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“Marlene Y. Satter, “Socially Responsible Investing: Advisors, Investors Don’t Get It,” BenefitsPro, May 31, 2016, www.benefitspro.com/2016/05/31/socially-responsible-investing-advisors-investors.)) It is therefore necessary that health systems pursuing place-based investing, and responsible i…”
- Build a relationship with a financial intermediary, such as a community development financial institution (CDFI)
- Allocate assets from investment portfolio for place-based investments
- Connect capacity building with direct lending
- Switch to an investment advisor with expertise and capacity pertaining to sustainable, responsible, and impact investing
Build a relationship with a financial intermediary, such as a community development financial institution (CDFI)
In pursuing local equitable, social, or environmental investments, health systems have taken different paths to building relationships with financial intermediaries. One potential first step toward place-based investment involves grantmaking—for example, by administering a grant to a financial intermediary, such as a nonprofit CDFI, to establish a loan-loss reserve fund for projects in the community.((A loan-loss reserve fund enables financial institutions to lend capital at a lower interest rate or with more flexible terms than they might normally do by reducing risk in the event of a loan default.)) This strategy allows a health system to establish a working partnership, observe how the intermediary functions, and evaluate the leveraging of resources.
Another approach involves making a place-based investment via a financial intermediary. Here, a health system becomes familiar with the borrower-lender relationship, while mitigating risk by working via a proven entity. A health system can move forward with this practice while formal governance policies are being developed for an intentional place-based investment strategy. In this approach, the health system should establish clear terms for the investment. Ross Darrow, director of treasury services at Bon Secours Health System based in Marriottsville, Maryland, explained that auditors will want to know that these dollars will be recovered. Without a clear repayment timeline, auditors may mischaracterize an investment as a grant.((Ed Gerardo and Ross Darrow, interview by David Zuckerman and Katie Parker, Marriottsville, MD, December 16, 2015.))
Place-based Investment Strategies
Allocate assets from investment portfolio for place-based investments
To create a sustainable place-based investment program that addresses social determinants of health, an institution should allocate a portion of assets within its investment portfolio accordingly. Health systems have structured asset allocation for place-based investments differently. Here are a few examples:
- Designate a percentage of assets within investment portfolio for place-based investments: The most commonly used strategy identified through interviews is to allocate 1 to 5 percent of assets within an investment portfolio for place-based or community investments.
|Health System||Asset Allocation Percentage|
|Dignity Health||5 percent|
|Bon Secours Health System||5 percent|
|Gundersen Health System||5 percent|
|St. Joseph Health||2 percent|
|Catholic Health Initiatives||1 percent|
|Trinity Health||1 percent|
For example, Dignity Health based in San Francisco, California has an investment policy statement outlining that up to 5 percent of its investment portfolio will be allocated for loans to nonprofits that are supporting community health and well-being. Currently, it has deployed slightly less than 1 percent, or nearly $90 million, for these investments.((Pablo Bravo, phone interview by David Zuckerman and Katie Parker, March 18, 2016.))
- Increase the asset allocation incrementally: The Board of Directors at Bon Secours Health System has authorized the institution to invest up to 5 percent of its Long-term Reserve Fund (LRF) with community development financial institutions (CDFIs) that serve low- and moderate-income communities. Bon Secours has worked toward achieving this target by annually increasing its asset allocation by approximately $3 million. Since instituting this policy in 2008, Bon Secours has shifted $26 million, or about 2 percent of its $1.1 billion LRF (to date) to support affordable housing, economic development, community facilities, and other projects that benefit the health and well-being of the community members it serves.((Ed Gerardo and Ross Darrow, interview by David Zuckerman and Katie Parker, Marriottsville, MD, December 16, 2015.))
- Create a place-based investment asset allocation specifically to complement community benefit strategies: Trinity Health, based in Livonia, Michigan, approximates 1 percent of its total operating investment portfolio for community investing through CDFIs. As part of that effort, Trinity Health launched its Transforming Communities Initiative in 2016, through which six community, multi-sector partnerships will receive a combination of grants, loans, and technical assistance. Through that initiative specifically, Trinity Health has made available $40 million from its community investment allocation to support projects that may be developed from those partnerships.((Cathy Rowan, interview by David Zuckerman and Katie Parker, Bronx, NY, January 29, 2016.))
- Fund place-based investment with surplus returns from investment portfolio: Dartmouth-Hitchcock Health, based in Lebanon, New Hampshire, created the Population Health Innovation Fund in 2014 to “support the advancement of population health across Dartmouth-Hitchcock Health practice sites and communities.”((Dartmouth-Hitchcock Health Population Health Innovation Project Proposal application.)) It is resourced with 30 percent of investment portfolio returns that exceed budget targets. This fund, which has grown to more than $14.5 million from its inception, currently provides community grants for activities that align with the system’s community benefit priorities.((Laura Landy, “Using Systems Change to Create a New Health Ecosystem,” ReThink Health, July 11, 2016, www.rethinkhealth.org/the-rethinkers-blog/using-systems-change-to-create-a-new-health-ecosystem/.)) A similar strategy could support seeding a place-based investment fund, which would continue to grow and be self-sustaining over the long term.
- Contribute fixed amount annually from investment portfolio: In lieu of an active place-based investment strategy, Mercy Health, based in Cincinnati, Ohio, contributes $5 million annually from its portfolio returns to its foundation. The foundation then determines how to grant those dollars within the community. A similar strategy could support seeding a place-based investment fund, which would continue to grow and be self-sustaining over the long term.((Molly Murphy, interview by David Zuckerman and Katie Parker, Cincinnati, OH, January 14, 2016.))
- Ensure a minimum available amount: St. Joseph Health, based in Irvine, California, has a Community Investment Fund that provides capital in the form of loans, deposits, or other support to nonprofit entities to promote social good and the development of healthier communities. The fund makes available whichever is greater, 2 percent of St. Joseph’s long-term reserves sub account or $50 million.((Lisa Laird, interview by David Zuckerman and Katie Parker, May 9, 2016.))
- Create a place-based investment asset allocation to achieve a specific objective: Gundersen Health System, based in La Crosse, Wisconsin, set a goal to produce more power than it consumes from fossil fuel sources by 2014. Recognizing that this objective would require an extraordinary level of investment, it allocated 5 percent of its investment portfolio, or $30 million, to invest in local renewable energy projects. These real assets allowed Gundersen to meet renewable energy targets, create jobs in the communities it serves, and realize above-market returns on its investments.((Mark Platt, Jeff Rich and Jeff Thompson, interview by David Zuckerman and Katie Parker, La Crosse, WI, March 16-17, 2016.))
The advantage of this approach is that it can help an institution take on and achieve bold goals. A potential disadvantage is that without a formal, ongoing place-based investment program dedicated to supporting community health and well-being, approval from senior leadership would be required for each proposed project. This may result in challenges and limitations if leadership changes lead to less support for the initiative.
Connect capacity building with direct lending
To facilitate ongoing due diligence, St. Joseph requires most direct loan recipients to appoint a St. Joseph staff person to the organization’s board. This practice also strengthens relationships between the system and local nonprofits, encouraging further collaboration and partnership.
To promote this practice and encourage nonprofit board service generally, St. Joseph Health has a generous policy offering staff paid time to volunteer up to four days a month. Gabriela Robles, vice president of community partnerships, explained, “Grants are great, but we also think about human capital on boards. Another role I have is identifying the needs and matching them with an executive at the system office or one of our hospitals.”((Gabriela Robles, interview by David Zuckerman and Katie Parker, April 15, 2016.))
Switch to an investment advisor with expertise and capacity pertaining to sustainable, responsible, and impact investing
Investment advisors provide institutional investors with key services, from developing investment policy statements and crafting asset allocation strategies, to aiding with portfolio construction and conducting investment due diligence. A survey by TIAA Global Asset Management found that more than a third of investment advisors lack the internal expertise to adequately evaluate responsible investment strategies, while more than half wrongly believe responsible investment underperforms.((Marlene Y. Satter, “Socially Responsible Investing: Advisors, Investors Don’t Get It,” BenefitsPro, May 31, 2016, www.benefitspro.com/2016/05/31/socially-responsible-investing-advisors-investors.)) It is therefore necessary that health systems pursuing place-based investing, and responsible investing more broadly, partner with advisors that have adequate internal expertise and capacities to support and guide these efforts. When this is not the case, advisors can be impediments to advancing impactful place-based investment strategies.
- Foster relationships between community outreach and investment staff
- Move cash assets into local banks and credit unions
- Engage key nonprofit partners
- Join impact investment networks