May 04, 2016

A Collaborative Journey to Green Beta: BNY Mellon Live@ University of California Berkeley

Karen Wong and Kristen Fontaine

Karen Wong and Kristen Fontaine speak with graduate and undergraduate members of University of California Berkeley’s Net Impact chapters.

Mellon Capital Management1, a BNY Mellon investment boutique, is a fervent supporter of responsible investing. Karen Wong, managing director, head of equity portfolio management, and the chief architect of Mellon Capital’s Carbon Efficiency Strategy, and Kristen Fontaine, vice president and product specialist, recently presented on behalf of the firm to the University of California (UC) Berkeley’s undergraduate and graduate Net Impact chapters regarding the development of Mellon Capital’s Carbon Efficiency Strategy.

In 2013, the McKnight Foundation—a long-standing client of Mellon Capital—and its investment consultant, Mercer, approached Mellon Capital looking for a way to help decrease fossil fuel exposure in its portfolio. Given the niche subject matter, the firms leveraged the expertise of Imprint Capital, a sustainability-focused advisor to McKnight.

The nearly year-long collaboration resulted in an investing approach that uses a carbon emission measurement to reward companies making positive steps towards reducing their footprint and imposes a penalty on those doing the reverse, rather than divesting from fossil fuel completely.

"Partnership is what's going to drive change,” said Fontaine. “The McKnight Foundation brought the idea, Mercer brought their research team and Imprint played devil's advocate to keep us striving for significant change. Because of these partnerships, we now have a strategy that’s generating discussions around the world."

Working in tandem also allowed the companies to more easily address tough questions and develop creative solutions throughout the process of building the strategy.

“One of the biggest challenges we faced was the data itself,” said Wong. “As we were looking at McKnight’s holdings, we found a significant number of companies still weren’t reporting carbon emissions at all.”

When asked by a UC Berkeley student how Mellon Capital encourages increased reporting, Wong emphasized the importance of engaging with companies.

“The first question we ask in any company engagement is, ‘Do you report? If not, why, and what will it take to get you reporting?’ Data providers estimate figures for non-reporting companies, which helps, but to make the best investment decisions for our clients, we need company-reported data,” said Wong.

According to Wong and Fontaine, these conversations are often challenging, but have the potential to yield fruitful results.

“Engaging companies is not easy work,” said Fontaine. “Many of the corporations with high carbon emissions also have the biggest budgets for research. We want to help those companies break the stereotypes that they're the bad guy, encourage them to become more sustainable and show them that their efforts can drive global change.”

To set a strong precedent in this regard, Mellon Capital is a signatory to the United Nations Principles for Responsible Investment and CDP, two multi-stakeholder initiatives that bring investors together to push for improved company disclosure. Additionally, BNY Mellon issues its own annual Corporate Social Responsibility Report.

 “A big part of what we want to accomplish relies heavily on believing corporations and individuals can change. We believe people want to become more sustainable,” said Fontaine. “Mellon Capital and BNY Mellon are committed to continuing to walk the walk, too.”

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1Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds.