companies.
I actually was in charge of our shareholder resolution at
Home Depot that started in the late 1990s about their sale of
old growth timber.
They were the largest seller of timber in the world--
generally a good corporate citizen--
largest seller of timber in the world.
They had no idea where their wood came from, they had no
idea how it was harvested, they had no idea which species
were actually critically endangered, how the indigenous
people were treating, absolutely no idea.
They're a phenomenal growth company, had never even
considered it.
We brought it to the table a couple years later, they
announced the timber procurement policy, created a
ripple effect through the markets.
Doesn't mean the abuse isn't still happening, but now we
have transparency on the issue, we have vendor
standards, we have a lot of things.
We pushed Pepsi to develop the first comprehensive strategy
to address global water scarcity.
We actually underwrote and did a policy paper on water for
the Pacific, the Water Institute I
believe it's called.
For 20 years, obviously, sweatshops, fair treatment of
workers, these are issues that we've been in the trenches
dealing with.
Transparency, transparency, transparency, it's at the
heart of what all investors want.
If you've heard the terms efficient markets, it's all
about good quality information, it's why you have
financial reports now after the stock market crash in the
late '20s, because there were pyramid schemes.

Companies didn't have to produce that kind of
transparency.
So from that spirit of financial transparency to make
markets work better, Trillium's done an incredible
amount of work on getting environmental transparency and
environmental reporting, EEO data disclosure, all these
things because we think it helps all investors.
These are the areas that we're currently engaged in.
So you can see again from a small company, this is every
day of our life as investors.
Right now climate change is obviously a huge issue.
It's a huge issue outside of Trillium, too.
Financing the environment I mentioned, genetically
engineered food, our resolution at Whole Foods
actually helped them agree to do GMO labeling which they had
never been willing to do, the content of their foods.

Our range of issues is very broad and does get into the
kind of real human rights areas with sweatshop, sexual
orientation, nondiscrimination, we've been
a leader in that.
I'm currently working with two other people on media reform
as and issue and we're trying to bring a whole bunch of
stakeholders together in an initiative that we're calling
Open Mic, which stands for Open Media
and Information Companies.
So not just big media consolidation issues, also
internet companies.
How do media companies function in our society?
What is the role of a responsible media company?
We've been working on it for two years and we're just now
barely at the beginning of formalizing our
strategy around it.
Again, this is kind of behind the scenes,
tiring, long-term work.
I think going-forward, what's going on with Wall Street and
investment banking is very important.
I mentioned the transparency already.
Corporate social responsibility is taking off,
I don't know the statistic now on the number of Fortune 500
companies that have corporate social responsibility reports,
but you know it's effective because the right has really
tried to attack this as the companies
giving in to the left.
Essentially the companies are ignoring them, because they
see the value in this for their own businesses.
And so a lot of these flights are being won now, and I think
there's a lot of hope and it's very powerful.
Trillium has always put our resources to work.
We helped create [? Siren, ?]
which is this network for the investment banks, the
Coalition for Environmentally Responsible Economies, which
some people might have known as [? CERES, ?]
which really helped start global financial reporting.
Community investing, everything you heard today we
have been doing it for 15 years, support it, think it's
phenomenal.
And I won't spend too much detail because we've heard so
much about it, but essentially we help our clients identify,
somewhat what Tim was doing, geography, social issues, et
cetera, we integrated into the portfolios.
Our public policy involvement.
We attack it from all different angles, either from
starting organizations to empowering our employees, to
working on issue papers, to supporting NGOs, and again we
do this all from our staff of 35-36 people.
We spend a lot of our resources, something like 20%
of the money we make is in money management, so our
investment management fees on what we
call our social mission.
I think this is where our social mission
has the most impact.

How does it all apply to you, or the client?
We essentially identify your risk and return objectives
like any manager would, help you identify whether its
growth, whether it's income, whether it's tax preservation,
or tax sensitive strategies.
What are your financial goals?
And again, I'm obviously zipping through this
incredibly quickly since we're at the end of our day.
We pull this down into what's an ideal asset allocation from
you, both from a financial standpoint, and from a social
impact standpoint, and then we create your portfolio.
So one thing I thought would be sort of interesting--
I have to step away from the mic for a second--
is actually bring a sample portfolio.
It just essentially shows where the
rubber meets the road.
This is the client we've had financial objectives, social
objectives, I don't know if I have enough for everybody.
FEMALE SPEAKER: [INAUDIBLE]

BLAINE TOWNSEND: So essentially what this will
show you is an appraisal.
This happens to be a client that on the spectrum of
community investing, is really aggressive.
So they have a much larger percentage than some of our
clients, typically between 1%-5% of their portfolio, this
client has upwards of 10%.
But what you'll see in this portfolio are typical
positions that you would see in your investment portfolio.
You have a diversified stock portfolio, you have municipal
bonds, you have fixed income, and you have community
investing completely integrated.
What I've also done is include a social matrix with that that
shows you, in the equity portfolio that you see there,
you'll see all the areas of engagement that Trillium is
involved in with the company, and you'll also see some of
the high and low points from a social standpoint.
Mostly so you get an idea that this is not black and white,
and that there's a lot of work being done.
And essentially, it's just a sort of real world example of
how a client who has these financial and social goals, it
actually gets pulled together at a company like Trillium to
deliver a regular portfolio.
Our performance is good, suffice to say we won't go
into this too much, but our equity portfolios really
detract the broad markets, the benchmarks that they're
supposed to, and on a risk adjusted basis
they look even better.

To sum up, Trillium is just a specialist in this space of
socially responsible investing.
I think we've been a pioneer in the field, we really
believe it, and it's important for you all to know that
whether at Trillium or somewhere else, there's a lot
of options out there and you really can balance your
financial and social objectives.
So thank you very much.