It's a pleasure to be here, and I want to thank the Aspen Institute and the Federal Reserve for making this possible. I want to give you some background on Trillium and SRI as well as a framework for what I’ll present. I am president of Trillium Asset Management. Trillium is a flower, which has three petals; the three levels for us symbolize the three essential components of socially responsible investing: ecology, economy, and equity.
We have had this mission statement since our inception. We used to have hugely megalomaniac conversations about capitalism. We are an ordinary investment advisor. We play by the SEC rules. This is important for you to remember, because whatever we do to distribute asset funds has to be within bounds.
In the beginning of SRI, we considered being a screening mechanism to keep out what you didn’t want. This is the first piece that most people associate with socially responsible investing. But this is not very activist behavior. There are ways you can do this from a more proactive stance. That's our second step. We invigorate active owners.
Peter Barnes is one of the founders of Working Assets and a brilliant guy. He said we had to get into the DNA of our capital and make it more valuable to our customers and our stakeholders. We needed to look at the underlying assumptions and fiduciary obligations.
CERES is a coalition that involves most of the major environmental organizations and counted about $150B under its management. It followed the Valdez principles, and then we changed it to the CERES principles when people were uncomfortable with the association of the oil spill.
The first principle is that environmental accountability should be the purview of the board of the directors. This has also been changed by the Sarbanes Oxley bill. If sustainability reports were as easy to get a hold of as financial reports, we'd be in a much better place. Transparency is a very hard concept to fight. Most companies have picked up this reporting.
As we've morphed around environmental reporting to sustainability reporting, we've become more attuned to human rights issues. This will be a good thing. There are huge ramifications around the public awareness for this. People will understand how the Wal-Mart kind of commerce can be so destructive.
Trillium is held to a performance-mania issue. Most of the SRI world has rebutted the idea that we're going to under-perform. The good news for the community investment world is that we've been doing this for 20 years, and we've never lost a dime. We've lost some in the venture segment. This means our clients now think this is the only asset class to be in. Those of you who are putting together community investments, you'll see that our portfolio doesn't correspond to the stock market. You want to focus on the pattern of gains and stability. For us this is a very stable asset class. This settles down the risk of the whole portfolio. It is important for the community investment world to understand that this world of finance is very stable.
In 1980, I was putting together a group of people in an old boys and girls network that thought capitalism needed a different input. One of the things we came upon is the community world fund. We met Chuck, who said that to make one $5k loan and then another one and to forget about the million dollar deals. He subscribed to Gandhi's idea of the economy, which is not to own anything more than you can carry.
When I met him one Friday, we went to lunch at a gentrified, upscale place. I didn't understand that he fasted every Friday and that he just drank water. He lived by very clear principles. We had a great conversation and he became an avid supporter. That was the beginning of us getting into community loan funds.
The ICE delivered handwritten certificates, and most of the people working there were volunteers. We would get these certificates, type them in and end up with all these different maturities. Phyllis Rand created a matrix to keep track of it all. Then we figured out how to securitize this. We've come so far. Now we have $15B in this asset class. We've had huge growth in the last few years.
We are trying to push this asset class. It's our emotional favorite. We want to get the securitization issue as smooth as possible. When you make these vehicles conform to our needs, we can really make a difference for you. The more we know about what you're doing, the better our clients like it.
Kirsten: From the perspective of the SRI, who are the investors?
Joan: Our assets are split between high net-worth individuals and institutions. From our vantage point, our most aggressive person is in the third bar.
Kirsten: What gets them in? Do they read about you?
Joan: We introduce them to the asset class. It depends who makes the presentation to the client, but our material is out on the table. Each newsletter contains a community investment story. We also send a questionnaire to find out if and how they're interested. Most people do not come to us knowing about asset classes. We have to describe them as a high-risk venture deal, which is a bit perverse. When we disclose this we don’t lose investment, but actually gain it.
Kirsten: Is there a pattern to the investing?
Joan: Some people are very regional. We have big offices in Boston and San Francisco. People tend to be parochial. Some person who hates big box business will do anything to get them out. We have some people who want to focus on the effects of Katrina. Some people want to deal with women or AIDS.
Q: We hear a lot about the barrier to getting funding because we don't have standardization. How much of a difference would it make if we had standard documents?
Joan: Pretty big. We have people who are trained to do what we do. But if we had standard forms, then they could work anywhere. As each document is individualized, the greater the cost for us. Standardization would help us get past the regulatory barriers.
Q: It has been a source of frustration for me with people who have stocks and bonds all over the world but only want to make a community investment where they live. How can we get people to think that making these investments is good no matter where they are?
Joan: That's a great comment. Maybe we should get someone to make a book that segments the options by areas of interest. You could invest in something that helps women, for example.
Kirsten: Often the funding community is also segmented, which makes it difficult.
Q: We've been watching social investment for many years and Calvert seems to be doing some interesting things. Is Trillium in dialogue with Calvert, and others among our national mediaries, in order to create more liquidity? What are the issues that might prevent individuals from investing here? What are issues in terms of taxes?
Joan: Linne McLean is in these conversations. We're committed to the asset class. In terms of policy, your comments are interesting. We do like to get into these things.
Q: Is there any way we can get some of those standards that would be helpful? Are the investors hungry for what you're offering?
Joan: The short answer is yes. They have an appetite for a wide range of investments. If we had a list, we would probably put a little bit into all of them. Some of the boutique-y things are also successful, such as Project Hope, which is working on Katrina efforts.
Q: The field of community investments has come of age. What do you think is the potential for growth?
Joan: It’s gigantic. People really like this and are ready for this kind of thing. We need to break down the barriers in regular financial institutions. Part of our mission is to let the issues be raised about community activism. We let our costs be raised, but we don't watch it hawk-like for profit-erosion. The more you can standardize your documents, the more we can bring in investors.
Q: In terms of our field becoming horizontal, if you're finding the costs of managing these investments a barrier, is there a place to outsource this?
Joan: Calivert is trying to serve that role. In terms of the mechanics, such a clearinghouse, there is room for that. We're fitting into it now with our current client base. More of it is needed.
Q: You mentioned that the stories present a significant part of the interest of investors. Is there some need to bring those stories forward that is likely to stimulate more investment? Secondly, the more that the CDFI's paperwork looks like others, you said, the more successful they are. Can you say more about that?
Joan: You don't want to change what community investments do. It would be excellent to get the stories out. When we first began, we were jumpstarted by the fantastic way our story was told. Anything you can do, road shows or presentations, really help.
Q: To reach the community to the extent that you want to reach it, you have to go beyond the stories. The access piece includes talking our language. We don't want to have to translate it for the SEC to be able to understand it.
Joan: Yes. To the extent that you can identify these as debt vehicles, you open up a whole other world.
Q: What kinds of increments are your investors looking for? What's the scale? What are the yields?
Joan: The yield we get varies between clients. Most are on the current money market level. If you get into a bond situation, you have to package it with current bond-like yields.
Kirsten: I want to thank Joan for her expertise and get her off to her next event.
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