December 12, 2016
Authored by: Kevin Healy
Bryan Cave recently organized a half-day symposium on the opportunities and legal considerations related to responsible and impact investing. The “Responsible and Impact Investing Symposium,” held on November 10, was co-hosted by Fordham University’s Gabelli School of Business and featured leaders in this growing field who discussed opportunities and challenges for investors, private foundations, financial advisors and for-profit entities. More than 135 guests attended, including investment managers and private wealth advisors, foundation representatives, asset managers, financial analysts, corporate counsel and others.
The program was kicked off by Convener Roberta Gordon of Bryan Cave’s New York office, who launched the afternoon’s discussion of using philanthropic and investment dollars to maximize social change. She introduced the program’s many illustrious speakers, including Thomas P. DiNapoli, the Comptroller of the State of New York. Mr. DiNapoli, who is the sole trustee of the $181 billion New York State Common Retirement Fund, addressed how he manages the Fund to advance environmental, social and governance (“ESG”) policies while discharging his fiduciary duties to attain performance benchmarks and minimize risk. Among other things, the Comptroller described how the Fund’s engagement with companies has resulted in key improvements to corporate behavior, particularly with respect to climate change. Watch this video.
Several panels and individual speakers presented on the following topics:
Impact investing and private foundations.
This panel addressed, in what they hope is a growing trend, the use of program related investments (PRIs), including low interest loans, loan guarantees and equity investments, to make a difference in communities. Bryan Cave St. Louis partner Keith Kehrer and his co-panelists discussed the tax implications of using private foundation endowments to achieve charitable, environmental and social goals. Watch this video.
Challenges faced by mature companies and their investors in achieving impact without compromising the bottom line.
The panelists engaged in a lively discussion of the issues affecting corporate directors and investors seeking to achieve ESG objectives through the activities of mature companies. The panel discussed how such objectives square with the fiduciary obligations of corporate officials, focusing on the protections afforded by the Business Judgment Rule and how the concept of shareholder primacy drives corporations to maximize short term profits. The bottom line principle emerging from the discussion, as articulated by New York partner Ken Henderson is that “there is no generalized, legally enforceable fiduciary duty to…maximize profits at all times….”
The panel also discussed different approaches to infusing social and environmental purposes into corporate business models, such as B Corporations (i.e., business corporations certified by the non-profit B Lab to meet certain ESG criteria) and “benefit corporations” (organized under state laws authorizing the creation of corporations with social/environmental as well as business purposes). A second topic addressed by the panel was how investors can acquire reliable information on the ESG activities of the corporations in which they seek to invest. St. Louis partner Steve Poplawski noted that many corporations now publish annual “sustainability” or “corporate governance” reports, and that securities laws require public corporations to disclose information in their filings on “material” issues. He noted that the SEC has issued some guidance on climate risks and also public policy/ sustainability matters – emphasizing that only “material” information need be disclosed. Watch this video.
Seed stage, venture and private equity funding.
The next panel addressed impact investing by smaller ventures. Silda Wall Spitzer, the former First Lady of the State of New York and a Senior Advisor at NewWorld Capital, discussed private equity investments in environmental opportunities. This was followed by a discussion of moving capital into early-stage for-profit companies addressing social and environmental challenges. The audience then was treated to a pitch by an entrepreneur from MIT who recently launched a company called “Spoiler Alert” whose goal is to reduce food waste. The entrepreneur recently raised $2 million to take his company to the next stage and described his experience courting seed investors. Watch this video.
Responsible investing definitions, due diligence and the future of sustainability.
Some of the topics addressed by individual speakers included the terminology associated with responsible and impact investing, and the investigation that should precede the direction of capital to a small social or environmental enterprise. The speaker on the latter topic emphasized that “red flags” can be identified, signaling to a potential investor that he or she should “walk away” from a potential opportunity. He cautioned that when evaluating an investment, the investor should invest in the company that the entrepreneurs present, not the venture he or she wishes they presented. Watch these videos here, and here.
Inspiration for a business-led sustainable future.
The afternoon wrapped up with an inspiring presentation by Professor Daniel Esty, the Director of the Yale Center for Environmental Law and Policy. Professor Esty urged attendees to take a systems perspective on a sustainable future, led by business, not government, with the assistance of the public and a knowledgeable workforce. He argued that that “green to gold” opportunities exist; that sustainable corporate practices lead to competitive advantages, and that investors have increasing interest in sustainability from both value and values perspectives. He concluded that individuals must take an active role to align investments with their values, and that better metrics are needed to measure sustainable practices. Watch this video.
To find further details about the program, including the agenda and speaker bios, click here