Submitting by Amy L. Jensen, CFA, Investment Director, Northwest Area Foundation
On Thursday October 2nd the McKnight Foundation hosted a presentation by Mercer and Mellon Capital titled ESG Investing 101. McKnight President Kate Wolford opened with a discussion of McKnight’s efforts to achieve greater alignment between the Foundation’s mission and values and its investments. Laura Kunkemueller, Principal at Mercer, reviewed the vocabulary associated with ESG Investing, various methods that investors have to achieve better integration of values and asset class level opportunities and risks. Exclusionary or negative screening has become much less of a focus, with investors showing more interest in positive screens, thematic investing, ESG integration into investment strategies as well as increased engagement.
Karen Wong, Managing Director and Head of Equity Portfolio Management at Mellon Capital, described how Mellon worked with McKnight in the creation of more carbon-efficient version of the Russell 3000 index, after the existing index was identified as the greatest carbon contributor in the portfolio. Although some advocate for divestment of companies that are owners of carbon assets, Mellon partnered with McKnight to develop a solution that reduces exposure to companies that produce more carbon per unit of sales than sector peers, minimizes tracking error to the benchmark and still allows opportunities for engagement with public companies. For more information on how McKnight is engaging companies you can go to http://blog.mcknight.org/2015/06/elizabeth-mcgeveran-fighting-climate-change-one-step-at-a-time/. The resulting Carbon Efficiency Strategy is a much more thoughtful approach than would be achieved through simple negative screening.
It was clear from the discussion that the creation of the strategy took time and required careful analysis and reflection on the Foundation’s true priorities as well as quantitative analysis of the index. McKnight’s hard work and collaboration with Mellon laid the groundwork for the creation of an investment product that is now available to other institutional investors. You can learn more about the strategy at https://www.mcm.com/web/mcm/carbon-efficiency.