Impact-Investing

Positively addressing social and environmental challenges while pursuing financial return.

BY JONATHAN FIRESTEIN — MANAGING DIRECTOR, PRIVATE CAPITAL AND IMPACT INVESTING AND SEAN OLESEN, CFA, CAIA — DIRECTOR, PRIVATE CAPITAL AND IMPACT INVESTING

Impact Investing

1

BY JONATHAN FIRESTEIN — MANAGING DIRECTOR, PRIVATE CAPITAL AND IMPACT INVESTING AND SEAN OLESEN, CFA, CAIA — DIRECTOR, PRIVATE CAPITAL AND IMPACT INVESTING

Financial capital serves many purposes, the most common of which are security, lifestyle, retirement and wealth expansion. Private wealth owners may find they have enough capital to meet these objectives and have remaining capital with which to pursue positive social and environmental impact. The question is, how to do that, and when?

There is no shortage of opportunities to make an impact today. Unprecedented global population growth presents our planet and institutions with mounting social and environmental challenges. Poverty and inefficient markets have created quality-of-life issues in all corners of the world, and our finite natural resources are increasingly strained from over use. As the United Nations projects global population to grow to 9.6 billion by 2050 from 7.1 billion today, these challenges are likely to grow if not effectively addressed. Can government and philanthropy alone solve these problems?

We believe that private business, private capital and capital markets can have a tremendously positive impact on the economic, social and environmental conditions challenging our world. We work with clients who share a similar vision and see their efforts as a fundamental part of establishing and defining their family or foundation legacy.

It can be difficult and overwhelming for families and foundations to decide how and where to direct their financial resources to actually achieve a meaningful impact. Understanding the options available and obtaining objective counsel from a trusted advisor can help. Because we understand why positive impact is an important value for families and foundations, we have developed a personalized approach to help our clients effectively and confidently apply their financial resources to encourage positive outcomes.

Important disclosures provided on page 21.

“Impact investing is a powerful model with the potential to build markets and drive change for the people who need it most.” — Bill Gates

Impact InvestingPositively addressing social and environmental challenges while pursuing financial return.

2 Important disclosures provided on page 21.

InsightsImpact Investing

Impact Investing

Private wealth owners commonly pursue impact through philanthropy, giving time and money to nonprofit organizations and foundations. Recently, a new class of investments has emerged that significantly broadens the opportunity to support actions that produce measurable results for the benefit of our planet and the people living on it: impact investing.

Impact investing can complement both philanthropy and a traditional investment portfolio, and help align financial capital with your passions, beliefs and objectives. When successfully implemented, impact investing can potentially produce a sustainable pool of capital that can work for generations.

The most common definition of impact investing comes from the Global Impact Investing Network, a nonprofit formed in 2009 by the Rockefeller Foundation with a mission to enable the impact investing community to solve more social and environmental challenges with greater efficiency:

“ Impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” — Global Impact Investing Network

Impact investments can be made in all corners of the world, in frontier and emerging markets, developed economies and our local neighborhoods. Opportunities to invest for impact are present in 10 market sectors and six primary asset classes, allowing for traditional portfolio construction utilizing asset allocation and diversification of risk.

Impact Investing Sectors

Social impact investments strive to provide opportunities for better life through:

• Health and wellness • Education

• Microfinance • Affordable housing / Community development

• Small business development

Environmental impact investments seek to reduce strain on the earth’s finite resources through:

• Natural resources conservation • Sustainable / Organic agriculture

• Clean water / Sanitation • Energy efficiency / Clean energy production

• Environmentally conscious real estate

See detailed information on the sectors starting on page 9.

3Important disclosures provided on page 21.

Impact Investing Asset Classes

PUBLICLY TRADED STOCKS & BONDS

Security selection and portfolio construction are driven by filtering and screening for environmental, social, governance (“ESG”) and other impact factors.

1. Stocks: Filters are applied to an established investment universe (e.g. domestic large-cap, emerging markets), seeking to identify companies that score high in ESG metrics, as well as other impact factors like a satisfied workforce. These companies may be more likely to attract quality employees and outpace competition with market-leading products and services. Capital can also be directed towards specific sectors regarded as high impact by the wealth owner and away from sectors or companies regarded as low or negative impact.

2. Bonds: Traditional credit underwriting is complemented by impact ratings in an attempt to outperform benchmarks. Impact data can steer the portfolio away from companies and municipalities that appear to be relative bad actors, potentially providing an additional margin of safety against default.

Impact investors can utilize impact data to assemble portfolios of stocks and bonds by acquiring securities directly and investing in mutual funds, exchange-traded funds (ETFs), hedge funds and separately managed accounts.

PRIVATE CAPITAL OPPORTUNITIES

Equity and debt investments are made in nonpublicly-traded companies and projects with intentions for impact and profit.

3. Private Equity / Venture Capital: Equity investments in startup and growth companies with impactful missions which complement for-profit activity. Investments typically are executed by an experienced firm that contributes strategic value and leadership to the company.

4. Private Debt: Loans to impactful companies and social organizations, accessed directly or via fund structures. This asset class offers a wide range of impact opportunity, risk levels and expected return.

5. Real Estate: Development and/or repositioning of commercial real estate certified as environmentally efficient. Project-based energy efficiency retrofits and change-of-use objectives are typically focused on commercial real estate and do not always require owning the real estate.

6. Real Assets: Timber, infrastructure, farmland, water rights and alternative energy all present equity investment opportunities. Infrastructure and alternative energy projects provide debt investment opportunities as well.

Impact investors can assemble portfolios of private impact investments through diversified private funds, individual transactions and lending to impactful organizations.



Do Impact Investors Sacrifice Financial Return?

It’s natural to wonder if impact investing sacrifices the potential for financial return. The short answer is some impact investment opportunities do sacrifice financial return, but most don’t. Our analysis of impact investments starts with the analytical framework applied in traditional investments: the relationship between risk and expected return. Then we add a third factor: the expected impact achieved by the investment. Personal decisions can then be made for the optimal relationship between expected risk, return and impact, and a portfolio can be constructed based on this optimal mix.

Impact-first Investors

PhilanthropyProgram-Related

Investing

Balanced Objective

Financial Objective

PurposeGoods and services can be shared with

those in need

Catalytic capital to advance markets

High Impact with moderate returns

High returns with accompanying

impact

EvaluationSocial and/or environmental

results

Similarity to stated foundation objective

Desired impact with acceptable returns

Attractive returns with acceptable

impact

ActorsDonors and established nonprofits

Family and community foundations

Impact investors

Impact and traditional investors

Financial Return Expectation

Negative0%

Market returns0%

Market returnsMarket returns

For discussion purposes only – Impact investments are not guaranteed to meet or exceed identified financial expectations.

Financial-first Investors

Impact Investing


The Ascent Approach to Impact Investing

We believe impact investing is a viable approach for wealth owners to pursue positive change in the world, but as attractive as that goal may be, we don’t allow the promise of social and environmental benefits to distract us from the discipline of financial analytics.

We use the same due diligence framework and rigorous review process for impact investments as we use for traditional and alternative investments. We prefer fund managers that have previous impact investing experience, including previous successful management of investor capital. Additionally, we avoid funds with excessive fee structures that demonstrate an inability to invest in a cost-efficient manner.

Our goal is to identify what we believe are the most compelling impact investing opportunities with appealing future prospects and attractive performance track records vs. impact peers and traditional market benchmarks. We’re not conflicted in our recommendations because we don’t manage any proprietary investment funds. Thus, we have no motivation to recommend an internally managed fund over a fund managed by an independent firm.

Building a Meaningful Impact Investing Portfolio

Impact investments can be most rewarding when they reflect an investor’s passions. Building a meaningful portfolio requires discovery, planning and investing. We believe impact investing is uniquely personal and we suggest that our clients create a family or foundation definition for impact investing.

What are your passions? Are you motivated by social change, environmental improvement or both? How do you want your financial capital to help grow your legacy?

DISCOVERY

• Explore all areas of impact. Perform research to find knowledge that will fuel exploration within your beliefs.

• Identify values and anchor themes that power your desire for impact. Impact investing provides opportunities to invest in your passions regarding people, problems, places, pathways and philosophies.

• Define “impact” for your family or foundation. Impact investing presents a meaningful opportunity to bring stakeholders of all ages and aptitudes together to discuss an investment portfolio. Impact investing may also present a positive learning environment for next-generation beneficiaries of wealth.



PLANNING

• Determine your impact investing focus. Gather the stakeholder group surrounding the wealth to make a collective decision on where to focus when building the impact investment portfolio. Choose among sectors, security types, asset classes and geographies.

• Designate an impact investing allocation. Determine the amount of capital to be invested for impact. Create a discrete impact portfolio or integrate impact investments within an existing portfolio.

• Create an impact mission statement. A detailed mission statement establishes the purpose of the impact investing effort and can also include targeted sectors, asset allocation and a return target for the aggregate portfolio.

INVESTING

• Consistently review investment options that align with your impact mission statement. Reviewing numerous options helps generate confidence in specific investments that appear to offer the optimal projected mix of risk, return and impact.

• Invest in your passions. Build the portfolio and follow the directives established in the impact mission statement. Adapt and expand the mission statement when appropriate.

• Monitor financial performance and impact achieved. Work to continually improve the tracking of impact targeted and achieved. Utilize knowledge gained through monitoring investment and impact results to review future investments.


Your Opportunity to Make an Impact Today

Private wealth owners have a special opportunity to direct their resources to create positive impact for people and the planet. Can the growing social and environmental challenges be disrupted by significant private sector innovation? The remainder of this paper highlights 10 impact investing sectors, allowing you to start down a pathway of research and discovery toward building a meaningful impact investment portfolio.

Impact investing can produce desirable financial and impact returns, enhance group dynamics and be central to efforts to define legacy. Impact investing complements philanthropy and, if positive investment returns are generated, produces a sustainable pool of capital that can create impact for generations.

Appendix

Impact Investing Sectors

Social

Health and wellness 10

Education 11

Microfinance 12

Affordable housing / Community development 13

Small business development 14

Environmental

Natural resources conservation 15

Sustainable / Organic agriculture 16

Clean water / Sanitation 17

Energy efficiency / Clean energy production 18

Environmentally conscious real estate 19


Overview

Technological advancements in personalized medicine and comprehensive therapy present significant potential for life expectancy to rise meaningfully in developed countries and with wealthy / insured people. Emergence of new delivery models and service efficiency gains present significant opportunity for greater access to healthcare in emerging-market countries and with impoverished / uninsured people.

Yet, the path to affordable and accessible healthcare for all remains uncertain. In the developed world, the primary issue is generally not availability but affordability. Rising costs limit the total population that can receive the benefits of advancements in healthcare. In emerging economies or where people are living at the base of their local economic pyramid, quality healthcare can be elusive or even unavailable due to a lack of infrastructure.

Impact Opportunity

The creation of lower-cost and more accessible models of delivering healthcare can increase the volume of service delivered. Technology can contribute to the optimization of service delivery and can serve to better educate local communities.

People of all socio-economic levels face health issues and challenges to longevity. Advancements in treatment and tools that promote wellness can continue to increase quality of life and extend lifespans.

Advancements in personalized medicine and health monitoring can continue to improve the healthcare service delivered to each individual. Treatments including drug and device development targeting specific ailments can bring relief to those coping with specific chronic conditions.

Prominent Impact Endeavor

Robert Wood Johnson Foundation Improving the Health and Healthcare of all Americans

The Robert Wood Johnson Foundation works to build a better culture of health in our society. It has supported many organizations focused on health and wellness across various sectors, from working to prevent childhood obesity to investing in health innovators.

Investment Options

Stocks: Companies involved in healthcare service delivery, pharmaceutical drug and medical device development.

Bonds: Municipal bonds that finance hospitals, senior care centers and other healthcare facilities. Corporate bond issuance from companies involved in healthcare service delivery, pharmaceutical drug and medical device development.

Private Equity: Venture capital investing in companies seeking to establish disruptive service delivery models and develop new healthcare products. Buyouts of mature and profitable health and wellness-related companies.

Private Debt: Specialty lending to established healthcare companies seeking to introduce new products and services.

Health and WellnessSOCIAL IMPACT INVESTMENTS

Social Impact

Efficiency gains in service delivery and advancements in personalized medicine can benefit people of all socio-economic levels.

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Overview

Quality education is the foundation of community development. Educated children are more likely to make positive contributions to society and grow into financially independent adults than their less educated counterparts.

In the developed world, educational failures are manifested in high dropout rates and low-quality education. In emerging and frontier market countries, children may receive insufficient education or no education at all.

Even though most children depend on their government for education, there are many opportunities for the private sector and private investment to a make positive contribution to the overall educational experience.

Impact Opportunity

Education is undergoing a great revolution. New technologies are enhancing classroom learning and broadening the delivery of education, as any Internet-enabled device can become an on-demand classroom.

In the United States, the Federal Government expects to complete its deployment of high speed internet to every school in the country by 2018. Increasing internet access throughout the world enables more students of all socio-economic levels to receive an education.

The delivery of education involves multiple inputs, including infrastructure, human capital, tools, technology and supporting services.

Impact investment pursues expanding access to, and raising the quality of, education through improving infrastructure, technologies and service models. Innovation in the delivery of education can enhance a personalized student experience and allow for quality education to reach more of the world’s children.


Bill and Melinda Gates Foundation: College-Ready Education Program and Global Libraries Program

The College-Ready Education Program seeks to ensure that low-income and minority young people graduate from high school prepared for college. It also seeks to double the number of low-income young adults who earn a postsecondary degree or credential by the age of 26.

The Global Libraries Program seeks to improve the lives of one billion “information-poor” people by 2030 while positioning the world’s 320,000 public libraries as critical community assets and providers of information.

Investment Options

Stocks: Private education companies that supply post-secondary adult education and suppliers to the education industry.

Bonds: Municipal bonds that finance school development and school infrastructure. Corporate bonds of private education companies.

Private Equity: Venture capital investing in technology intended for the education market. Direct investing in charter and private school development and operation.

Private Debt: Direct loans to impactful education nonprofits and bridge-lending for new charter school development.

EducationSOCIAL IMPACT INVESTMENTS

Social Impact

New technologies delivered by expanded global connectivity are raising the quality and availability of education for students throughout the world.


Overview

Financial security and a desire to build wealth are aspirational goals for many people. Access to affordable financial products and services is an important early step in helping households build and maintain assets. Loans to small businesses can help entrepreneurs establish and grow operations.

People and businesses that have difficulty accessing mainstream financial services typically have fewer options and pay higher rates to access capital. Microfinance progress over the past generation has demonstrated that the intentional targeting of under-served communities can make a difference, and be profitable for financial services enterprises.

Impact Opportunity

Microfinance capital can enable business growth, which in turn creates employment opportunities for people within the community, fostering economic growth and financial inclusion. Microfinance capital can also be utilized to finance community-based real estate and affordable housing.

In the United States, microfinance is led by community development financial institutions (CDFIs). A CDFI is certified by the U.S. Department of the Treasury as a non-governmental financial institution that has the primary mission of community development. CDFIs typically pursue projects in housing, community revitalization, transit-oriented development, agriculture and energy efficiency.

Microfinance in emerging-market countries primarily focuses on loans to poor parts of the population that are not being served by mainstream financial services providers. Borrowers are typically small entrepreneurs, such as street vendors, traders, service providers, small farmers, fishermen and herders. Financial services available to these individuals also include microdeposits and microinsurance.

A growing component of microfinance in emerging-market countries is using a mobile phone to create an interface from which the customer can interact with the microfinance institution. Many forward-thinking microfinance institutions are also incorporating social performance management, working to implement management practices that allow social goals to be embraced, pursued, monitored and reported.


Grameen Foundation Improving Access to Financial Services

Grameen Foundation partners with commercial banks, mobile operators, microfinance institutions, agricultural co-ops and other providers to create and scale financial products and services for the poor and poorest. Grameen works to demonstrate how appropriately designed financial products can improve lives and livelihoods by reducing risk, improving financial security and increasing income.

Investment Options

Stocks: A thin universe of microfinance institutions trade in markets throughout the world.

Bonds: Corporate bond issuance from financial institutions involved in making microfinance loans.

Private Equity: Venture capital investing in microfinance institutions operating in emerging markets: early stage investing in start-up microfinance institutions and growth capital investing in established microfinance institutions.

Private Debt: Direct loans to domestic CDFIs, sometimes with the opportunity to direct the capital to specific purposes (e.g., small-business lending) or geographies. Investments in private debt funds that invest in the senior and junior debt of established microfinance institutions in emerging markets.

MicrofinanceSOCIAL IMPACT INVESTMENTS

Social Impact

Microfinance capital can improve livelihoods by enabling business growth, creating jobs, and financing community-based real estate.

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Overview

Housing and community-centric real estate are the foundations of attractive neighborhoods. Quality affordable housing, accessible retail, recreational space, and access to convenient transportation options are essential ingredients for a desirable community.

Many American cities have substantial quantities of vacant and abandoned housing units as a result of the foreclosures associated with the Great Recession. Incomes have declined for many families due to the challenging job market, which has increased demand for affordable housing.

Impact Opportunity

Investments in affordable housing have the potential to change the lives of people who need stability to generate opportunity. An affordable home in a vibrant community, filled with promise and the prospects for a good life, is a central component of the American dream.

Affordable housing investments are made in residential real estate assets which are developed or repositioned for sale or rent. Credit counseling is often required for participants in affordable housing efforts. Projects can target families, seniors, current residents of public housing, those with special needs and Section 8 tenants.

Many affordable housing projects utilize low-income housing tax credits, a subsidy program provided by the federal government. To qualify, projects must set aside at least 20 units for households that earn less than 50% of gross area median income, or set aside at least 40 units for households that earn less than 60% of gross area median income.

Affordable housing projects are often public-private partnerships. Financial institutions, governments, community organizations and private investors can work together to realize innovative solutions to revitalize communities.


Ford Foundation Expanding Access to Quality Housing

To help low-income families in metropolitan areas obtain quality affordable housing, the Ford Foundation promotes the development of homes linked to public transportation, good schools, secure employment and helps provide innovative finance tools to purchase and maintain them.

Investment Options

Bonds: Mortgages from single- and multi-family properties placed in mortgage-backed securities backed by the federal government. Municipal bond issuance can also finance affordable housing projects. These bonds can be accessed directly, and via mutual funds in which a fund manager selects suitable bonds to place in the portfolio.

Private Debt: Private lending pools established to make direct loans to people that want to purchase homes in communities designated for revitalization. Homebuyers may have the ability to access significant credit counseling (not universally required) to strengthen their credit rating, which may reduce default risk to the investor and promote better long term financial opportunity for the buyer.

Real Estate: Investments in the development or repositioning of multi-family apartments for rent and houses for sale. Typically accessed by identifying a private fund manager that will assemble a diversified portfolio of projects for fund investors.

Affordable Housing / Community DevelopmentSOCIAL IMPACT INVESTMENTS

Social Impact

Access to affordable housing can change the lives of people who need stability to generate opportunity.


Overview

Small businesses are an important component of every local economy. These businesses provide needed local services and employ millions of people. Many small businesses are minority- or women-owned and are an important source of low- to moderate-income jobs.

Access to capital for growth and expansion can be difficult to obtain for a small business. If growth objectives are hindered by a lack of accessible capital, the business may not grow as fast or expand its workforce.

Impact Opportunity

Many people, businesses and communities throughout the United States are under-served by mainstream commercial banks and lenders. To address this market inefficiency, community development financial institutions (CDFIs) and private investment funds target growing businesses with a desire, reason and capacity to borrow.

CDFIs encompass a range of nonprofit and for-profit entities, including community development banks, community development credit unions, community development loan funds, community development venture capital funds and microenterprise loan funds.

Small business development lenders also typically provide guidance, expertise, networks and other advocacy. Lenders can target specific communities, commonly with many low- to moderate-income residents and employees.

Loans to small businesses are often utilized to pursue growth opportunities in offering new products and services and pursuing customers in new markets. These growth initiatives typically create new jobs that provide employees with income to better care for their families by, for example, having access to better education and healthcare.


KL Felicitas Foundation Social Enterprise and Social Entrepreneurship

The foundation’s mission is to enable social entrepreneurs and enterprises worldwide to develop and grow sustainably, with an emphasis on rural communities and families. The foundation’s impact investing strategy works to match the entrepreneurial spirit and business discipline of social enterprise with the significant capital being made available through a growing network of impact investors.

Investment Options

Private Equity: Community focused equity investments in businesses in low-income areas, contributing capital, entrepreneurial experience and ingenuity to underserved markets.

Private Debt: Direct loans to CDFIs, sometimes with the opportunity to direct the capital to specific purposes or geographies.

Private Debt: Investments in private debt funds that lend capital to companies for specific growth objectives, sometimes with opportunities to have some equity participation along with the debt investment.

Small Business DevelopmentSOCIAL IMPACT INVESTMENTS

Social Impact

Impact investors can provide important financing to small businesses which use the capital to enable growth, create jobs and expand local services.

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Overview

Everyone depends on natural resources, such as fresh water, clean air, plants and animals for the basic necessities of life as well as on the exploitation of the planet’s energy sources for the kind of conveniences like shelter, mobility and urban living that have come to typify the modern human experience.

But many question the capacity of the planet to keep pace with an ever-growing population as demands for more food, fresh water and energy continue to stress these limited resources. Global population is projected to grow from 7.1 billion today to 9.6 billion by 2050.1 Significant population growth presents our planet with mounting environmental challenges and increasing strain on our finite natural resources.

Impact Opportunity

Sustainability is a versatile word, but it generally means operating in a fashion that allows future use of a natural resource to be unharmed. It can be argued that we are not operating at a sustainable level, and that business practices and incentive structures should be changed or developed.

Investing in the conservation of natural resources can help restore lakes, rivers and nature reserves, along with their native plant and animal ecosystems. These efforts, broadly referred to as “mitigation,” “mitigation banking” and “habitat conservation,” can help offset biodiversity loss caused by residential, commercial and industrial development.

Debt-for-nature swaps are used internationally in transactions where some of a developing nation’s foreign debt is forgiven in exchange for local investments in environmental conservation.

Investments targeting the Reduction of Emissions from Deforestation and forest Degradation (known as “REDD” and “REDD+”), target the reduction of carbon emissions by working in strategic geographies that have endured significant forest degradation or are critical forests that are essential for atmospheric balance.


The Gordon and Betty Moore Foundation Environmental Conservation Program (ECP)

The Moore Foundation believes in bold ideas that create enduring impact and works to balance long-term conservation with sustainable use. The foundation’s ECP focuses on the role markets can play in driving large-scale change toward protecting biodiversity.

Investment Options

Bonds: Issued to provide financing for environmental restoration projects, often called “green bonds.” The World Bank is the largest issuer, typically offering bonds in emerging and frontier market local currencies. Green bonds can be accessed directly or via funds where the fund manager selects bonds for the portfolio.

Private Equity: Investments in forest replanting projects that produce carbon credits that can be sold to corporations looking to offset emissions, to a few select progressive governments (e.g. Norway and Japan), or into the carbon credits market.

Private Debt: Direct loans to projects or organizations that finance conservation activity by encouraging sustainable use of natural resources by people in the region.

Real Assets: Purchase of ranches and forests for restoration or preservation.

Natural Resources ConservationENVIRONMENTAL IMPACT INVESTMENTS

1 United Nations, World Population Prospects, 2012

Environmental Impact

Conservation with the goal of resource sustainability can work to counter mounting environmental challenges driven by significant population growth.


Overview

Productivity and yield gains in agricultural production show promise in keeping pace with rapid population growth. As consumers more closely examine the elements of production, demand continues to grow for high-quality food produced with a sustainable, long-term approach.

Some of the gains in the volume of food production can be traced to production processes that may not be considered sustainable. The use of hazardous pesticides, creation of pollution and poor land resource management may engender long term risks to meeting productivity demands. The United States Agency for International Development (USAID) estimates that 38 percent of the world’s land surface suitable for agriculture, has become degraded through mismanagement.1

Impact Opportunity

As the global population rises and demand for food increases, sustainable farming practices and responsible land stewardship are necessary to increase agricultural productivity while protecting biodiversity and maintaining sufficient supplies of clean water. The goal of sustainability is to produce more food on less land while improving soil quality, minimizing the use of chemicals, treating waste effectively and maintaining wildlife habitat.

Wealthier consumers can choose to be discerning regarding food quality and origin. Demand for high-quality, organic and sustainably-produced foods is likely to continue to increase as information on methods of production and harvesting becomes more available. Investment efforts that embrace this movement can be rewarded as consumer preference for high-quality and higher-margin food increases.

In emerging economies, large sections of society rely on agriculture for their livelihood. When food is produced in a sustainable fashion, it can help farmers hedge against an unstable climatic environment.

Demand for protein increases as wealth increases. Well-positioned investments in protein production, including in land-based animal husbandry and aquaculture, can capitalize on this growing demand.


Rockefeller Foundation Food Security

Increasing agricultural productivity is critical for both human welfare and economic growth. Many farmers are subsistence farmers, often producing barely enough food to feed their families. Unable to generate a surplus to sell, they have no income to buy the inputs necessary to enhance their crop yields, even though it would take only modest investments and improvements in farming practices to triple or even quadruple production. The Rockefeller Foundation works for greater food security by supporting the scaling of organizations and structures used to aggregate institutional-scale impact investments and place them efficiently with investees.

Investment Options

Stocks: Companies with products and services dedicated to organic and sustainable agriculture.

Bonds: Corporate bond issuance from companies with products and services dedicated to organic and sustainable agriculture.

Private Equity: Venture capital investing in new technologies for food production, including monitoring systems and infrastructure. Buyouts of mature and profitable agriculture-related companies.

Private Debt: Lending to agricultural cooperatives and fair trade food producers as well as companies with products and services dedicated to organic and sustainable agriculture.

Real Assets: Acquisition of conventional farmland with the intention of converting it into certified organic, sustainable farmland. Development of new methods of food production to meet the growing demand for organic food and proteins.

Sustainable / Organic AgricultureENVIRONMENTAL IMPACT INVESTMENTS

1 USAID, February 2014


Efforts to establish agricultural sustainability can help increase food production to keep pace with population growth while improving soil quality.

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Overview

Clean water is vital for life. We depend on it for drinking, food production, hygiene and many technologies. Clean water, effective sanitation and active recycling are pillars of a healthy and sustainable community.

Access to clean water is often taken for granted because of its assumed availability and low cost. Water is local, it can’t be easily imported via global trade and it’s generally expensive and energy-intensive to move long distances.

But global water infrastructure is degrading, while population growth and the rising middle class are simultaneously intensifying the demand for clean, fresh water. Although effective sanitation and active recycling may one day be achievable for all, many people today go without the basic necessity of clean water.

Impact Opportunity

The World Health Organization reports that 780 million people throughout the world lack access to fresh water. Diseases contracted through polluted drinking water and improper sanitation kill millions annually. The World Health Organization estimates that 8.8 million children under the age of five died in 2009, most of them in Africa and India, due to waterborne diseases.

In the United States, clean water for all is the common objective, but aging water infrastructure is struggling to keep up with the burgeoning demand. Population growth also increases demand for service providers in sanitation and recycling.

Investments in conservation can be made in watershed protection, water credits trading and water rights. These investments generally involve the acquisition of agricultural or raw land and managing the associated water rights for conservation or redirection to higher-value uses.

In emerging and frontier market countries, opportunities may be available to invest in water infrastructure. Sanitation and recycling are also particular targets for impact investors, as opportunities exist in these markets for private enterprise.


Conrad N. Hilton Foundation Providing Safe Water

Access to safe water, in conjunction with adequate sanitation and hygiene services, can improve the overall well-being of the world’s most disadvantaged and vulnerable people. The Conrad N. Hilton Foundation works to improve the well-being of populations in targeted countries by supporting sustainable access to safe water.

Investment Options

Stocks: Companies involved in water infrastructure, water products and water technology.

Bonds: Municipal bonds that finance water, wastewater treatment, sanitation and recycling projects. Corporate bond issuance from companies involved in water infrastructure, water products and water technology.

Private Equity: Venture capital investing in emerging water-related technologies. Buyouts of mature and profitable water-related companies.

Private Debt: Direct loans to projects or organizations that finance conservation.

Real Assets: Acquisition of agricultural or raw land for the right to own and manage the water resources or redirecting them to higher-value uses such as renewable energy development, expanded urban water supply and the creation of environmental credits generated through watershed restoration.

Clean Water / SanitationENVIRONMENTAL IMPACT INVESTMENTS


Technological advancements, improved infrastructure and a focus on efficiency can expand access to clean water for the 780 million people that consistently lack it.


Overview

Many people throughout the world are accustomed to affordable and abundant energy to power their homes, businesses, transportation and water infrastructure. Industrialization, agricultural advancements, personal transportation and on-demand water and electricity have created enhancements in the human experience. All are powered primarily by affordable and abundant traditional energy sources.

But global demand for energy, water and other natural resources is increasing as the world’s population continues to grow and traditional energy sources are being depleted. As a result, energy efficiency initiatives that support the development of alternative and renewable energy sources are increasingly being pursued.

Impact Opportunity

Innovations in clean energy production and energy efficiency are occurring rapidly and alternative / renewable energy solutions are becoming cost-competitive with traditional solutions. These innovations include technologies, products and services that reduce traditional energy consumption, industrial inputs, waste and pollution.

Global population growth, urbanization and aging energy infrastructure are driving demand for more efficient energy use and alternative energy sources. Numerous countries, states and municipalities have set targets for percentages of energy consumption to come from renewable sources.

The opportunity for impact investing in clean energy and energy efficiency, often referred to as “clean technology,” encompasses:

• Alternative Energy: Solar, wind, geothermal, hydro, waste-to-energy

• Energy Efficiency: Lighting, smart grid, building automation, sensor technologies

• Advanced Materials: Batteries, energy storage, renewable building materials, biodegradables

• Transportation: Vehicle electrification, fleet management, biofuels


The William and Flora Hewlett Foundation Energy and Climate Initiative

The Hewlett Foundation invests with the goal of ensuring that energy is produced and used cleanly and efficiently, with limited impact on human health and the environment. The foundation is committed to limiting the overall global average temperature increase to less than 2°C to avoid the worst effects of climate change.

Investment Options

Stocks: Companies involved in clean and alternative energy production, innovative industrials and materials and efficiency focused utilities and technology companies.

Bonds: Municipal bonds that finance alternative energy production projects. Corporate bond issuance from companies involved in clean alternative energy production and energy efficiency.

Private Equity: Venture capital investing in new energy technologies. Buyouts and growth-capital investments in companies that have proven their product, service or technology is ready for widespread commercialization. Waste-to-energy conversion projects and energy efficiency installations.

Private Debt: Participation in alternative energy production financing and lending to energy efficiency projects.

Energy Efficiency / Clean Energy ProductionENVIRONMENTAL IMPACT INVESTMENTS


Production of clean, alternative energy and energy efficiency projects can help meet growing demands for energy and reduce negative effects on the environment from energy consumption.

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Overview

Real estate developers and investors can pursue equipping their projects with features and technologies that focus on efficiency, flexibility and openness. Tenants and buyers may pay a premium price if the building offers desirable space and the potential for lower energy bills.

But equipping real estate for environmental consciousness and modern space design can be costly. Property owners often do not have the desire or capital to renovate and repurpose older buildings with strategic upgrades. Developers of new real estate may not want to incur extra costs that come with installing the most efficient systems.

When successfully executed, however, property improvement strategies that capitalize on the growing environmental consciousness of the marketplace can become central to the ability of an investor to create value and produce a return.

Impact Opportunity

Technology, recent trends towards re-urbanization and growing environmental consciousness among consumers and business owners are driving the demand for “green” real estate, which is generally considered to be more energy efficient, less wasteful and more open and conducive to a collaborative lifestyle.

Highly-efficient buildings are designed to use less energy, may attract higher rents, have fewer vacancies and provide the potential to command higher prices at the time of sale. Energy cost savings and well-designed financing structures can also reduce net building operating costs permanently.

To take advantage of the growing demand for green real estate, investors can pursue transforming under-performing office, retail and multi-family residential properties through targeted renovations and flexible, creative layouts.

Some projects pursue certifications to further enhance value. One commonly pursued certification is Leadership in Energy & Environmental Design (LEED), a green building certification program that recognizes best-in-class building strategies and practices.


Clinton Foundation Energy Efficiency Program

More than one-third of worldwide energy is consumed in buildings, yet studies show that we could reduce that energy use by as much as 30 percent. Reducing building energy use through energy-efficiency and monitoring strategies can have significant environmental, occupant health and economic impacts. The Clinton Climate Initiative works to overcome barriers to achieving large-scale reductions in energy use in buildings across the globe.

Investment Options

Stocks: Companies with products and services for efficient energy management in residential and commercial real estate. “Green REITs” that score high in sustainability rankings.

Bonds: Corporate bond issuance from companies with products and services for efficient energy management in residential and commercial real estate.

Private Equity: Venture capital investing in new technologies focused on energy efficiency. Buyouts and growth capital investments in companies that have proven their product, service or technology is ready for widespread commercialization. Waste-to-energy conversion projects and energy efficiency installations.

Private Debt: Lending to real estate owners that use the capital to perform energy efficiency upgrades and building retrofits.

Real Estate: Purchase of commercial and multi-family residential real estate with the intention to reposition the property as highly energy efficient with modern space designs. Development of new property with energy efficiency installations and open, flexible floor plans.

Environmentally Conscious Real EstateENVIRONMENTAL IMPACT INVESTMENTS


Real estate that stands out from its peers in efficiency, flexibility and openness can demand higher rents and produce enhanced return on investments.



Jonathan Firestein Managing Director, Private Capital and Impact Investing

Jonathan Firestein leads the research efforts across investment opportunities in private capital and impact investing, working to connect client objectives and passions to personalized investment recommendations. Jonathan holds an MBA, MS Economics and BA Economics.

ABOUT THE AUTHORS

Sean Olesen, CFA, CAIA Director, Private Capital and Impact Investing

Sean Olesen leads the research efforts across investment opportunities in private capital and impact investing, working to connect client objectives and passions to personalized investment recommendations. Sean holds an MBA and BS International Economics.

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IMPORTANT DISCLOSURES

Investment products and services are:

This information was prepared in May 2015 and represents the opinion of Ascent Private Capital Management of U.S. Bank. It does not constitute investment advice and is issued without regard to specific investment objectives or the financial situation of any particular individual. The information presented is for discussion purposes only and is not intended to serve as a recommendation or solicitation for the purchase or sale of any type of security. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank and its representatives do not provide tax or legal advice. Individuals should consult their tax and/or legal advisor for advice concerning their particular situation. The organizations mentioned in this publication are not affiliates or associated with U.S. Bank.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible difference in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed-income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Investment in debt securities typically decrease in value when interest rates rise. The risk is usually greater for longer term debt securities. Investments in lower rated and nonrated securities present a greater risk of loss to principal and interest than higher rated securities. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes, and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates, and risks related to renting properties (such as rental defaults). Exchange-traded funds (ETFs) are baskets of securities that are traded on an exchange like individual stocks at negotiated prices and are not individually redeemable. ETFs are designed to generally track a market index – broad stock or bond market, stock industry sector, or international stock. Shares of ETFs may trade at a premium or a discount to the net asset value of the underlying securities. An investment in a hedge fund is speculative in nature and involves a substantially more complicated set of risk factors than traditional investments in stocks and bonds. Risk factors include such strategies as short sales, leverage, hedging and non-diversification. Mutual fund investing involves risk and principal loss is possible. Investing in certain funds involves special risks, such as those related to investments in small- and mid-capitalization stocks, foreign, debt, and high-yield securities, and funds that focus their investments in a particular industry, or employ a long-short strategy. Please refer to the fund prospectus for additional details pertaining to these risks. Private equity investments provide investors and funds the potential to invest directly into private companies or participate in buyouts of public companies that result in a delisting of the public equity. Investors considering an investment in private equity must be fully aware that these investments are illiquid by nature, typically represent a long-term binding commitment, and are not readily marketable. The valuation procedures for these holdings are often subjective in nature. Private debt investments may be either direct or indirect and are subject to significant risks, including the possibility of default, limited liquidity and the infrequent availability of independent credit ratings for private companies.

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