Investing with Purpose

The sale of a business creates numerous opportunities
 
 
John Patnaude (first photo) is managing director and Travis Allen (second photo) is national director of purpose-driven strategies at Bernstein Private Wealth Management in Seattle.

This story is featured in the July issue of Seattle Business magazine. Subscribe here to access the print edition.

Amid the booming market for business owners in Seattle to sell to private equity firms and strategic buyers, another trend is taking hold.

Entrepreneurs and family business owners are increasingly choosing to invest their newfound liquidity with a focus on improving environmental and social outcomes. Some have even chosen to focus their investments on the many challenges facing our local community.

Although these investors may have different priorities when it comes to issues like climate change, gender and racial equality, health and wellness, and affordable housing, they share an understanding that their portfolios can reflect their values in ways that produce positive financial and societal returns.

After a major liquidity event, proceeds of the sale are typically invested across capital markets in high-quality municipal bonds, global stocks and other alternatives like real estate, private equity and hedge funds. Entrepreneurs and family business owners also often turn their attention to philanthropic endeavors looking to support the causes and organizations near and dear to their hearts. As they join boards, form family foundations and focus on these causes, it often becomes painfully obvious that their portfolios are misaligned with the values that drive their philanthropy.

The old way of thinking that responsible investing means sacrifi cing returns is quickly being supplanted by the understanding that environmental, social and governance (ESG) issues are essential to mapping out the material risks and opportunities in today’s capital markets. In the last five years, the set of ESG tools and portfolio solutions has grown immensely. Newly liquid business owners can now build portfolios that provide measurable responsibility benefits with attractive risk-adjusted returns.  

Investors have several choices. At a foundational level, investors can employ screens to identify companies to include or exclude in their portfolio based on their values and desired social impact. A common example of this is a screen for “sin stocks,” which could exclude companies in sectors like tobacco, alcohol and gaming. Alternatively, business owners might choose to tilt their portfolios toward companies that are best-in-class ESG performers in a particular sector.

An ESG analysis would typically go beyond a basic screen to include a deeper look at a company’s impact on employees, communities, customers and broader stakeholders. This could include elements such as climate change, human and labor rights, and management structure. Money managers off er a wide range of ESG strategies with titles that don’t tell you much about the actual ESG approach. Investors need to be discerning about the rigor of the ESG research and the measurement of ESG factors. 

Another framework that many managers rely on to shape their ESG strategies is the United Nations’ Sustainable Development Goals, which include 17 broad-based goals focused on addressing global challenges. Investors can choose portfolios that invest in companies that produce goods or services that focus on goals such as eliminating poverty and hunger, improving access to education and health care, and addressing climate change. 

Finally, business owners may want to consider impact investing, a more direct, usually private investment with intentional and measurable impact on a specifi c social or environmental issue, perhaps to revive a blighted neighborhood. 

An often-overlooked way to invest for impact can be found in municipal bond portfolios. Municipal bonds issued by state and local entities fund projects across various sectors that create the foundation upon which local economies thrive. Some muni bonds also have specific impact goals like ensuring safe drinking water, equal access to education and health care, or transitioning our energy grid to renewables. The proceeds from such bonds can benefit communities while continuing to provide portfolio stability and tax-advantaged income.

While real change doesn’t happen overnight, choosing to invest responsibly after the sale of a business can allow investors to refl ect their values across the entire spectrum of their wealth. For a socially conscious city like Seattle, we fi nd investors often care deeply about using their wealth to positively impact the lives of others in our city. Today, the responsible investing options available provide more ways than ever to do well while doing good. 

John Patnaude is managing director and Travis Allen is national director of purpose-driven strategies at Bernstein Private Wealth Management in Seattle.

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