Career Roadmap

Sustainable Finance

“Sustainable finance” is a broad term that captures the interrelated nature of finance with the sustainability of commercial, environmental, community and social ventures.  Sustainable finance can be approached through the private, public or non-profit sectors.  This roadmap covers four core areas of sustainable finance: community development financial institutions (CDFIs); public finance; environmental finance; and socially responsible investing.

I. Community Development Financial Institutions (CDFIs) [1]

Industry Overview

CDFIs are specialized financial institutions whose core purpose is to provide financial products and services to people and communities underserved by traditional financial markets.  CDFIs provide affordable banking services to individuals and help finance small businesses, affordable housing, and community services that support economic development, usually in low-income areas.  In addition to providing access to low-cost capital, CDFIs provide credit counseling to consumers, and technical assistance or consulting services to small business owners and housing developers to help them use their capital effectively. 

Though the CDFI industry began in the early 1900s, it grew significantly in the 1990s due to creation of the CDFI Fund – a program within the U.S. Department of the Treasury with the goal of strengthening the network of CDFIs – and the stronger provisions and enforcement of the Community Reinvestment Act.   There are now more than 1,000 CDFIs nationally (of these, approximately 700 are officially certified by the CDFI Fund).

There are four types of CDFIs:

• Community development banks: regulated, for-profit corporations that provide capital through lending and investing to individuals and businesses that do not qualify for capital from traditional banks or sources.
• Community development credit unions (CDCUs): nonprofit, financial cooperatives (owned by their members) that promote ownership of assets and savings, and provide affordable credit and retail financial services to low-income and minority populations.
• Community development loan funds (CDLFs): usually nonprofit (though can be for-profit) funds that provide financing and consulting services to businesses, organizations, and individuals in low-income communities.  Funds are defined by the client they serve; the four main types of loan funds are: microenterprise, small business, (affordable) housing, and community service organizations (i.e. nonprofits).  More than half of all CDFIs are CDLFs.
• Community development venture capital funds (CDVCs): for-profit or nonprofit funds that provide equity and debt-with-equity (also called “soft debt” or “near equity”) to small- and medium-sized businesses, usually with the goal of job creation in distressed communities.

Careers in CDFIs

Individuals working in the CDFI industry typically have the business skills of their counterparts in traditional financial services, but also have a desire to help underserved populations.  For example, a loan officer at a CDLF must be able to evaluate the credit worthiness of an individual or business, but will also counsel customers on how to improve their credit and will work to put qualified customers in touch with other sources of low-cost capital.  Similarly, a CDVC relies on employees who have significant expertise sourcing deals and evaluating business plans, but who also want to further economic development in their community.  Career paths and salaries vary widely depending on whether the CDFI is a for-profit or nonprofit, as well as on the region in which it is located.  Generally, most CDFIs pay lower salaries than their traditional financial services counterparts, though higher than direct service nonprofit organizations.

Sample Employers

More Information

• CDFI Coalition: nonprofit advocacy group focused on educating the public about the CDFI industry, www.cdfi.org
• The CDFI Fund: agency under the US Department of Treasury that certifies and provides funding to CDFIs, http://www.cdfifund.gov/
• Community Development Venture Capital Alliance: advocacy group/trade association for CDVCs, http://www.cdvca.org/
• National Community Capital Association: network of 150+ private-sector CDFIs that provides financing, training, consulting, and advocacy for CDFIs, www.communitycapital.org
• National Community Investment Fund: nonprofit advocacy group focused on promoting a strong, community-focused banking industry   www.ncif.org
• National Federation of Community Development Credit Unions: advocacy group/trade association for CDCUs, www.cdcu.coop

II. Public Finance

Industry Overview

The public finance industry revolves around state and local governments issuing municipal bonds.  Governments issue bonds (basically a loan) to pay for things like roads, affordable housing, schools, nonprofit and public hospitals, airports, transit, universities, public power, water utilities, general government operations, and a variety of other “public goods.” 

The field of public finance can be a way to combine work related to the public sector with finance and business.  Generally those who enjoy and stay with the field have an interest in the public side of the work, otherwise you may be better off in corporate finance.  While the center of the industry is New York City, public finance can be found around the country.

Municipal bonds

Municipal bonds are in many ways like any other type of bond, e.g. Treasury bonds, corporate bonds.  A distinguishing factor of municipal bonds is that the interest they pay to investors is exempt from federal income taxes, as well as many state income taxes.  Since investors don’t have to pay taxes on the interest, they are willing to receive lower interest rates than they would from, say, a corporate bond.  This brings down the cost of borrowing for the government entity issuing the bonds.  It also makes municipal bonds an attractive investment to individuals and institutions in higher tax brackets.

Industry Niches

The processing of issuing the bonds involves government issuers, financial advisors, credit analysts, bond insurers, law firms, bankers, underwriters, bond traders, and bond investors.  Each plays a different role in the industry.  A key part of investigating the field is understanding these roles and determining the right career fit for you.

• Issuers – the cities, school districts, counties, states, and other government districts with the authority to issue the bonds, and then level the taxes or raise the revenues to pay back the principal and interest.  This position is often within a finance or treasurer department.  It’s the part of this industry in which you would work in the public sector.

• Financial Advisor – firm hired by municipal issuers to provide financial advice and process management for issuing bonds.  There are few national “FA’s” with most having a geographic and/or issue area focus (e.g. school districts).  Sometimes banks will play the financial advisor role.

• Rating Agencies – there are three firms (see table) that give ratings on the creditworthiness of the municipal issuers, i.e. how likely is it that the government entity will be able to pay investors the principal and interest on the bonds.  Governments rarely default on their municipal bond obligations; nevertheless bond ratings affect the level of interest a municipal issuer must pay.

• Bond Insurers – firms that insure a municipal issuer in case they can’t pay debt service.  They are also concerned with the creditworthiness of an issuer.  If bonds are insured, they garner lower interest rates (i.e. less risk).

• Banks – underwrite the bonds.  This means they buy the bonds from the issuers after working out the details of how to structure the bonds.  Its then up to their trading desks to sell the bonds to individual and institutional buyers.  This translates to an investment banking side where you work with the issuer, do technical analysis, and drum up business; and a sales and trading side where you’re selling bonds and directly interfacing with the bond market.  Generally, the public finance departments of national banks handle the larger dollar value issues while regional banks handle smaller issues in a particular geographic area.

• Bond Investors – usually bond mutual funds, money market funds, insurance companies, corporations, and individuals in high tax brackets.

• Law Firms – there are a lot of documents involved in issuing bonds.  Law firms with municipal bond practices handle these and also make sure that the activity the bond proceeds are funding is in fact for a “public” purpose.

Examples of Public Finance Companies

More Resources

·    The Bond Buyer – the daily newspaper covering public finance, www.bondbuyer.com

·    Thompson Municipal League Table Press Releases – rankings of the level of business done by banks and financial advisors http://www.thomson.com/financial/investbank/fi_investbank_league_tablearchive_municipals.jsp

·    Yahoo! Bonds 101 – short primer on bonds in general and municipals in particular http://bonds.yahoo.com/bond_ed.html

·    Websites of national banks or rating agencies, search for “public finance” or “municipal finance”.

III. Environmental Finance

Industry Overview

“Environmental finance” encompasses a wide variety of financial functions, environmental issues, sectors, etc.  On the one hand, environmental finance is the same as in any other traditional realm: whether a fund manager is managing stocks or carbon reductions, she is still trying to diversify away idiosyncratic risk and manage overall risk and return.  On the other hand, environmental finance differs from finance in more mature markets because environmental markets are often still in the developing stages, highly dependent on regulation, and often unprofitable.  What attracts many people to these challenges is the chance to draw new connections between finance and environmental issues, to come up with innovative financial products and services to help the environment, and for some, to get in at the ground floor and reap big payoffs later on.

Career Path and Entry Salaries

Environmental finance is a field that is evolving and changing rapidly, so there is no such thing as a typical career path in environmental finance.  Job titles/functions can include: renewable energy developer; renewable energy marketer, renewable energy financier, green fund manager, green venture capital, environmental commodities broker (emissions, RECs, carbon credits, weather derivatives, etc.), green accountant, weather risk insurer, carbon reduction fund managers, ecosystem services/non-timber forest products marketer, etc…. and research and policy recommendations for any of these areas.

Salary depends upon the organization.  It can vary from on the lower end of analyzing policy at a non-profit, to the upper end of renewable energy finance at GE.  Entrepreneurs and those working on commission may find their pay (and their jobs) highly dependent on changing regulations.

Resources

Here is a list of links that, while nowhere near exhaustive, is a good place to begin to looking around:

-          General

o        Environmental Finance.  Monthly magazine, held at Social Science Library.  http://www.environmental-finance.com/

o        UNEP Finance Initiative.  http://unepfi.net/

o        Equator Principles.  http://www.equator-principles.com/

-          Renewable Energy

o        American Wind Energy Association.  http://www.awea.org/

o        GE Wind Energy.  http://www.gepower.com/businesses/ge_wind_energy/en/index.htm

o        Solar Access.  A good online source of renewable energy news and information.  http://www.solaraccess.com/

-          Carbon Finance

o        World Bank Carbon Finance Unit.  http://carbonfinance.org/

o        Carbon Finance.  Monthly magazine.  http://www.carbon-financeonline.com/

o        Point Carbon.  Daily carbon news, industry reports. http://www.pointcarbon.com/

-          Brokerage

o        Evolution Markets.  http://www.evomarkets.com/

o        Natsource.  http://www.natsource.com/

-          Fund Management

o        FE Clean Energy.  http://www.fecleanenergy.com/

o        Green Century.  http://www.greencentury.com/

o        Hancock Timber Resource Group.  http://www.htrg.com/

IV. Socially Responsible Investing

Description of the Field

Socially Responsible Investing (SRI) offers investors the ability to seek competitive returns while simultaneously channeling their investment dollars to companies whose practices adhere to various social or environmental guidelines.

The term SRI typically refers to a mutual fund, but may also refer to venture capital funds that invest in socially responsible private companies.  However a typical SRI has a family of funds that may include balanced funds (a mixture of stocks and bonds) and equity funds (less risky -- all stocks, usually from a broad index of stocks).  Some SRIs, such as Domini Social Investments, have their own indexes of socially responsible companies that other SRIs invest in. 

In addition to screening or at least selecting carefully screened companies, SRIs are active investors who undertake shareholder advocacy efforts geared towards making their portfolio companies even more socially responsible.

Each firm may have its own criteria for companies in which it will or will not invest.  However, while the occasional “best-in-class” investors might invest in top performers in traditionally frowned upon industries, the following industries are typically avoided: gambling, alcohol, tobacco, weapons, and nuclear.  In addition, close attention is paid to labor practices, particularly in foreign factories.

Career Path and Entry Salaries

While there isn’t one clear career path, there are definite entry opportunities that are easier than others.  A given fund will typically have only one or two managers, so the finance positions may be tougher to obtain initially.  The marketing, compliance, and shareholder advocacy positions may be better ways to get into the field simply because they are more plentiful and typically have higher turnover.

Salaries are probably fairly comparable to the standard mutual fund industry, though likely with a slight discount built in due to socially responsible reward factor.

Qualifications Necessary to Enter the Field

There are no prerequisite qualifications to enter this field.  Financial skills are of course necessary if you would like to handle the actual investment management.  The mutual fund industry in general is very heavily regulated, so any legal training or experience with compliance issues is a definite plus.  Also, because these funds must compete for investments from what is currently a fairly limited audience, there are countless opportunities in marketing.  Shareholder advocacy people in particular must have strong writing skills.

Sample Group of Employers

Straight SRIs

Calvert Funds, www.calvert.com

Domini Social Investments, www.domini.com

Trillium Asset Management, www.trilliuminvest.com

 Pax World, www.paxfund.com

Environmental SRIs

Green Century, www.greencentury.com

Portfolio21, www.portfolio21.com

Sierra Club Mutual Funds, www.sierraclubfunds.com

Winslow Green Growth Fund, www.winslowgreen.com/docs/products/index.asp

To Obtain More Information

www.socialfunds.com

www.socialinvest.com

www.coopamerica.org/

www.goodmoney.com/infoabout.htm

www.greenmoneyjournal.com

Socially Responsible Investing: Making a Difference and Making Money, by Amy Domini

The SRI Advantage : Why Socially Responsible Investing Has Outperformed Financially,  by Peter Camejo

Put Your Money Where Your Morals Are : A Guide to Values-Based Investing, by Scott Fehrenbacher

Sustainable Finance Timeline