Editor’s note: This article is part of a continuing series in which Paul Ellis, a well-known advisor and consultant on sustainable investing strategies, interviews industry professionals on the topics of millennials and sustainable investing. What follows is an interview with two industry experts from Community Capital Management: David Sand, chief impact investment officer, chief investment strategist and Jessica Botelho, director of shareholder relations. Please see the end of this article for links to other interviews in the series.

Ellis: David, there are a number of terms being used to describe sustainable fixed income investments, like green bonds, social bonds, market rate and below market rate bonds. How can advisors identify what strategies are appropriate for their clients? 

Sand: At Community Capital Management (CCM) and as a fixed income impact investment manager, the test for us as to whether something is an impact eligible security is if we can do a use of proceeds analysis—can we look through the financial engineering to see what the underlying economic and environmental activity is that’s being supported by a potential investment?

Credit enhancement may be appropriate in a given situation, but transparency of data is always a key component and consideration. Advisors need to properly identify impact/sustainable investment opportunities by researching the product and managers, conducting due diligence and rigorously analyzing the financial and impact/sustainable components to ensure they meet their clients’ objectives.

Ellis: How has your work to get the word out about CCM’s fixed income sustainable and impact investment strategies been going?

Botelho: It’s been great, and we are excited about the momentum in this space. David is a pioneer in this field, and I am learning a lot from working with him. I also feel that my voice as a millennial member of the CCM team is heard and considered. As pioneers in impact investing, we understand the need to stay at the forefront of advancements being made in sustainable and impact investing.

Sand: There has been such a big change in impact investing in the last few years. In the early days in this field you had to manifest an example of double bottom line or socially responsible investing when speaking to people about it. For fixed- income strategies, it was literally about building a spreadsheet with the few available metrics.

Today, the reporting of metrics that clients need and care about is part of the work that Jessica is doing at CCM. This is in addition to the already robust database for our holdings. Recently, I was able to speak specifically about portfolio strategies we have implemented locally to a group of potential investors in Minnesota. I had many additional data points available to me because the field of impact investing has grown so much.

Ellis: What does that mean to potential investors and how do they respond to the availability of this data?

Sand: There are two answers to this question. Some people are only interested in the Modern Portfolio Theory data points and we provide that information.

Other clients want the performance data as well as information about where the money went, how is it being used in their communities and what positive impact it is making.

CCM only invests in bonds for which we have all the raw, granular impact data.

Ellis: Jessica, you and David have been developing new reporting capabilities for CCM. Tell our readers about these metrics and why they are important.

Botelho: One of the things that CCM has been doing since it started managing assets in 1999 is providing investors with detailed reports on how these bond proceeds are positively impacting their communities and missions. We analyze what information to provide and what is the best way to do so.

Within our fixed income impact products, we are able to offer clients the option to target their investments by specific impact themes or geographies. Impact themes that we focus on for clients may include affordable housing, education, healthy communities, disaster recovery, job creation and enterprise development. Recently, we have seen a strong upward trend in gender lens investments which benefit women and girls, as well as the broad spectrum of environmental sustainability, which can include infrastructure redevelopment, wind farms and sustainable agriculture among others. For me as a woman and a millennial, it’s exciting to see these trends developing and that they can be measured across multiple impact metrics.

We have also recently implemented a new mapping software which highlights specific loan details for affordable housing and homeownership nationwide. It was featured in our most recent client report, as was a continuation of walk scores for investments. These scores track proximity to public transportation, how safe are the roads for biking and other things of that nature.

Ellis: What other types of value enhancements do you look for in the affordable housing, first mortgage bonds that CCM holds in the portfolio?

Sand: Frequently today those properties will be LEED certified, which is a sustainability rating system for the real estate industry. They may have gardens on the roof, or tenant services in the form of job training or child care, which makes them more integrated into the functioning neighborhoods where they are located.

The economics may not be the same as other properties, but into Jessica’s database we’re putting the affordability, the number of units, the economics of the census track where it’s located and other positive impact-related factors like solar on the roof. There is a range of value-adds that we now see with increasing frequency, and we like them.

Ellis: David, please talk about how CCM integrates the program goals and mission alignment requirements of institutional shareholders into their fixed income portfolios.

Sand: This has been the most rapidly changing part of our business in the last two years. Foundations like the Kellogg Foundation and the Heron Foundation were innovators in getting into the core of their endowment with mission related investing. There are now two additional categories of entrants into the impact investing field. One group is entering from a risk avoidance perspective, so fixed income with high credit quality is a toe in the water approach.

At the opposite end of the spectrum are institutions who got into impact investing through private equity in Africa or clean tech venture capital. Today, they want to be impact investors across all asset classes, including fixed income which they may not have paid attention to before. It’s like they are coming to us from two different directions and meeting in the middle, but their engagement is often based on an investment consultant’s recommendation.

Ellis: So fixed income impact investing is not as mainstream in the U.S. as it is in Europe at this time.

Sand: I totally agree with that.

Ellis: Jessica, what about people in your generation who are engaged in their family’s office or high-net-worth asset management program?

Botelho: The participation of more millennials in the impact investing field will help the U.S. catch up with Europe. One of our clients, the Cordes Foundation, focuses on impact investing that empowers women and girls and builds stronger communities. They are an excellent example of a millennial working within the family foundation.

Ron and Marty Cordes started the foundation and their daughter Stephanie is the vice chair. Impact metrics that align with the foundation’s mission are very important to them.    

Ellis: When you are engaging with potential investors how do you focus on the value-added aspects of CCM’s portfolio?

Botelho: There are multiple positive, tangible aspects of the investments we make, and our clients want to hear about them and are excited about them. Our shareholders that are regulated financial institutions want to know about the innovative aspects of our community investments. Same for our non-bank shareholders. They look forward to seeing the many positive-based outcomes that are a result of the bonds we purchase and we are continually finding new ways to showcase them whether it’s through an annual impact report, video, webinar or client report. They know we can provide this level of transparency and data, so they want all the details. 

To read other article in the series, click on the links below:

http://www.fa-mag.com/news/the-wise-woman-and-the-millennial-23738.html

http://www.fa-mag.com/news/millennials-leading-the-way-in-sustainable-investing-24019.html

http://www.fa-mag.com/news/millennials-mainstreaming-impact-investing-24487.html

/news/an-sri-collaboration-across-generations-and-genders-24873.html

/news/like-minded-people-with-purpose-and-passion-25457.html

/news/green-investing--all-in-the-family-26082.html

/news/sri-investing-well-positioned-for-growth-26394.html

/news/a-passion-for-healthy-living-and-sustainability-26918.html

/news/investing-with-a-personal-touch-27147.html

/news/investing-with-impact-27565.html

/news/making-a-positive-impact-27853.html

Paul Ellis founded Paul Ellis Consulting to work with financial advisors who want to integrate sustainable and impact investment strategies for their clients. David Sand is chief impact investment officer and chief investment strategist for Community Capital Management, and Jessica Botelho is director of shareholder relations.