John Church, CFA, is Glenmede’s Director of Endowment & Foundation (E&F) Impact Portfolio Management, providing investment advice and portfolio management for foundations, nonprofits and institutional clients that oftentimes align their portfolios with mission. In addition to a background in nonprofit portfolio management, Mr. Church has extensive experience with manager due diligence and serves on the boards and investment committees of several nonprofit organizations.

Glenmede Business Development Director Samantha Audia, CTFA, sat down with Mr. Church to discuss his role and provide some insight into the needs and challenges of foundations and nonprofits.

Q:  Tell us about your role on the E&F portfolio management team and as director of impact portfolio management.

A:  Thanks Sam. I like to think I wear a dual hat of portfolio manager and educator. My role is analogous to the coach of a team, bringing in the right resources and tools to every conversation. One of the most important aspects is listening – allowing us to maintain open communication with clients but also share experiences for specific purposes. Clients look to me, and to our other portfolio managers, to lead discussions on a wide range of investment-related matters. That includes developing and implementing customized investment policy statements, designing portfolios for long-term growth and bringing in other specialists from Glenmede where appropriate.

Introducing impactful strategies to investment portfolios is a big part of my role. It’s fascinating to work with a trustee, investment committee or staff member for the first time, to help them understand interpretations around mission-aligned investing. We learn about an organization, and its mission, and design a portfolio to increase the impact of the portfolio’s investments. Many times, I’m learning from my clients based on their experiences, which in turn brings evolving ideas to our other clients.

Q:  You refer to mission alignment, which is at the cornerstone of Glenmede’s E&F services. Can you define this type of investing for us?

A:  Absolutely. Organizations looking to align their mission with their investments often are interested in portfolios that tilt toward socially responsible companies and investments that are intended to drive systemic change. Our E&F team works closely with Glenmede’s Sustainable & Impact Investing team to tailor portfolios intended to generate both positive impact and competitive financial returns. That’s the core of mission alignment.

In response to increased awareness and interest, we’ve carved out a section of our E&F team that specializes in creating asset allocation modeling around developing portfolio solutions for mission-aligned investing, including around themes such as climate awareness, equity and inclusion, or faith-based investing. Typically, once an organization begins to embrace the concept of mission-aligned investing and moves down that path, it becomes part of the organization’s investing DNA. Over time, the organization gradually realigns its portfolio to be cognizant of mission.

Socially responsible investing (SRI) employs screening to exclude companies that conflict with an organization’s values. SRI can trace its roots to John Wesley, a leader of the Methodist movement, who urged his followers to avoid investing in so-called “sin stocks” that generated profits through alcohol, tobacco, weapons or gambling. Some other common SRI exclusions include fossil fuel producers and firearms manufacturers.

ESG investing, on the other hand, is often associated with positive screening, tilting toward companies with relatively attractive environmental, social or governance attributes. Investors are applying a more impactful lens in their decision-making to invest in companies, industries or concepts that can effect change and align back to a nonprofit’s environmental sustainability mission, or that can address racial inequity. Investors adopting an ESG investing strategy typically consider how ESG risks can materially impact financial returns.

Q: What is Glenmede’s approach to mission-aligned investing?

A: We believe organizations can align their investments in a manner consistent with their missions and organizational values while, over the long-term, achieving competitive financial as compared to returns of traditional investment strategies which are not specifically aligned to missions.

We use a variety of investment approaches that aim to catalyze social and environmental change, depending on client preference, risk/return expectations and liquidity needs. An Integrated investment approach explicitly considers financially material ESG factors in the traditional investment decision-making process. This approach doesn’t limit the investment universe, nor is it exclusionary in nature. Instead, it enhances standard investment due diligence processes by ensuring that material risks are considered alongside other fundamental factors.

• Mandated investment strategies go a step further, using more intentional screens as part of their core objective to explicitly avoid companies with poor ESG criteria or tilt toward those with the strongest characteristics while still seeking to produce competitive risk-adjusted financial returns. This approach encompasses both positive and negative screening.
• Thematic Investing typically appeals to organizations looking to achieve a more targeted environmental or social impact alongside competitive risk-adjusted financial returns. For example, environmentally sustainable strategies may invest in companies focused on improving water infrastructure or energy efficiency that can help solve environmental challenges. Moving money in this direction, alongside other investors, can make an impact. We use a combination of private and public market investment strategies in this space.
• With Concessionary High Impact investment strategies, a primary goal is to achieve social impact with a willingness to potentially sacrifice returns. These strategies may include program-related investments or community development financial institutions. Private foundations commonly use these approaches as a means to extend their mission and provide funding to organizations needing a loan with a below-market interest rate, compared to a much higher interest rate from traditional financing.

Q: How does a nonprofit organization typically think about mission-aligned investing when reviewing its portfolio?

A: It comes down to what the organization wants to accomplish via its mission. For example, a foundation that wants to contribute to a more environmentally friendly ecosystem over the long term can take action to invest in companies that are committed to renewable energy solutions. That prompts a few questions. For example, how intentional do you want to be? Do you want to review ESG scores and use only those metrics? Or do you want to be more intentional and focus on specific solutions to climate-related issues? How quickly do you want to align your portfolios? As you can imagine, the conversation will lead to portfolios that are constructed differently.

These are conversations we encourage within building the investment policy for our clients. It’s crucial to think about the long-term attributes of a portfolio, spending policy and so forth, but it’s also important to consider impact. So we take it a step further and create what we call an impact and investment policy statement (IIPS) that layers mission-aligned considerations onto the traditional investment policy statement. We formally and regularly review the IIPS with clients to identify aspects of their mission that may have changed or that we should be thinking about differently. It’s also an opportunity to talk about developments in our own programs at Glenmede.

For example, the COVID-19 pandemic shone a spotlight on many social investing strategies, which led to an explosion of new investment strategies. Our job is to vet those investment strategies, making sure we sidestep greenwashing while finding the strategies that are truly intentional. And as we on-board new strategies, it’s an opportunity to discuss them with clients and gauge whether clients’ interests align.

Greenwashing, broadly speaking, is the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound or socially responsible.

Q: Would you characterize mission-aligned investing as a trend or a fad?

A: Definitely a trend. Case in point: More than half of my clients have implemented some form of mission-aligned investment strategies. From our conversations with stakeholders, they, too, see mission-aligned investing as a trend. For some, it may lead to a conversation about total divestment from “sin stocks,” while for others environmental concerns are at the forefront. Organizations want to think about the quality, the sustainability aspect, of companies they’re investing in as it relates to their mission.

Glenmede was a relatively early adopter of mission-aligned investing. As an outsourced chief investment officer (OCIO), we’ve been building capabilities to align portfolios with missions for more than 15 years. We’ve noticed that as with many areas of investing that start to gain traction and success, other investors gradually become interested in it. And today we are seeing more and more stakeholders, whether it’s boards of directors, students at a secondary school or donors of an institution, questioning if their organization’s dollars truly align with their mission. Generationally, there’s no question that mission alignment and investing will continue to go hand in hand.

Q: You work with a lot of investment committees and boards of trustees. Do you approach different groups differently?

A: Yes. There are nuances to each group. But the key for both is asking initial questions to understand where organizations are in their journey, and where the committee or board’s level of understanding sits.

The questions we receive and the ensuing discussions are very different for each group. In any discussion, we may educate about mission-aligned investing, then move on to the possibilities for the organization’s investment portfolio and next steps. We share a questionnaire with individual trustees and board and/or investment committee members that queries what if any items they might exclude from their portfolio (e.g., tobacco, alcohol, gambling), thematic investments of interest, portfolio tilts and so on. By coalescing responses from individuals, we build consensus, codify the message in the IIPS and move toward portfolio alignment. Other organizations may be further in their mission-aligned investing journey, and we have the ability to align the vast majority of portfolios with an organization’s mission, so it can just be a question of implementing the appropriate strategies that move toward that full mission alignment.

Q: We read a lot in the media about the different ESG rating agencies and the scoring systems they use for companies. There seems to be a range of differences and scoring for any one company. How should a nonprofit organization view those metrics?

A: You can find some very different interpretations of companies, varying by rating agency. It depends on what factors are being looked at and during which time period. There are more than 100 different ESG data providers that offer data research in a variety of forms, with some of the biggest players being MSCI ESG Research, Sustainalytics and ISS.

Ratings, ESG scores and the like are really just a guide. Glenmede often uses MSCI as a guide, and we work with managers that use other agencies or have their own guides. But it’s more than just ratings that should be considered in any portfolio decisions. There are subjective considerations relating back to a nonprofit’s mission. It is often about incremental changes that migrate toward portfolio mission alignment over time, or comparisons to the characteristics of a broad market benchmark. The investing landscape is always changing. New managers or strategies, or evolving portfolio approaches, will drive continual change for our clients’ portfolios over time. We seek to identify metrics that are helpful and relevant to an organization, and then report consistently on those metrics, to help track progress.

Q: Is there a link between incorporating mission-aligned strategies and corporate financial performance?

A:  There has been quite a bit of press in the last 12-18 months that has not been complimentary toward ESG managers. An article in the Harvard Business Review earlier this year suggested that investing in sustainable funds that prioritize ESG goals doesn’t make much difference to companies’ actual ESG performance. The article notes it may actually be directing capital into poor business performers.¹

But we believe strategies that use financially material and relevant ESG factors as part of the investment process can exhibit competitive performance compared with strategies that do not. We point to academic research that shows a clear linkage between incorporating ESG information and corporate financial performance, and our own experience and track record investing in such strategies. More intentional strategies, meaning mandated or thematic strategies, are moving capital alongside other investors to address social or environmental issues. The overriding theme of our program is to not sacrifice investment performance. We believe first and foremost in diversification and preserving the potential for future returns.

Q: Are there any mission-aligned investing initiatives on the horizon for Glenmede’s E&F team?

A: We’re always thinking of ways we can expand our capabilities to benefit our clients. Currently, we’re trying to simplify some of the measurement reporting. We produce reports with an exceptional amount of data, which is understandably overwhelming. We’re looking to standardize some of that information to make it more digestible, but never at the expense of the consistency of reporting. One of our goals at Glenmede as a company is to simplify the financial picture for our clients. We are also expanding our reporting into areas like private investments and, over time, other alternative investments. Another project we’re working on is standardizing some more of the modeling around our broad themes, for example, climate and the environment, racial and gender equity and various applications of faith-based investing.

Q: Why do you believe nonprofit and foundation clients come to Glenmede? What gives us an advantage?

A:  Glenmede has demonstrated a commitment to mission-aligned investing. Our mission is to serve our clients, employees and community as a reliable steward. We view mission-aligned investing as a means through which we can act on our corporate values for the good of our global community.

Mission-aligned investing is one of the fastest-growing approaches in our company. It’s an evolution of our clients’ way of thinking. We have been and will continue to be proactive in bringing our expertise into clients’ conversations. And many of our E&F relationships have, at a minimum, started the process of more closely aligning their investments with their values. We are certainly excited about the growth of this platform, and over time I expect Glenmede will continue to add to resources that will help us maintain our position as a market leader in this space.