FRA Family Offices Conference — Aventura, FL

Sustainability Investing, Green Investing, Socially Responsible Investing, What’s Going On Here?

I hope, through my comments to encourage each family office to develop expertise in the responsible investment field and to encourage family members who show an interest to pursue it. I’ll define terms, address the scope, review performance, assess fiduciary issues and argue that most especially, family offices need to understand this approach.

The unique aspect of family office management is the focus on the family. In no other area of money management is there such a need to be collaborative, open, and responsive. Each family is unique. Although I am best known for the work I have done as an author and an advocate of the field known as socially responsible investing. I have also, for 20 years now, been serving individuals with wealth at a multi-family office, the Loring, Wolcott & Coolidge office in Boston.

I was brought into that office largely as the result of a shock to its system. Though no family represents over five percent of our assets, each family is pridefully shepherded through the generations. Imagine then the reaction when a young man reaching an important birthday said, “thank you, I’ll be moving the assets over to a firm that gets it.”

He left, and the two primary partners sought me out. I’d written a book by then, entitled Ethical Investing, and I was known. Since then, our office has grown to a bit over $1 billion in assets run with my standards. This represents 20% of our business. I believe that this is a fair representation of the demand for such investing, which is very under-represented in the family office setting. There is no good reason for this. Social responsibility in investments is a robust global initiative that appeals uniquely to persons of good will.

First, what is it? The Brits call it ethical investing, Al Gore says sustainable investing, family foundations call it mission investing, and there’s responsible investing, green investing, socially responsible and environmental, social and governance investing. What does it all mean? I say, if it quacks like a duck, paddles like a duck and looks like a duck, it is a duck. The lack of cohesive vocabulary is tiresome, but the current tide seems to be towards Responsible Investing.

What does it take to quack? There are three core aspects to my field. First, pick investments in a manner that integrates concern for the company’s impact on people and the planet. For the next generation member who has taken up yoga, eats as far down the food chain as he can, and drives a Prius, this approach may take the form of avoiding certain companies, such as Agbusiness. For the academic, civic-minded, visionary of the family, this approach may take the form of looking for certain things, such as wind power. These are two sides to the same coin.

I tell my potential clients that I am who I am. I cannot suddenly develop an interest in good weapons companies for them. They have to accept my baseline, but they can tighten it. I’ve had plenty who have said no to meat (a position I don’t take) or to any petroleum-based energy, but wouldn’t have avoided alcohol, had I not imposed it. I don’t believe that in the family setting it has ever cost me a relationship to be so inflexible. Most people seem to find it a relief. I tell them I avoid alcohol, tobacco, gambling, nuclear power, weapons and that I define them in my own way. Aside from those, I look at the company’s relationship with stakeholders. If you go to my fund website,, you’ll see all this spelled out in our “Global Investment Standards.”

The first aspect of responsible investing is using social and environmental criteria to pick stocks. I tell clients I’ll evaluate the company’s relationships with customers, financial partners (including stockholders), employees, suppliers, the natural environment, the citizens of the United States, and the citizens of the world. I’ll only buy from the better half. There’s a theory here. A corporation depends on each stakeholder for its existence. Look at the stakeholder called the taxpayer. U.S. civil society allows the company to use public roads, grants a legal system, guarantees a banking system and in other ways makes business possible. Each stakeholder has a symbiotic relationship with the company, which, like all symbiotic relationships, must work for both parties.

The second aspect of responsible investing is shouldering the responsibility of ownership. Roughly 35 years ago Ronald Reagan’s Secretary of Labor, Robert Monks, made clear that the Department of Labor considered proxy votes to be an asset of a pension fund and that the agency would be auditing fiduciaries to assure that these were voted in accordance with the best interest of the beneficiary and not with the political perspective of the trustee. The audits have long since faded, but the principal remains.

My friend, Sister Patricia Daly, who grew up in Newtown, CT. with me, is a member of the Sisters of Saint Dominic of Caldwell, N.J. As of August 2007, the Sisters own 300 shares of Exxon. They used the shares to vote on a resolution which asked ExxonMobil to set a firm date for reporting on its progress to reduce greenhouse-gas emissions from both its operations and its products. It doesn’t take a large ownership position to take a moral stand. That once young man who left my firm so many years ago has himself filed several resolutions with the firm his great-grandfather founded, using his name to build a news story and to build awareness for the fair trade concept. Part of why he was to work with a firm that would support him in this effort.

The third aspect of responsible investing has long been referred to as community development investing, but that is shifting to extend into the broader world of micro-finance, direct green projects, and is increasingly called “thematic investing.” Whether the investment is in a project rebuilding homes or digging wells, if it provides a less liquid but cash-on-cash return, we in my field want to nurture and support it. Many high net worth clients will find this area most exciting. New wealth particularly likes the entrepreneurial capitalism of micro-credit and the social entrepreneur is a very appealing partner in money making ventures.

Having defined the field, I turn to the scale of it.

My industry has a trade organization named the Social Investment Forum. Every two years the Forum conducts a survey of pools of capital based in the United States that meet any of the three criteria that define our field. On the list you’ll find some names you might expect, like faith groups or social change foundations, and some you wouldn’t. Some use an approach that, while worded entirely differently than anything I say, led them to invest very much the way I do. Here’s one: “We track and invest in companies that invest in their people.” To that end they use social responsibility criteria much like my own to pick stocks.

Here’s what the survey showed. The trends are strong. During the decade, the amount invested in a manner that uses social criteria to pick stocks roughly quadrupled. The amount that both vote social issues and governance proxies in an activist way and use selection criteria almost doubled. Community development investing (strictly defined) increased six-fold, largely due to the Forum’s own campaign “one percent for community,” which did much to encourage this approach.

Fine you may ask, but what does it cost? Well we do have an index of our own and it does follow the type of stock selection approach I outlined above. KLD’s Domini 400 Social Index has a very credible track record. On balance it is ahead of the S&P 500. Since inception it has beat the more conventional index an average of more than half a percent per year. It looks like avoiding trouble doesn’t cost money. The website explains the methodology in detail.

Europe has its own Social Investment Forum, as does Asia. The European forum recently began following trends and issuing its own trends report.

Quite a lot is happening in this field in Europe; where 152 of the 172 European members of the Global Financial Times 500 publish routine corporate social impact reports. In the United Kingdom alone, 91 of the 100 largest companies reported on social and environmental initiatives on their websites. Investors are often pension funds like the giant Dutch PGGM, which announced divestment of its holding in PetroChina to distance itself from that company’s operations in Sudan. At that time the fund announced it would divest its holdings in manufacturers of nuclear weapons. The explicit integration by asset managers of social, ethical and environmental risk into traditional financial analysis is very widespread. € 641 billion are invested this way.

In the Eurosif trends report, most surveyed found that of applying social criteria was positive for performance. Most rely on third party research, which explains the explosion in sell-side research now available. Mainstream research companies such as Merrill Lynch, Goldman Sachs and UBS Securities have jumped into the market, thus spurring the researched companies to greater transparency of all costs, not merely costs to investors.

Goldman Sachs maintains a global SRI index called the G.S Sustain Index. It has significantly out performed MSCI Global. This record and that of KLD’s, Domini 400 Social Index performance put the last nail into the coffin of those who argued a fiduciary responsibility not to use environmental, social or governance standards when buying stocks. Freshfields, the world’s 4th largest law firm, has written the definitive work on this subject, arguing that in most jurisdictions the mandate exists to use these tools.

Global interest is enormous. My most recent book, Social Responsible Investing has been translated into Japanese and Korean. (Korea is home to 31 socially responsible investment mutual funds.) The Chinese translation is due out this month. In 2007, Japan saw the number of mutual funds grow from 38 to 50. And Australia boasts roughly 40 such funds globally over 500 funds exist. In just a decade the United States has given up leadership and now is merely playing catch-up to a world that presumes the way you invest matters as self evident.

So don’t worry that you are a pioneer, breaking into a new and untested field. Even dull old Boston has a family office with more than 20 years experience in the field. After all, what is a family office? Here are some of the offerings you probably expect from any family office you work with: Financial and Estate Planning, Asset Strategy and Management, Trust and Estate Administration, Banking and Credit Services, Philanthropy Management, and Assistance with Family Dynamics.

One family office site offers papers on: The Paradox of Family Wealth, There is Still Time for Hedge Funds, How to Handle Sudden Wealth, Leaving a Legacy, Choosing a Trustee, and Choosing an Executor. (Yes, I do bring a hat and a deck of cards to a meeting with family to divvy the tangibles.)

It continues: Screening Household Help (yes, we did find the Picasso in her closet). Executive Protection, Grooming the Next Generation, Wine Collecting, The Art of Collecting Art, and Purchasing a Jet. Should We Have a Family Meeting? Raising Healthy Children amid Affluence, The Family that Vacations Together.

These are your competitors’ routine, off the shelf, offerings, a library of specialized help. Now I ask you, those who head a family; what do you most want your legacy to be? That you found the right way to purchase a jet? What will give your children and grandchildren pride in the family and a sense of place in the world? It will be the fact that they used their wealth to make a difference. Not that they were philanthropists. For many, that word implies dilettante. It’s hard to make someone feel important for the right reasons. But it can be done.

Did you know my mother won World War II? She did and because she did she has a sense of her own importance in the world. During World War II my mother was a teen. Her father and brother were overseas and her younger brother was almost old enough to enlist. She knew that the troops were her priority and that she couldn’t waste resources. She learned then to save pins and tin foil, strings and ribbons. She learned to cut the pretty front off her greeting cards from friends and use them as cards on gifts she gave. She learned to always repair socks when the heels gave out, not throw them away. She learned to boil leftover bones with the unused parts of vegetables to make a wholesome broth to pack for her lunch. She learned that every single thing she did mattered, and she wanted her father home safely. She came from a very wealthy family but it was still her job to conserve. It worked. She won the war and she never stopped doing all the things that mattered. To this day.

Your offspring want to use money in new and powerful ways to build a future for the world, to alleviate poverty and the build an ecologically sustainable natural habitat. They want to do it with their principal, not merely the pittance of income. And they want their principal to grow while they do it. They want to win the war against a planet in decline.

Wealth, particularly unearned wealth, carries an emotional charge that is explosive. Many helpless parents have watched their children flounder, knowing that the thing exacerbating the problem was money, but not knowing how to defuse it, how to give the child a pride in that inheritance. I offer a way. A person can make a difference. A person undertaking a simple but positive action not only helps but also sets the stage for others to do so.

The family office business is about giving the client a robust range of services. But it must do it in the context of a caring environment. Each family founder comes to a point at which the disbursement of funds begins to say as much about the family as the creation once did. As John D. Rockefeller said, “I believe the power to make money is a gift from God – just as are the instincts for art, music, literature, the doctor’s talent, yours to be developed and used to the best of our ability for the good of mankind. Having been endowed with the gift I possess, I believe it is my duty to make money and still more money and to use the money I make for the good of my fellow-man according to the dictates of my conscience.” And so it shouldn’t surprise you to know that his offspring’s family office has a robust offering in the field of Responsible Investing.

Northern Trust, perhaps the best known multi-family office offers responsible investment management services. The Swiss private banks, long the protectors of old wealth, have found that responsible investing offers the missing part to the legacy work they are so proud of. Because at the end of the day a family office does more than manage money, it is a place that recognizes each family’s philosophy; the system of values by which they live their lives.

By way of advice to you, this cannot be done in a half hearted way. My clients find me. Really none came for my firm, that was my platform, and clients appreciate a platform, but they come for the person who really and truly cared.

Before closing I’d point out that family offices are patient. That young man, to whom I owe my job? He returned to the fold two years ago, along with his wife and three children, representing roughly $25 million in assets to us. It was a long time coming, but it meant a lot to my firm and to his family. You can’t differentiate yourself through high quality service. We all offer that. But you can differentiate your office through the empowering legacy you deliver to your families. Just as my mother won the war, your grandchild can end poverty. Take off the blinders and let her get to it.

Thank you.