2021 Sustainability Report - Intro

Introduction

Brown Advisory 2021 Sustainability Report

Introduction

We are pleased to present Brown Advisory’s second Sustainability Report. In this report, we express our commitment to our clients, colleagues, communities and society, and we report our progress on initiatives that aim to contribute to a more just, healthy and prosperous future for all.

As we noted in our report last year, the term “sustainability” has come to mean different things to different people. In the context of this report, our idea of sustainability is partly inspired by the definition of the 1987 U.N. Brundtland Commission: “meeting the needs of the present, without compromising the ability of future generations to meet their own needs.” The keen focus on the future is the critical link. For us, sustainability means any aspect of our investment and advisory activities, our operations, our culture and our engagement with our communities, that contributes to building a more healthy, just and prosperous future.

“Raise the Future” is how we articulate this idea in another way—as a reflection of our firm’s higher purpose. With every action we take, we have the opportunity to improve the circumstances of one, any or all of our stakeholders, which we generally define as our clients, colleagues and communities

We have always pushed ourselves to set an example for the role that we as a business and business leaders can play in helping, supporting and speaking for these groups. If anything, that belief has intensified in the past year. The COVID-19 pandemic, ongoing examples of injustice and the ever-growing threat posed by climate change are all examples of our collective challenges. They are shaping what our clients, colleagues and communities expect of us—and what we expect of ourselves. 

This idea of “expectations” is often in our thoughts. The conversation around corporate sustainability is evolving rapidly in society, and part of that evolution is a series of emerging standards for how companies should meet their responsibilities. We think that there is a danger of simply following these trends vs. trying to lead; we want to be thoughtful about the outcomes that we are ultimately seeking. 

As an example, in a spirit of transparency and open dialogue, you will see us report on a variety of metrics related to the diversity of our colleagues, and the work we are doing to improve those metrics. And while those numbers are important, we believe that our more pressing and impactful responsibility regarding equality, inclusion and justice hinges on our attention to the colleagues we already have on staff. We must mentor and train those who have felt or continue to feel marginalized, and provide them with the space and opportunity to rise into our leadership ranks in the years to come. If we cannot do that, the numbers simply will not matter.

Another example is climate change. As part of our commitment to being good stewards for the environment, we are seeking a deeper understanding of the carbon footprint of the investments we are making on our clients’ behalf.  Despite the growing calls and pressure across the investment world for blanket implementation of fossil fuel divestment or “net zero” exposure, we will be deeply thoughtful about how we deploy our clients’ capital. As a fiduciary partner, we need to ensure that our investment choices are based on both the risks and opportunities we see in our analysis of companies, issuers and managers, as well as the potential to engage with those parties to encourage them to implement forward-thinking climate plans.

We believe that, as leaders, we need to pursue multiple paths forward. We must satisfy the current expectations of our clients, colleagues and communities, but also think ahead, and act in thoughtful and innovative ways to deliver on expectations that are not yet widely expressed by our stakeholders. To us, that is what sustainability leadership is all about.

The rest of this report is divided into discussions about our work on behalf of our three, aforementioned, primary stakeholder groups. 

For our clients:

Our sustainable investing (SI) business has grown and evolved into a core component of our overall business. We believe that our SI teams have made remarkable progress over the past year on so many different initiatives. In the report, we discuss:

  • Progress on our balanced-portfolio solutions for endowments, foundations and families, including expansion of our sustainable manager platform; improved capabilities for expressing justice-related principles in portfolios; and development of our proprietary sustainable analysis and reporting system, ARIS Analytics.
  • New sustainable strategies being launched by our institutional business, including sustainable offerings in U.S. small cap, global fixed income and dividend income, as well as ongoing work to integrate sustainable and ESG considerations into several of our existing equity strategies.
  • Our SISME (Sustainable Investing Subject-Matter Expert) education program for colleagues, which is on pace to produce more than 160 new graduates in 2021.

For our colleagues:

Our work on diversity, equity and inclusion (DEI) continues, and while we know we have much to learn and much to do on this journey, we are happy to report notable progress in several areas. In the report, we discuss initiatives such as our integration of DEI principles in our hiring and promotions processes, our recruiting partnerships with diverse networks and other efforts to enhance our recruiting and retention efforts. Additionally, we are extremely focused on making sure that Brown Advisory offers an equally rewarding and enriching experience to all colleagues; to us, that means that everyone at the firm has a path for growth and progress. This commitment to our colleagues starts with mentoring and training to provide ample support for every colleague as they advance through their careers. We also pursue this goal through our colleague resource groups, shared learning and discussion programs, our periodic DEI colleague surveys, pay equity audits and many other ongoing programs. 

We also offer a brief look back at our firm’s response to the COVID-19 pandemic. For obvious reasons, we hope that we never need to include a similar discussion in a future firm report, but we felt that this year’s report would be incomplete without discussing how the pandemic impacted us, and how so many different people and groups around the firm rose to the occasion, to ensure that we could deliver the highest levels of performance, advice and service to our clients, and take good care of our colleagues.

For our communities and society:

Our global and community engagement efforts are a core part of who we are—we have intentionally cultivated a culture that values community service, volunteerism and philanthropy, and we seek out colleagues who share that view. In the report, we provide a snapshot of our philanthropic giving in 2020, broken out by various issues and nonprofit categories, and, more importantly, we try to share some examples of how we are trying to engage with communities and the world, whether through philanthropic support, organized colleague initiatives, or strategic investment in innovative, impactful enterprises. Specifically, we highlight several organizations in which we have invested in recent years—CrossBoundary, Blueprint Local and Upsurge Baltimore—each of which seeks to create positive change in unique and exciting ways while also building platforms for long-term financial success.

Our climate strategy encompasses our commitment to carbon-neutral operations; we achieved that goal in 2020 through investments in renewable energy certifications and other carbon offsets, as well as efforts to mitigate our operating emissions where possible. We are also focused on our impact as investors—the carbon footprint represented by our investment holdings, and the ways in which we can affect that footprint. We aspire to be a leader on this issue, in both our thinking and our actions. We are focused on our core responsibilities as fiduciaries, and we want to be clear-minded when it comes to carbon reduction in our investments—any steps taken in that regard need to be informed by our commitment to long-term investment performance OR by the specific directive of a client who expresses a desire for their portfolio to reflect certain ESG parameters.

Every year, we will aim to improve and enhance this report, with new and better ways to present information, measure our progress and express our goals for the future. This year, we are publishing the report in a fully digital format, a first for us in terms of major Brown Advisory firm publications. It is true that this step should have an environmental benefit by saving a lot of paper, but our reasoning was less about environmental sustainability and more about transparency and disclosure—this report is intended to convey key information about our actions as a firm, to drive conversations with a wide variety of stakeholders about those actions, and ultimately lead to new ideas on how we can further advance our sustainability efforts. We believe that publishing digitally helps us ensure that the report is as easily accessible to as many people as possible. We hope that the digital format is helpful. We encourage you to share it with friends, colleagues and contacts who may be interested in reading about how we are tackling the challenges and opportunities ahead of us.

2021 Sustainability Report - Sustainable Investing

For Our Clients: Sustainable Investing

Brown Advisory 2021 Sustainability Report

Sustainable Investing

“Sustainable investing,” “ESG,” “Mission-aligned investing,” “Impact investing”—all these terms carry nuanced definitions but are often used interchangeably in the industry. At Brown Advisory, our sustainable investing (SI) approach seeks to improve investment performance through foundational fundamental and ESG research and active engagement with companies, other bond issuers and investment managers. Using this approach as a foundation, we are committed to helping clients pursue their long-term financial goals as well as their mission-based or values-based objectives. By adhering to this philosophy, we believe that we can generate positive results for clients and for society.

Since its inception, Brown Advisory has worked with various clients to reflect their interest in sustainable investing in their portfolios. In 2010, we launched our first dedicated SI strategy, U.S. Large-Cap Sustainable Growth. Today, sustainable investing solutions represent a meaningful component of client assets and overall growth for our firm. As of March 31, 2021, Brown Advisory managed more than $28 billion in sustainable mandates (across the following entities: Brown Advisory, LLC, Brown Investment Advisory and Trust Company, Brown Advisory Ltd., and Brown Advisory Trust Company of Delaware LLC), which is slightly more than one-quarter of our entire business. Importantly, while we seek to propel our sustainable investing efforts as a distinct set of solutions, we consider SI to be a long-term firmwide initiative in which every one of our colleagues has a role to play.

On the institutional front, we have built a strong presence in the sustainable fixed income market, offering three strategies currently (Sustainable Core, Tax-Exempt Sustainable and Sustainable Short Duration) with a fourth expected to launch later this year. We have launched several other sustainable equity strategies in recent years and worked with portfolio managers of several existing equity strategies to help integrate ESG considerations further into their valuation process and adopt a sustainable investment philosophy on the premise that it can add resilience to the strategies and help us achieve better returns for clients.

We think our private client business and our endowments and foundations practice have similarly blossomed; we have developed and implemented comprehensive mission-aligned investing solutions for more than 100 endowments and foundations, and we have worked with more than 400 individuals, families and family offices to help translate their values and priorities into long-term sustainable investing plans. Over the past year-plus, we have strengthened our offering to these clients by refining our asset allocation and manager selection process, developing a proprietary analytical system to monitor and report on the sustainable attributes of multiasset portfolios, and further building out our roster of sustainable public and private sustainable managers.

To support this work, we have steadily grown our dedicated SI team, which encompassed more than 20 ESG (environmental, social and governance) research analysts, portfolio managers and other SI research professionals as of March 31, 2021. In the past year, we have bolstered our sustainable equity, fixed income, asset allocation and manager research investment teams with additional hires, and increased support for the overall business by formalizing several leadership roles. Karina Funk provides investment leadership as our Chair of Sustainable Investing, alongside her role as co-portfolio manager of the Large-Cap Sustainable Growth strategy; Amy Hauter serves as Head of Sustainable Fixed Income, overseeing a growing set of strategies and a dedicated ESG fixed income research group; Erika Pagel serves as the CIO of Sustainable Investing, overseeing the asset allocation and manager selection process for managing balanced sustainable portfolios, and finally, Carey Taylor oversees the overall advancement of our firm's SI capabilities as Head of the Sustainable Investing Business. 

Institutional Sustainable Investment Offerings

Throughout 2020 and into 2021, we have continued to expand the solutions offered on our institutional sustainable investment platform and build momentum behind them.

SI Policies and Reports

While each of our sustainable strategies is managed independently and reflects the respective styles of their portfolio managers, our overall approach to ESG research, engagement and impact analysis is governed by a common framework. We discuss our overarching approach to our work, as well as each strategy’s distinctive approach and outcomes, in a series of policies and impact reports.

Institutional Policies:

Institutional Sustainable Investment Policy

Institutional Proxy Voting Policy

Institutional Engagement Policy

2020 Engagement Report

Strategy-Specific Impact Reports:

2020 Large-Cap Sustainable Growth 

2020 Sustainable Core Fixed Income

2020 Tax-Exempt Sustainable Fixed Income

2019 Global Leaders

 

We seek to expand our sustainable fixed income platform with the planned launch of our first global sustainable fixed income strategy in 2021. To do so, we hired an experienced team of global bond managers—Ryan Myerberg, Chris Diaz and Colby Stilson—who are working closely with Amy Hauter and with Lisa Abraham, senior ESG fixed income analyst, to expand our global capabilities. The team is currently preparing for the strategy’s expected launch later this year and specifically focusing on developing an ESG framework for evaluating sovereign bonds from a wide range of countries, which the team plans to deploy alongside the ESG frameworks it already uses to evaluate corporate bonds, municipal bonds and securitized issues.

On the equity strategy front, we have continued to expand the range of our offerings. Our global equity team now seeks to incorporate ESG research and a sustainable investment policy in its work, which includes managing our Global Leaders strategy. We launched our Sustainable Small-Cap Core strategy several years ago, serving a number of institutional investors, and we are also working to broadly integrate ESG criteria into the investment process of Flexible Equity, a core large-cap strategy. Finally, we are in the process of rolling out a new Sustainable Income equity strategy for select clients; the strategy seeks an attractive portfolio yield through a portfolio of compelling equity securities which are embracing sustainable opportunities.

As always, we are focused entirely on delivering solutions to our clients that can help them pursue their goals, and we believe that our growing set of sustainable investment strategies can help clients achieve both their long-term return objectives and their desired outcomes in terms of values alignment.

Sustainable Investment Offerings for Endowments, Foundations, Families and Individuals

We work extensively with educational endowments, charitable foundations and other nonprofits to help them develop plans and strategies to align their investments with their organizational mission. Our clients in the endowments and foundations  space have complex challenges—they often depend on portfolio returns to fund a portion of operations each year, and investment decisions need to balance short-term needs, long-term growth objectives and desires for mission alignment and impact. Many are increasingly focused on how their portfolios and their choice of investment managers advance their principles—historically, climate and environment have been top priorities, and more recently clients have begun to prioritize diversity, equity, inclusion and racial justice.

Sustainable investing is also becoming a priority for more of our family and individual clients each year as well. Rising generations are highly focused on environmental and social impact, and clients across the board are recognizing that sustainable investing has the potential to enhance returns as well as provide a path to express their values and societal priorities. The challenges we have faced globally over the past 18 months has led a number of families with whom we work to reflect on what matters most to them and what role they want to have in shaping the future.

2020-2021 Highlights

We constantly seek to enhance our solutions for balanced-portfolio clients; three notable areas of progress over the past year are the refinement of our asset allocation process; our development of our in-house proprietary reporting system, ARIS Analytics; and the continued expansion of our sustainable manager platform and sustainable manager research methodologies, inclusive of work on private investment offerings and DEI investing.

Asset allocation process: This year, we published our first comprehensive sustainable asset allocation publication, “Moving Forward: 2021 Sustainable Investing Perspectives.” In the report, we offered a formalized discussion of our approach to building balanced sustainable portfolios, our investment views informing our asset allocation and manager selection, and our current stance and recommendations within various public and private asset classes. We encourage you to review the report, in which Erika Pagel and Elizabeth Hiss discuss the sustainable investment risks and opportunities we see in today’s markets, and how we are positioning our clients’ portfolios in response.

Sustainable analysis and reporting system (ARIS Analytics): To help effectively manage and monitor our sustainable portfolios, we need “look-through” data across dozens of managers, so we can identify the ESG and impact characteristics of the many hundreds of individual securities these managers collectively hold. Without a technology-based solution, this work involves an untenable time commitment in terms of manual data collection and collation.

To address this challenge, we developed a proprietary system called ARIS Analytics, and have refined and enhanced this system extensively over the past two years. This system (“ARIS” is an acronym for Alignment, Risk, Impact and Sustainability) can cross-reference Brown Advisory’s primary ESG research and third-party ESG data sources against the holdings data for hundreds of managers in our approved and recommended list. Importantly, ARIS is available to all portfolio managers across the firm, and they can use it to quickly generate analysis for any client's portfolio.

The exhibit below offers some additional detail on ARIS Analytics.


ARIS Analytics: Capabilities and Sample Dashboard

Our proprietary analysis and reporting tool, ARIS Analytics, can provide detailed reporting on any multiasset portfolio’s exposure to factors that clients often seek to avoid, such as tobacco, weapons, fossil fuels, and many others. It can also provide portfolio carbon footprint data using several different metrics.

ARIS Analytics also reveals the extent to which the portfolio’s investments may be creating positive outcomes across 10 different social and environmental themes that are mapped to the U.N.'s Sustainable Development Goals (SDGs).

Controversies Tracked in ARIS:

-Carbon Emissions
-Alcohol
-Tobacco
-Gambling
-Firearms
-Adult Entertainment
-Conventional Weapons
-Controversial Weapons
-Opioid Controversy
-Board Gender Diversity
-U.N. Global Compact Compliance
-Fossil Fuel Exposure

Impact Themes Tracked in ARIS:

-Affordable Housing
-Agricultural/Natural Resource Management
-Clean Energy
-Clean Water & Sanitation
-Diversity, Equality and Inclusion (DEI)
-Economic Mobility & Community Development
-Education
-Efficient Product & Conservation
-Health & Wellness
-Sustainable Technology Innovation
-Multi-Sector Impact

The sample ARIS Analytics dashboard below provides a snapshot of a hypothetical portfolio’s sustainable attributes: Allocation between various types of sustainable investments, carbon footprint relative to a broad-market index, and evolution of its carbon footprint and its exposure to what we deem to be ESG-related controversies over time.

Sample ARIS Analytics dashboard

This analysis is not intended to be a guarantee of future results. It is not representative of an actual portfolio and is provided for informational purposes only. Asset allocations could change depending on risk tolerance,  investment objective and assets available for investment. The relationship team will customize portfolios to meet the guidelines, requirements and risk tolerance of our clients. The information provided in this is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular investment strategy, including whether or not to buy, sell or hold investments in any asset class mentioned. It should not be assumed that investments in such asset classes have been or will be profitable. 



Sustainable manager platform: As of the end of 2020, our sustainable manager platform included 17 approved and recommended public investment options across U.S., global, developed int'l. and emerging markets equity as well as multiple fixed income asset classes. Fourteen of these 17 managers are open-architecture options. Additions to the platform in 2020 included options for U.S. small cap, developed market equity and emerging market equity asset classes. Our current 2021 priority is to identify and add a compelling U.S. large-cap value option to our platform. Our manager due diligence process is outlined in detail in our “Moving Forward” sustainable asset allocation publication.

Private Market Investments

Unlike managed public-market strategies, sustainable private investments opportunities are often laser-focused on specific impact goals, and thus may be compelling to certain clients more than others.

We have expanded our efforts in this space over the past several years. Today, we believe that we offer our clients a healthy range of options with the potential to deliver attractive returns as well as positive outcomes in society. As just two examples of a wide variety of investments we have evaluated and recommended:

  • We have invested in a private real estate fund with a sustainable focus; specifically, the manager targets stable, cash-flow positive investments in green, multifamily housing throughout the U.S. that is 100% affordable, mixed-income, rent-stabilized or rent-controlled. Clients with a focus on both environmental issues and community development have found this opportunity appealing.
  • In renewable energy, we have made several private investments that involve the purchase or management of the real renewable asset (e.g., solar projects, wind farms, etc.); lower- and middle-market renewable energy investments can often offer relatively attractive deal valuations, given the lack of subscription interest from larger players.

It is important to call out two distinct categories of private impact investment: “return-first” strategies that seek competitive performance commensurate with their asset-class peers, and “impact-first” strategies that mix philanthropic and financial considerations in a vehicle that may seek different risk/reward objectives when compared to a traditional private investment. Nonprofit endowments and foundations are often interested in these distinctions, as they need to consider various guidelines that govern whether investments can be considered mission-related investments (MRIs) or program-related investments (PRIs).

Our asset allocation model focuses on “return-first” strategies, and we work with interested clients to identify investments in the second, “impact-first” category that may be particularly well aligned with their interests. Impact-focused investments tend to be very specific and customized to each client’s individualized impact goals, and to meet these needs and goals we believe an advisory-focused approach is critical. We typically isolate a pool of assets dedicated to these impact investments, so that they can be evaluated according to different criteria than the client’s core portfolio.

DEI Investing Efforts

To serve our clients effectively and to help advance diversity, equity and inclusion (DEI) in our industry, we view manager selection with both an “ESG quality” as well as a DEI lens. Our work to build out a platform of diverse managers, and to formalize our process for reviewing investment choices through a DEI and racial justice lens, is ongoing. This work includes a new partnership with Lenox Park, a research firm that specializes in DEI related information on thousands of investment managers across the world.

In the meantime, we work with many clients to add manager diversity to their portfolios, through a bespoke process that generally involves a discovery phase in an effort to understand the client’s perspectives on diverse manager representation and set goals that can meet their specific needs. This involves helping each client set criteria for what defines a “diverse manager,” and developing a transition plan to add those managers into their portfolio over time. A recent example resulted in a client aiming to move 10% of portfolio assets to managers with >50% women and/or minority ownership, a goal that was surpassed within 12-18 months.

Further, DEI has been one of four priority issues for our ESG research team in its engagement and proxy voting work over the past several years. In 2020, we engaged with 48 different companies and bond issuers, asking them for a variety of actions including alignment of hiring and compensation with diversity measures, development of responsible arbitration policies, reporting on pay parity, loan forgiveness and other measures to help underrepresented minority (URM) borrowers through the economic hardship of the pandemic, and (in the case of municipal debt issuers) ensuring equitable provision of housing, education, transportation and clean water. We also engaged in targeted proxy voting support of proposals that sought racial equity audits at several different companies.

One of our goals for 2021 is to enhance our ARIS Analytics system with DEI information sets that cover the attributes of underlying investments as well as the ownership/management makeup of investment managers. The aim is to be able to apply this analysis in our portfolio construction process with the same ease and accuracy that we can analyze ESG factors.

Educating our Colleagues on Sustainable Investing: The SISME Program

We have a growing team of dedicated SI professionals that spans ESG equity and fixed income research, asset allocation, manager research and balanced portfolio management, but we are also committed to training and educating our entire colleague base on sustainable investing over the next several years. To that end, we created our SISME program (Sustainable Investing Subject-Matter Expert) in 2018 and developed an expansive curriculum covering the history of the field, core sustainable investing principles, ESG research techniques, frameworks for serving clients and many other topics. The program currently takes students through 35 separate learning modules, covering:

  • Institutional solutions: Market overview and history of SI; ESG research tools; Brown Advisory’s institutional strategy offerings; Client case studies; Industry partnerships and collaborative initiatives
  • Balanced portfolio solutions: Asset allocation; Manager selection; Recommended sustainable manager roster; Private investments; ARIS Analytics; Client case studies; Sustainable strategic advice
  • Brown Advisory through an ESG lens: A series of modules that use our ESG research team’s tools to hold a mirror up to our own firm, examining the sustainable traits of our solutions, our DEI efforts, our charitable giving, community programs, colleague development and wellness, and more

Our current cohort, scheduled to graduate in August of this year, is our fourth class. The accelerating participation in the program has been extraordinary. Our initial 2019 and 2020 cohorts had 29 and 33 students, respectively; in 2021, we are on pace to graduate more than 160 colleagues from the program. All told, more than 30% of our colleagues have graduated from SISME or are scheduled to graduate this year, with representation across every department and group within our firm, and broad participation from our most senior colleagues, our new college graduates in the first year of their careers, and everyone in between. The results so far give us confidence that we can achieve our goal of having every colleague at the firm go through SISME.

Engagement and Proxy Voting

Engagement: We seek to regularly interact, or “engage,” with various stakeholders who have an interest in the equity and fixed income securities we hold, including the companies and other bond issuers themselves. Sometimes our goal in these engagements is to inform our investment thesis, and other times we seek to elicit a specific stakeholder response to an idea, suggestion, or perceived risk.

For the past several years, we have focused our engagement work on four high-priority topics (see table for summary). While prioritizing these issues, we also seek to engage stakeholders on a wide range of other issues. For more information on our engagement work, and the policies that govern our actions, we encourage you to review our 2020 Summary Report on Engagement and our Institutional Engagement Policy.

 

TOPIC NUMBER OF 2020 ENGAGEMENTS* REQUESTS WE FREQUENTLY MAKE DURING ENGAGEMENTS

Climate Change

63

  • Report on and manage physical and transition climate risk
  • Align lobbying and political spending with climate goals
  • Continue participation in the Climate Action 100+
  • Set science-based targets for reducing GHG emissions

Disclosure/Transparency

63

  • Improve material ESG disclosures in reporting
  • Provide updates on progress of efforts to improve transparency
  • Support more structured reporting frameworks

Diversity, Equity and Inclusion

48

  • Ensure accessible housing options, school districts, transportation, and clean water by state and local governments
  • Align hiring and compensation with diversity measures
  • Develop responsible arbitration policies
  • Report on pay parity

AI Ethics/Data Security

18

  • Encourage the hiring of personnel with AI/data privacy expertise and embed these ethics professionals into product development
  • Improve public and investor transparency with regard to use of AI technology and personal data
  • Issue annual progress reports on AI ethics and data privacy

*on behalf of institutional strategies

Proxy Voting: We consider thoughtful proxy voting as another important responsibility and one that ties closely to our broader engagement efforts. It is an important mechanism for voicing our preferences as owners and stakeholders in the companies we hold in our strategies. Importantly, it is our duty to ensure that our votes are cast in the best interest of the clients who have trusted us to vote on their behalf.

Our proxy voting activity covers the equities held in our institutional equity strategies and funds, and we also handle proxy voting for many of our advisory clients who hold securities outside of any Brown Advisory-managed strategies. For more information on our proxy voting process, we encourage you to review our Proxy Voting Policy, as well as the proxy voting section of the strategy-specific impact reports linked above. Additionally, for a fully transparent record of all our proxy votes dating back several years, please refer to the searchable interactive proxy voting information tool on our website.

Finally, we note that our ESG research colleagues and other investment colleagues engage with a wide variety of organizations in their work. We work with investor coalitions, such as PRI, Ceres, Mission Investors Exchange, CDP, ICCR, Confluence Philanthropy, Climate Action 100+ and others, to share ideas with other practitioners and asset owners, and to collaboratively encourage companies or bond issuers to adopt improved ESG practices. We also participate with groups such as SASB and TCFD to establish and improve our standards for reporting and disclosure. Our SI professionals speak at colleges and universities, to help undergraduate and graduate students better understand sustainable investing, how it can drive returns as well as impact, and how they can pursue a career in the field. And many of those professionals also serve as teachers in our SISME colleague SI education program. 

 

 

2021 Sustainability Report - DEI

For Our Colleagues: Diversity, Equity and Inclusion

Brown Advisory 2021 Sustainability Report

Diversity Equity and Inclusion

We aspire to create an environment at Brown Advisory that mirrors the fabric of the communities in which we work and live—one that supports colleagues in their effort to contribute at the highest level and reach their potential. We are committed to ensuring all colleagues feel empowered, valued, and supported.

Diversity, equity and inclusion are core priorities for our firm—we want to foster these principles in our workplace, in our communities and broadly in the world. We know that we have a lot more to learn about DEI, and a lot more to do, so we are committed to continuous listening and learning so that we can constantly improve and make progress.

Over the past year, broader conversations at our firm about DEI have intensified, in the wake of the U.S.’s nationwide outcry against racial injustice. We have seen the clear evidence of how the COVID pandemic has had a disproportionate impact on underrepresented minority (URM) groups and gained a better understanding of how these factors have affected our URM colleagues. We have supported open and active dialogue to specifically support our African American and Asian American colleagues. Our DEI efforts were underway long before the onset of the pandemic, but the events of the past year have clearly demonstrated the tangible risk and harm that results from systemic injustice and underlined the need for swift action.

As we discuss in this section, we have put in place a comprehensive program aimed at making diversity, equity and inclusion defined strengths of our firm. In 2020, our colleague David Hodnett assumed the role of Director of DEI at our firm, and in this role, he leads our efforts to deepen DEI values in all aspects of Brown Advisory’s work with clients, colleagues and its communities. David has been at Brown Advisory for nearly a decade supporting and advising clients and brings a wealth of experience in DEI; earlier in his career, he served as an advisor with PNC Wealth Management and led that firm’s diversity initiatives, and during his tenure at our firm he was a leader of the Black and Hispanic Colleague Resource Group and served on our Racial Justice Taskforce. His leadership provides additional momentum and support to a wide variety of ongoing initiatives at the firm, including our efforts to attract and retain diverse talent, promote our URM colleagues, elevate the work of our colleague resource groups, implement a vibrant education/shared learning program on DEI issues, administer colleague surveys and pay equity audits, and expand our justice-related work in our communities.

We have made a lot of progress, and we still have a lot of work to do. Here, we share our actions to date, our near-term goals and objectives, and areas we have targeted for future progress.

DEI Program: 2021 Goals

As noted in our 2020 report, our firmwide DEI effort consists of a broad range of programs and policies, organized under five primary initiatives, or “pillars”: Leadership, Assessment, Shared Learning, Hiring, and Retention.

Leadership

We seek to create accountability for our DEI efforts and incentives for progress, create communities within the firm to connect people, establish foundations for education and advocacy and provide growth opportunities for colleagues. 

We believe that progress on DEI starts with strong leadership. That leadership can take several forms. Our senior executives and department heads have a responsibility to represent DEI principles and hold themselves and the firm to high standards. We also seek to provide opportunities for all of our colleagues to step up and play lead roles in our DEI initiatives.

  • Our principal and partner promotion process has always looked at considerations outside of a candidate’s job performance, including dedication to nonprofit service, colleague mentorship and other factors. In the past, our promotion committees would have viewed a colleague’s internal work on DEI matters positively; today, a colleague’s leadership on DEI issues is now formally included as a factor in the promotion process. 
  • More broadly, in our strategic planning process heading into 2021, we required each business line and group within Brown Advisory to include DEI and sustainability goals and actions in their strategic plans for the year.
  • Our Colleague Resource Groups continue to be a core element of our DEI efforts. They help to elevate the voices of our colleagues so that they feel a strong sense of belonging and have the support to grow and succeed. Our five CRGs (representing Black and Hispanic colleagues, LGBTQ+ colleagues, Asian and Pacific Islander colleagues, women colleagues, and military/first responders and their families) are open to all colleagues and are inclusive by nature.  They welcome not only colleagues who identify as members of the community, but also those who wish to be allies.  As key drivers of inclusion and engagement and catalysts for change at our firm they provide a path for many colleagues—especially colleagues that are earlier in their careers—to demonstrate leadership. Our CRG leaders also provide invaluable support to our leadership who have overarching responsibility for DEI advancement at our firm. 
Assessment

Through our assessment work we seek to conduct anonymous colleague surveys and firmwide audits to measure our efficacy in fostering diversity, equity and inclusion at the firm.

  • In late 2020, we conducted our second colleague DEI survey, again enlisting the assistance of an outside expert in the field to ensure a comprehensive, objective and confidential survey, and to help us interpret the results honestly without bias. Our participation rate was similar for our second survey (88% of colleagues) vs. our first in 2018 (86% of colleagues). The survey encompassed many different topics related to how colleagues experience Brown Advisory. While the findings have many use cases, the primary objective is to listen to our colleagues and to understand what they need and how we can help them be successful.
  • We intend to complete a comprehensive pay equity audit this year, the latest in a series of these audits we have conducted over time.

These surveys and audits are only as valuable as our ability to identify areas of progress as well as shortcomings, and our commitment to take action to close the gaps we identify. Our colleague survey revealed that broadly, women and people of color report that their experience at the firm has improved since our first survey in 2018, while we also learned that we have an opportunity to better support and develop colleagues that identify as women of color. We are committed to focusing on DEI through a lens of intersectionality—the idea that people simultaneously face bias along multiple identity dimensions—and believe that increased focus on instances of intersectional bias will help us be more effective in making progress to combat injustice more broadly.

Shared Learning

Our Shared Learning pillar seeks to leverage microlearning, experiential exercises and other methods to help colleagues become aware of unconscious bias, and internalize diversity, equity and inclusion as essential elements of the firm’s culture.

This aspect of our program was previously labeled “Training,” and we have chosen to change this name to reflect the high value we place on collaboration, conversation and open expression as primary vehicles for learning about diversity, equity and inclusion.

  • Our CRGs (discussed earlier in this section) have done an exceptional job of proactively educating colleagues about the needs and experiences of underrepresented groups. This has been an additional task that the CRGs have taken upon themselves—we do not call on them or expect them to do this. We support their proactive efforts to engage the rest of the firm in conversation by providing ample space and time to do so.

  • We have conducted a series of sessions on unconscious bias; these trainings are made available to every colleague at the firm as a combination of in-person/virtual group sessions as well as online training. We ensure that all our colleagues who conduct hiring interviews participate in unconscious bias trainings. In 2020 we rolled out unconscious bias training developed specifically for those leaders who are responsible for promotions decisions.

  • We strive to create an environment that invites all colleagues to bring their full selves to work. We work to build spaces where colleagues feel comfortable sharing their perspectives and embracing views that may be different from their own. Our “Conversations on Race” speakers’ series helps to ignite conversation on our shared racial history in this country. Our cultural and heritage celebrations, which include Asian Pacific Heritage Month, Pride Month, Black History Month, Women’s History Month, International Women’s Day and Juneteenth, invite us to share what makes each of us unique.

  • The momentum of our DEI work positioned us to respond to the needs of our Black and African American colleagues in the wake of the U.S.’s social justice movement and to support our Asian and Pacific Islander colleagues who have been experiencing a large and growing number of acts of hate and violence against their communities that many of us are just learning about. Our colleague-led Town Hall events on the troubling moments of the last year invited dialogue and sharing of colleagues’ experiences with injustice and bigotry. Hundreds of colleagues joined in these Town Halls; both sessions were eye-opening and heart-wrenching, but ultimately provided exactly the kind of experience we are trying to create at our firm—open dialogue, honest expression and a foundation for positive change. 

Recruiting

Through our recruiting work we seek to build a diverse colleague population, by focusing on DEI principles at each stage of the recruiting process, and by sourcing diverse candidates through our existing networks and partner organizations, as well as networks developed by our CRGs, and through partnership with historically black colleges and universities, mentoring programs, and diverse academic and professional organizations.

We are focused on building a proper foundation in which DEI considerations are baked into every step of the hiring process, from sourcing candidates, to the interview process and ultimately the hiring decision. We believe this is the best way to impact colleague diversity over the long term.

As shown in the following charts, our efforts in this area have produced solid results over the past five years. More of our colleagues today are women (44% today, vs. 38% in 2015) and come from URM communities (18% today, vs. 12% in 2015). This progress was spurred primarily through more DEI awareness in our hiring process, increasing the diversity of the hiring committees for various positions, and proactively seeking out more diverse candidate pools. We seek to build diverse teams that incorporate inclusive hiring practices while partnering closely with our leadership and hiring managers around the firm to advance these efforts.

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We have made progress in increasing the diversity of our colleagues at different levels of the firm. Diverse colleagues serve in leadership positions in several departments including accounting and finance, information technology and investment research. At the other end of the hiring spectrum, we set a goal to notably increase the diversity of our summer analyst program, and we are happy to report that our incoming cohort is the most diverse in the program’s history—53% of analysts identify as women and 41% as an URM.

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This year we rolled out an interactive reporting tool for viewing colleague headcount, hiring, turnover and status by race/ethnicity and gender identity and expression across offices and teams, to provide more information to our executive team about our progress on these metrics. 

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Going forward:

  • Starting in 2021, for every open position we seek to fill, we intend to track and document efforts to consider candidates from underrepresented groups, and, to the extent we are able, we intend to track the mix of backgrounds in resume and interviewed-candidate pools. Our benchmark is to interview at least one diverse candidate for every open position.
  • We intend to increase representation of URM colleagues through our recruiting efforts to elevate the consideration of DEI within the hiring process.
  • Finally, we have established several formal partnerships with HBCUs and diverse professional networks as part of a broader effort to expand our network as we seek to attract diverse candidates; we plan to add additional partnerships and expand our efforts with each of our existing partners going forward. 
Retention

Our retention work seeks to create compelling and inclusive experiences for all colleagues that will encourage their desire to build a long-term career at Brown Advisory, and to find opportunities to enhance the colleague experience by maximizing the inclusivity and equity in our policies and benefits offerings.

Retention has always been a primary metric of success at our firm—we consider client retention to be one of the primary indicators that we are doing good work for our clients. Similarly, we view colleague retention as an indicator of our ability to create opportunity and fulfillment for our colleagues, regardless of the stage of their career.

Overall, we believe we are headed in the right direction but want to do more to ensure we continue to retain our Black and African American colleagues and our Asian American colleagues. To do that, we know we must ensure that these colleagues see a clear path to success at our firm. 

We believe that the long-term retention of our colleagues is the cumulative outcome from many different factors that add up to a rewarding experience at Brown Advisory. We are focused on creating that experience by expanding our mentorship to include reverse mentoring whereby we pair younger colleagues with executive team members to mentor them on topics that have strategic and cultural relevance. We continue to foster training opportunities for our younger, diverse colleagues, to invest in their career growth and help ensure that they can see a long-term path for themselves at our firm. Additionally, we are committed to the careful study and review of our exit interviews, taking action within our promotions process, implementing diversity hiring strategies (which impact the experience for existing colleagues as well as new ones), and holding managers even more accountable for DEI goals.

 

2021 Sustainability Report - COVID Response

For Our Colleagues: Our Response to COVID‑19

Brown Advisory 2021 Sustainability Report

Our Response to COVID-19

Like the rest of the world, we were shaken to the core by the rapid onset of the COVID-19 pandemic. Our hearts are with those who lost loved ones or were otherwise impacted by the virus, as well as the front-line healthcare workers and first responders who have and continue to put their health at risk daily to deliver care.

Fortunately, the intense effort to develop and distribute vaccines appears to be paying off in many regions of the world. In most of the communities where we do business, life is gradually returning to normal, and we are all grateful to be returning to our offices and seeing our fellow colleagues in person—in many cases for the first time in 15 months. At the same time, we are heartbroken for the places where COVID is still running rampant, vaccine supplies are falling far short of what’s needed, and health systems are being overwhelmed.

Serving and Communicating With Our Clients

We were surprised by the need to rapidly move to a work-from-home posture in March 2020, but we were fully prepared, thanks to excellent business continuity planning by our executive and operations teams. Thanks to their efforts, as well as that of our highly proactive and adaptive pandemic task force, we provided uninterrupted service to our clients, provided comfort and assistance to our fellow colleagues, and supported our communities during an extremely challenging period. 

Our highest priority always is delivering for our clients, and that did not change during the pandemic. Before it became a certainty that we would need to close our physical offices, we asked all colleagues and departments to “practice” working from home on several occasions, so we could iron out any technology-related issues at an individual level and to encourage teams to work on remote communication and meeting effectiveness. When the time came, we were ready, and our colleagues and teams moved to the remote environment without the slightest hitch in productivity or client communication.

As a firm, we wanted to make sure we were in touch frequently with clients about our plans and actions in response to the pandemic, so our CEO and CFO, Mike Hankin and Dave Churchill, wrote letters to all our clients on a weekly basis during the first three months of the crisis, and at several points over the course of the year that followed. These letters shared details of our operational steps to ensure uninterrupted service, offered some of our thinking regarding how the pandemic might impact our investments. They also provided a window into how they and the rest of the firm were feeling about the pandemic, and the transparency of these notes were greatly appreciated by clients and colleagues alike.

Onsite Protocols/Offsite Capabilities

Within a month of entering a remote working environment, our COVID-19 task force began building an office reopening protocol. 

The threat of the virus waxed and waned several times throughout the pandemic period, and our office protocols frequently needed to adapt. We went through several cycles of opening offices under strict guidelines for a period, then needing to close them once again. When conditions permitted, we were able to provide an extremely safe environment in our offices for colleagues, by ensuring limited numbers in the office at any given time, strict compliance with mask and distancing guideline, an intense deep-cleaning regimen in all offices, and temperature screening and on-site rapid testing. 

In the past few months, we have taken steps to strongly encourage and support our colleagues in obtaining vaccination, and as of this report’s writing, most of our colleagues are vaccinated, with some of our offices reaching 100%. With CDC guidance and state regulations generally moving toward a full lifting of all restrictions for vaccinated people, we are looking forward to a return to normal office life.

Benefits and Wellness

Throughout the pandemic, we enacted many new benefit policies and programs, and adjusted existing policies, to better support our colleagues during this period. Over the past year, we:

  • Expanded our telemedicine program to cover doctor visits of all types as well as behavioral health visits.
  • Created and actively maintained a resource center on our intranet with a wide range of information and services to support colleagues physically, mentally, and emotionally.
  • Expanded our gym and fitness center reimbursement program, to allow colleagues to use those funds for mental health apps, child online learning tools and mindfulness apps.
  • Relaxed our wellness program requirements (this program provides monetary incentives to colleagues who complete a series of health tests and health education programs), to include at-home test kits, so colleagues could still receive their wellness incentive.
  • Relaxed our prescription refill waiting periods, so those covered under our health plans could pick up their prescriptions early during their less-frequent trips out of the house.
  • Actively promoted our existing Bright Horizons back-up childcare benefit, to help ensure support for working parents.
  • Changed our 401(k) plan to assist colleagues during the pandemic, by expanding withdrawal and loan options, increase loan and withdrawal limits and allowed participants the ability to suspend loan payments.
  • Conducted a lengthy series of “Wellness Wednesday” webinars as a service for all colleagues and their families. Webinars covered a wide range of topics such as nutrition, working from home and navigating the uncertainty of the pandemic. Participation in these events ranged from 20% to 30%.

Investment Considerations

A side effect of the pandemic has been, in our observation, a broadening of client interest in sustainable investing. Several takeaways from this period—the early environmental benefits observed during prolonged economic shutdowns, and heightened awareness of the disproportionate impact of the pandemic on under-represented and underserved populations, as well as a general reassessment of priorities during the past year—have led many of our clients to inquire about how they can better align their portfolio investments with positive social and environmental outcomes, and/or take steps to reduce exposure to investments that are a part of the problem as they see it.  

For the most part, our investment decision making has not been notably affected by the pandemic. Whether we are selecting stocks and bonds for our equity and fixed income strategies, allocating balanced portfolios, or selecting managers to recommend to clients, we are long-term investors, and generally, our decisions are not dictated by the near-term oscillation of economic conditions or investor sentiment. We have, however, been able to view companies and managers through a “COVID-19 lens”—the pandemic has allowed us to see how management teams perform in the face of a real challenge—how they treated customers, how they supported colleagues, how they navigated rapidly changing conditions—and discover which were able to rise to the occasion. We hope that our observations will benefit our investment decisions going forward.  

 

2021 Sustainability Report - Global & Community Engagement

For Our Communities: Global & Community Engagement

Brown Advisory 2021 Sustainability Report

Global and Community Engagement

As a firm and as individual colleagues, we have a responsibility to give back to society and to the communities in which we live. We aspire to think and act both globally and locally.

Our firm has always emphasized nonprofit service as a core value and purposefully recruited civic-minded colleagues who share the belief in our duty to serve our local communities and the global community. One of our criteria for promotion to Principal and Partner is the energy and leadership that colleagues demonstrate in their communities and more broadly through nonprofit work. Our colleagues collectively sit on more than 300 nonprofit boards and support many other organizations with their time and resources. We offer each of our colleagues time off, in addition to their normally allotted vacation time, to volunteer for nonprofit and charity causes, and support many nonprofits that our colleagues serve as board members or volunteers. We want our colleagues to feel that we place high value on their service commitments to worthy causes.

Brown Advisory similarly dedicates resources to global and community engagement through its charitable giving and through targeted strategic investments.

Philanthropic Activity

In 2020, Brown Advisory contributed more than $1 million to various charities and nonprofits. This figure represented approximately 1.3% of our 2020 operating income.  

In last year’s Sustainability report, we stated our plan to conduct a review of our giving policies. While we maintain our commitment of providing philanthropic support to organizations important to our clients and colleagues and in the communities in which we do business, we identified areas for improvement and implemented some targeted changes. We added three new members to our charitable committee, one new member to the charitable staff, and more closely aligned our charitable efforts across our geographic footprint and with our Colleague Resource Groups. We have already seen benefits from these changes, such as enhanced transparency, improved data collection, and enriched charitable decisions. 

As shown in the charts, we gave to a diverse range of nonprofits. We also collected data on three strategic giving areas—environmental sustainability, justice, and women – to provide an informational baseline for where our support was being directed, and to further inform our charitable decisions in the future. We believe that these gifting priorities are very much in line with our broader strategic priorities highlighted throughout this report, such as sustainable investing, climate change, and diversity equity & inclusion. Approximately 54% of our giving supported these three strategic priorities with the remainder of our giving supporting a wide range of additional nonprofits identified by our clients and our colleagues, and those doing innovative work in our communities. 

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Source: Brown Advisory analysis. "Percentage by Category" is based on each recipient's categorization under the National Taxonomy of Tax-Exempt Entities (NTEE) as indicated in IRS filings. "Percentage by Strategic Priority" is based on Brown Advisory analysis. Percentage breakdowns are not externally audited.

All told, Brown Advisory supported more than 200 nonprofit organization in 2020. We have sought to provide greater support to efforts and organizations addressing justice, including broad contributions to community foundations in several of our communities, scholarship programs including the Ron Brown Scholar Program, as well as Roca, B-360 and other innovative nonprofits generating tangible impact.

We offer brief snapshots of several of the many organizations we supported over the past year, and why we stand behind them, but every one of the organizations we support has an important story to tell.  

ROCA
Type of Support: Nonprofit Contribution
Impact Area: Justice

Roca was founded in 1988 in Chelsea, and over its more than 30-year history, it has established a highly effective, nationally respected model for disrupting the cycle of urban poverty, violence and incarceration.

Its model focuses on the young people aged 16-24 at the center of this crisis; the program is distinctive for many reasons, including the science-based yet relatable form of cognitive behavioral theory (CBT) its outreach workers deliver, as well as the organization’s deep partnership approach to working with law enforcement and other local agencies to coordinate efforts to reach young people.

After many years making a difference across Massachusetts, Roca launched its Roca Baltimore program in 2018, and in 2021 it formally launched the Roca Impact Institute, to help other organizations across the country implement Roca’s model and adapt it to their local needs.

Brown Advisory has supported Roca for several years through financial and other contributions. We are big believers in their model and its potential to offer young people a way out of the unjust cycle of poverty and violence that has persisted for generations in cities across the U.S.

CYCLE FOR SURVIVAL
Type of Support: Nonprofit Contribution
Impact Area: Colleague-Driven Initiative (in support of Cancer Research)

Cycle for Survival was founded by Jennifer and David Linn in 2007, to help raise money for researching rare cancers, in partnership with Memorial Sloan Kettering Cancer Center. Jen was diagnosed with sarcoma in 2004, and before she passed away in 2011, she had helped build Cycle for Survival from a localized fundraising drive in one gym in 2007, into a renowned organization that has, to date, raised hundreds of millions of dollars for cancer research.

Our colleague Jordan Wruble was close friends with Jen. He has captained a riding team for Cycle for Survival every year since its first event in 2007 and he has inspired Brown Advisory colleagues all over the firm to join the effort in recent years. Every year, dozens of our colleagues gather fundraising pledges and ride with each other, and our teams have collectively raised hundreds of thousands of dollars for Cycle.

The event raises money to fight a devastating disease, but it is nonetheless a celebration every year. To quote Jordan, “Participating in Cycle is a celebration. It is a fun and uplifting event, even while confronting the tough reality that roughly 1 in 2 men and 1 in 3 women will be diagnosed with cancer in their lifetime. Making the best of a bad situation is part of Cycle’s fabric and a reflection of its founders.”

RON BROWN SCHOLAR PROGRAM
Type of Support: Educational Scholarship Contribution
Impact Area: Justice

The Ron Brown Scholar Program was named for the late Secretary of Commerce Ron Brown, who died tragically in a plane crash in 1996 during a trade mission to Eastern Europe. He was highly respected around the world for this intelligence, leadership and commitment to public service. Now in its 25th year, the program offers academic scholarships, service opportunities and leadership experiences to young African Americans of outstanding promise.

Upon acceptance in the program, Scholars are awarded financial resources to attend the college or university of their choice and receive active mentorship and nurturing to help them succeed and flourish in college and beyond. We are enthusiastic supporters of the program’s mission, and equally enthusiastic about its proven track record of success. Scholars graduate at a 99% rate; 58% attend Ivy League schools and more than half of all Scholars go on to pursue graduate degrees

B-360
Type of Support: Nonprofit Contribution
Impact Area: Justice

As B-360 says on its website, it “exists at the unlikely intersection of three lanes; unrecognized potential, dirt bike culture, and STEM education.” Baltimore has long been home to a bustling youth street biking community. Historically, that community has been at odds with city residents and law enforcement over public safety and other issues, but B-360 founder Brittany Young grew up watching the bikers in Druid Hill Park and saw the positive aspects of the community, such as the strong love for repairing and tuning bikes and the role of riding to relieve stress.

She started B-360 to turn a negative into a positive—rather than viewing street riders as a problem, B-360 views them as future assets to the community, and the organization wants to show young people how to use their biking hobby as a path to doing better in school and eventually finding jobs they love. The organization recruits former street riders as instructors and shifts current riders out of traffic and into STEM education programs, safe spaces and opportunities for education and work that revolve around their love of bikes and related skills.

The program has been extremely successful on several fronts; it has worked with more than 7,000 youth under the age of 16 since its founding, and participants have shown a 45% improvement on Maryland standardized testing. Further, there has been an 81% decrease in dirt bike arrests in the City since B-360 was founded, and in 2020, there were only 3 dirt bikes confiscated in the city, compared to more than 200 confiscated in 2017.

 

Other Forms of Global/Community Engagement

We believe that investing strategically in innovative businesses and joint ventures is another way to engage with our communities and make a positive impact on the world around us. An example is Blueprint Local, a joint venture that we helped launch in 2019. Blueprint Local aims to invest in communities across the U.S., seeking both attractive investor returns and meaningful community impact. Blueprint Local has made investments in communities that Brown Advisory calls home, including Baltimore, Richmond and Austin, targeting projects that can offer tangible community benefits such as affordable housing, renovation of key civic infrastructure, and support for local and small businesses. As of March 31, 2021, Blueprint Local’s affiliated funds and entities have invested in a portfolio of eight projects in six cities across the Mid-Atlantic, Southeast, and Texas, with anticipated total project costs in excess of $400 million (source: Blueprint Local, LLC). Blueprint Local has expanded its reach through key relationships across Brown Advisory, with one example being David Robinson, Sr. who partnered with Blueprint in Austin, subsequently became the Chair of Blueprint’s Advisory Board and recently joined the Brown Advisory board of directors.

In the past year, we invested in two businesses that we believe can not only create positive social and environmental impact over time, but also grow and thrive financially. Upsurge Baltimore is an innovative new initiative that aims to help make Baltimore, where we have our largest colleague/office footprint, a diverse and inclusive technology innovation hub; CrossBoundary is a mission-driven investment firm focused on underserved markets across the world.

UPSURGE BALTIMORE
Type of Support: Business Investment
Impact Areas: Justice, Women

UpSurge Baltimore is an innovative new initiative that aims to help make Baltimore, where we have our largest colleague/office footprint, a diverse and inclusive technology innovation hub.

UpSurge uses the term “Equitech” to refer conceptually to the truly diverse and inclusive innovation ecosystem it seeks to nurture, and to the belief that diversity is a force multiplier for the growth of startups. In addition to fostering the local ecosystem, UpSurge specifically seeks to support:

  • Companies whose culture and values are grounded in the advantages of diverse leadership, teams and perspectives
  • Companies led by underestimated founders, specifically women, people of color, members of the LGBTQ community and the differently abled
  • Companies in any industry using innovation to broaden access or reduce societal barriers

In partnership with several strategic investors including Brown Advisory, UpSurge plans to play multiple roles—investor, community leader, and ecosystem developer—as well as hosting the city's first Techstars accelerator. Each of these roles will support its efforts to build a flourishing Baltimore startup environment and connect diverse entrepreneurs with the capital, talent and customers that they need to thrive.

In addition to our financial investment, Brown Advisory is supporting UpSurge by providing it with workspace. CEO Mike Hankin, and Keith Stone, a Brown Advisory partner and member of our private equity team, both sit on the UpSurge Advisory Board. We believe in UpSurge’s incubation model and are excited to see the ventures launched from its platform over time.

CROSSBOUNDARY
Type of Support: Business Investment
Impact Areas: Environmental Sustainability, Justice

CrossBoundary is a mission-driven investment firm that pursues sustainable growth and strong returns in underserved markets. The firm has 17 offices across Africa, Asia, Latin America, and hub cities such as London and DC. Its model seeks to drive positive change in these markets, through investments that have the potential to broaden access to services, supply clean energy, and alleviate poverty, while also earning attractive returns.

  • CrossBoundary Advisory is a trusted advisor to investors, entrepreneurs and policymakers in underserved markets. Provides commercial due diligence, market analysis and other transaction advisory services to mobilize private investment across a broad range of sectors, including agriculture, manufacturing, health and infrastructure.
  • CrossBoundary Energy invests capital to provide enterprises with cheaper, cleaner and more reliable electricity. Focused on distributed solar and storage technology that can provide a clean path to growth for developing countries.
  • CrossBoundary Energy Access invests blended capital (mix of grants, loans and equity investments) directly into mini-grid projects serving rural African households and businesses. Focused on universal access to electricity as a vital step towards ending poverty.
  • CrossBoundary Educational Infrastructure, a recently launched investment platform, seeks to provide affordable student housing and related infrastructure in East Africa.

Brown Advisory is a strategic investor in CrossBoundary, and we are actively working with the CrossBoundary team on a variety of collaborative projects.

 

2021 Sustainability Report - Climate Strategy

For Our Communities: Climate Strategy

Brown Advisory 2021 Sustainability Report

Climate Strategy

The threat of climate change is one of the greatest challenges our society faces. Droughts, floods and other weather-related disasters are devastating our communities, colleagues, and clients from Texas to California and beyond. We are not scientific experts, but we have watched the costs from these events rise, both financially and socially, and agree with the scientific community that climate change is likely to blame for the majority of these occurrences and that we will see more and worse in the coming years.

We strive to be a part of the solution to climate change by first taking responsibility for our own physical carbon footprint. As a business, we want to do what we can to minimize our operational carbon footprint—we shared our plan to become a carbon-neutral company in last year’s report, and below we outline what we have done to achieve that goal.

As investors, we know that the carbon impact of our portfolio investments is orders of magnitude larger than the impact we generate as an operating business. We have several motives that drive our actions as investors related to climate change:

  • We believe that carbon-intensive businesses, municipal and sovereign bond issuers, and other entities face numerous meaningful long-term risks that we seek to mitigate or avoid in our portfolios. Drought, wildfires, unexpected freezing snaps, coastal flooding—all these occurrences can lead to higher operating costs, disruptions or loss of revenue, and/or the potential of default on debt obligations. We also think about the “transition risk” that all companies, municipalities and even nations face. Regulators, customers, and societal expectations are all stakeholders that could force heavy greenhouse gas (GHG) emitters to radically change their operating models, begin paying meaningful taxes or fees for their carbon emissions, or both. 
  • Conversely, we are attracted to many compelling investment opportunities that help address climate-related challenges and advance the transition to clean energy. Over the past decade, we have identified hundreds of different opportunities in the debt and equity markets that offered us attractive returns driven by smart sustainable strategies or solutions to environmental challenges.
  • Many of our clients want their portfolios to be a part of the solution, not a part of the problem, and we act on their behalf to help achieve this. 
  • We believe that our investment decisions, our proxy voting and our engagement efforts send a strong signal to companies and bond issuers about the risks we view as most concerning over the long term, and climate change is one of the most material and salient risks facing many of the investments we hold. Many of our peers across the industry feel the same way. Today, there are more investors than ever before who view climate risk as a material investment risk, and the collective drumbeat of their voices is one of the reasons why we are seeing slow but steady progress on this issue across the economy.

Below, we highlight some of our actions related to climate change, as a business and as investors.

Operational Carbon Footprint/Carbon Neutrality

Because we do not manufacture or physically distribute tangible products, we do not consume significant amounts of natural resources, produce large amounts of waste, or generate notable point-source toxic pollution. Our primary operational impact on the environment is through the carbon dioxide equivalent (CO2E) emissions that stem from our operations.

Last year marked our first effort to calculate and report on our carbon footprint. As we noted at the time, it was a learning experience that required collaboration across the firm; our accounting and finance team gathered business travel data from our travel agencies, our information technology team provided data center energy usage, and our operations team did a significant amount of work collecting and parsing electricity and heating data from our landlords and utility companies around the world.

As shown in the table below, Brown Advisory’s emission totals for 2019 equaled 2,698 metric tons of carbon dioxide equivalent emissions (MTCO2E), and our energy intensity ratio was 3.98 MTCO2E per colleague. In 2020, our emissions decreased to 2,106 MTCO2E, equating to an energy intensity ratio of 2.85 MTCO2E per colleague.

GHG Emissions and Electricity Consumption, 2019 and 2020
  2020 2019
  GHG Emissions (MTCO2E) Electricity Consumption (MWh) GHG Emissions (MTCO2E) Electricity Consumption (MWh)
Scope 1 Natural Gas 4 n/a 1 n/a
  Diesel 5 n/a 1 n/a
Scope 2 Offices 1186 2253 1060 2013
  Data Centers 60 104 60 104
Scope 3 Air Travel 851 n/a 1575 n/a
Total 2,106 MTCO2E 2,357 MWh 2,698 MTCO2E 2,117 MWh
Energy Intensity Ratio 2.85 MTCO2E/colleague 3.98 MTCO2E/colleague
  740 colleagues, 12/31/20 678 colleagues, 12/31/19

Source: Brown Advisory analysis. Carbon emissions are generally reported in three categories, or "scopes." Scope 1 refers to emissions from direct energy generation/fuel consumption, Scope 2 refers to emissions from use of outside power (primarily electricity for most companies) and Scope 3 refers to emissions generated from a business' value chain (e.g., delivery trucks, captive vendor emissions or, in our case, air travel by colleagues).

We were pleased to see a reduction in our overall emissions in 2020, but we realize that the predominant factor was a notable curtailing of our commercial air travel due to the COVID pandemic. Our energy consumption/emissions from office operations did not change materially—these locations needed to be “powered up” for operational purposes regardless of whether we were present or working from home. The slight increase in emissions from our office electricity and heating was largely a result of the opening of several new locations.

Emissions stemming from our off-site data centers remained flat in 2020 vs. 2019, but that represents a healthy reduction on a per colleague basis, given that we added approximately 100 colleagues on a gross basis and 62 on a net basis during the year. We credit this reduction to moving our data center operations to two Tier 4 LEED-certified data centers in Virginia and Texas (the data center migration was motivated primarily by security and stability factors, but environmental sustainability was also considered carefully in the process).

We have implemented a variety of steps to reduce our environmental impact. We established an environmental footprint working group last year, which includes representatives from all our physical office locations; this group is driving office-level initiatives, sharing best practices and standardizing more sustainable behaviors among colleagues. The various initiatives and policies stemming from this group’s efforts are helping us to reduce the use of plastic (or eliminate it entirely in some areas, such as the phasing out of purchasing of plastic-bottled items), set environmental guidelines for purchasing, establish better recycling and composting programs, reduce water usage and generally build awareness and consciousness about the environment among all our colleagues.

These are valuable steps in terms of general environmental impact, but ultimately, we cannot materially impact our carbon-equivalent emissions in the short term. Our air travel is generally for essential business purposes—most of our travel is to visit clients and more effectively serve them. We have become much more adept over the years at leveraging technology to collaborate and manage teams across multiple locations, so travel for internal purposes is limited. We are in long-term leases at most of our office locations, and in most cases, we do not control decisions relating to HVAC and electricity. We have established stricter environmental standards for choosing new office space and will seek to apply these standards when choosing new spaces in the future.

As such, we are focused on maintaining carbon neutrality through the purchase of carbon renewal and offset projects as well as renewable energy certificates (RECs), and this year we took the initial step of offsetting our emissions for both the 2019 and 2020 calendar years.

  • Our 2020 office-based electricity consumption of 2,253 MWh was matched by the purchase of RECs in three jurisdictions (two based in the U.S. and one in the U.K.)
  • The remainder of our emissions—roughly 920 MTCO2E—was offset by our investment in two offset projects through Cool Effect, a nonprofit platform offering a wide range of scientifically validated carbon-reduction projects around the world. Factors that we consider (as does Cool Effect) in choosing projects include additionality ("does the project generate environmental benefits that would not otherwise be achieved?") and permanence ("what is the chance of the carbon removal being halted or reversed?"), as well as the project’s broader environmental and community impact. The projects underlying the offsets we purchased were:
    • Mangrove Planting (Project name: "Sea of Change"), a mangrove planting project in Asia that safeguards shorelines and removes carbon from the atmosphere, with 30-year contracts in place to ensure permanence of its efforts.
    • Community Tree Planting (Project name: "The Giving Trees") in Uganda, Kenya and India through the Int’l. Small Group and Tree Planting Program (TIST). Tree planting would not occur in the participating remote communities without the capital and organizational implementation provided by TIST.
  • Finally, we offset the entirety of our emissions from 2019 through a third Cool Effect-sourced project. 
    • Mirador Clean Cookstoves (Project name: "Breath of Fresh Air") constructs cookstove in rural homes in Honduras that provide clean air and health benefits to families. These stoves produce lower carbon emissions than traditional cooking methods used in the region, equal to about 3 MTCO2E per stove per year; they also burn 50% less wood and reduce carbon monoxide and particulate matter emission by 79%.

Investment Carbon Footprint

As noted above, the carbon emissions generated from our investment holdings are much larger than those generated by our operations. For a brief comparison: We calculated our 2020 carbon emissions from operations at 2,102 MTCO2E. We estimate that our $81 billion in total equity holdings as of April 30, 2021 (across the following entities: Brown Advisory, LLC, Brown Investment Advisory and Trust Company, Brown Advisory Ltd., and Brown Advisory Trust Company of Delaware LLC) represents a total carbon footprint of more than 1.9 million MTCO2E.

We believe our responsibility as investors is clear—protect our clients’ interests, make decisions that we believe can enhance future returns, and encourage the companies, bond issuers and managers with whom we invest to act in a way that has the potential to reduce risk and enhance future returns. We view climate change entirely from this perspective.

In our view, entities that have mitigated their carbon footprint are likely better positioned for the future with respect to climate change than those that have not. Companies that can additionally help address the challenges presented by climate change may be well positioned to take the lead in certain industries, and perhaps even invent entirely new business segments. When we think about the overall carbon footprint of our investments, it is primarily because we believe that carbon-intensive investments face growing material risks due to the threat of climate change.

We aspire to be a leader on this issue, in both our thinking and our actions. There are several ways that we can use our voice and our decisions as investors to help influence the path of climate change. 

Build investment strategies and portfolios that represent the best thinking of our sustainable investment research teams. We have committed the past decade-plus to this idea, and we have built a substantial business serving clients with these solutions and garnered a global reputation for sustainable investing excellence. More and more investment firms are following the example of peers who are succeeding in their sustainable investing efforts; in most cases, those efforts involve a keen awareness of climate risk and associated opportunity that informs investment decisions.

Identify and report on the carbon footprint of assets under discretionary management. In our 2020 Sustainability Report, we provided a snapshot of the carbon footprint of our institutional sustainable equity strategies. This year, we are reporting emissions related to all of the equities we hold for clients for which carbon emissions data is available to us (currently we are able to collect data for 95% of those equity assets), either as standalone common stocks, within funds and strategies that we manage, and within third-party funds we recommend to clients. Going forward, we plan to develop methodologies to estimate carbon footprint in other classes, such as fixed income or private equity, for which third-party data is not readily available.

The chart "GHG Emissions of Brown Advisory Equity Holdings" provides this carbon emission information as of April 30, 2021—a total of more than 1.9 million metric tons of CO2 equivalent emissions on an absolute basis.

On a relative basis, the carbon intensity of our equity holdings is less than one-third of the broad-market MSCI All-Country World Index (figures in the chart are normalized on a per-million-dollars-invested basis); this is not due to an intentional effort to exclude high-carbon holdings, but rather an outcome from a fundamental research process that emphasizes companies that, in our view, offer attractive opportunity relative to risk. 

Going forward, we will continue to reflect on the overall footprint of our investments. We always aim to make thoughtful investment decisions on a case-by-case basis, and that principle must guide our thinking related to climate change. We have learned that in some cases, removing an investment from our portfolios may be the right choice (for a specific client, and/or the pursuit of a strategy’s long-term objective), while in others, holding onto that investment while it improves, or while we engage with its stakeholders to encourage positive steps related to GHG emissions, may be the better call.

 

Chart

Source: MSCI and Brown Advisory analysis. Data is based on the $81 billion in total equity holdings as of April 30, 2021 held across the following entities: Brown Advisory, LLC, Brown Investment Advisory and Trust Company, Brown Advisory Ltd., and Brown Advisory Trust Company of Delaware LLC. *Total CO2-equivalent emissions refers to the absolute emissions generated by underlying companies, in proportion to our equity ownership percentage of those companies. Normalized CO2 equivalent emissions refers to emissions per $1 million of invested assets, a metric that allows for comparison of the emission "intensity" of one portfolio to another portfolio or a benchmark index. 

Engage with companies and bond issuers to encourage policies, products and operations that acknowledge and address the risks of climate change. We encourage you to refer to our Engagement Policy, Proxy Voting Policy and 2020 Engagement Report for more information about our engagement efforts with hundreds of different companies and bond issuers every year. Many of those engagements cover the topic of climate change, either directly or indirectly; in our discussions with management teams and stakeholders, we often ask them to report on climate risk transparently, take various steps to manage physical climate risk, align their lobbying or political spending with climate goals, and set science-based targets for reducing GHG emissions. 

As part of this effort, we are committed to continuously building our internal expertise on this issue, and to working collaboratively with industry peers on broad engagement programs. We have ramped up our collaboration with CDP on several carbon-reporting initiatives in the past two years, including a project aimed at increasing disclosure of climate risk by municipal bond issuers. We also continue to work with the Climate Action 100+ initiative that aims to persuade the world’s largest corporate carbon emitters to take steps to reduce their emissions. 

Continually enhance our own reporting and disclosure. This is our second corporate sustainability report; we have issued strategy-specific impact reports for several of our SI investment strategies for the past four years; and, we have submitted comprehensive disclosure reports to PRI (Principles for Responsible Investment) since 2014. (Our recent PRI Assessments: 2021 (coming soon), 2020, 2019.)

We are committed to consistent improvement and expansion of our general sustainability reporting and specifically our climate-related reporting. We actively partner with a variety of expert organizations and coalitions, including CDP, PRI, Ceres, the International Capital Markets Association (ICMA), the Interfaith Center for Corporate Responsibility (ICCR), the Sustainable Accounting Standards Board (SASB) and the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD)

In 2020, we established a formal relationship with both ICCR and SASB (we have worked informally with SASB for several years), as well as with TCFD. TCFD is one of the frameworks that we encourage companies to reference when preparing their climate-related disclosures. For our first step to align with TCFD’s guidelines, we have prepared a general risk disclosure for clients and prospective clients using TCFD’s suggested framework of Governance, Strategy, Risk Management and Metrics and Targets. On each of these fronts, we believe we are on very solid ground.

  • Governance of sustainability and climate issues is a documented priority for our CEO, senior executives and governing boards.
  • Our strategy to address climate change and manage climate risk is discussed throughout this report and includes a comprehensive approach to our operational impact as well as an ongoing focus on the climate impact of our investments as outlined above.
  • We believe that we provide ample reporting on our investment and operational emissions metrics and targets, through this sustainability report as well as the suite of impact and engagement reports we issue on an annual basis.

We are still in the early innings of our TCFD-related efforts; our goal for 2021-2022 is to expand the climate tools available to our investment teams—in particular, scenario analysis tools to enable assessments of potential outcomes from future temperature increases. These scenarios analyses are key components of TCFD’s reporting regime, and we believe they should improve our reporting as well as help us increase our understanding of the risks embedded in our portfolios.

We are firm believers in the maxim, “what gets measured, gets managed.” Looking back at the history of our SI business, we know that our consistent participation in PRI reporting was extremely helpful for us, as each year it helped us clarify our areas of strength as well as areas where we have room for improvement vs. our peers, today and in the future. Similarly, we believe that increased participation in state-of-the-art climate reporting regimes should offer us a similar benefit, helping us to understand climate risk, weigh it against other risks and considerations, and thereby widen the lens through which we view our investment decisions. We face several challenges, most notably the fact that carbon emissions data for any emitter is rarely 100% reliable, due to a lack of standards for reporting or even a requirement that the data be reported at all. Despite this, we believe that our continued focus on the topic, on our own and in collaboration with industry partners, can help us move steadily forward.

 

CONCLUSION

Thank you for taking the time to review our 2021 Sustainability Report. We hope that the report has provided a sense of our priorities with respect to serving our clients, colleagues, community and society, the progress we are seeking to achieve, and importantly what it means to us to be leaders on the topics discussed in the report. We believe that our progress over time is greatly supported by listening closely to our clients, colleagues and other stakeholders, internalizing their perspectives and using them to help guide our decisions, so we encourage you to share your thoughts and feedback with us.

 

 

 

 

The views expressed are those of the author and Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be and should not be relied upon as investment advice and are not intended to be a forecast of future events or a guarantee of future results. Past performance is not a guarantee of future performance and you may not get back the amount invested.

The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is intended solely for our clients and prospective clients, is for informational purposes only, and is not individually tailored for or directed to any particular client or prospective client.

ESG considerations that are material will vary by investment style, sector/industry, market trends and client objectives. ESG strategies seek to identify companies that they believe may have desirable ESG outcomes, but investors may differ in their views of what constitutes positive or negative ESG outcomes. As a result, the strategies may invest in companies that do not reflect the beliefs and values of any particular investor. The strategies may also invest in companies that would otherwise be screened out of other ESG oriented funds. Security selection will be impacted by the combined focus on ESG assessments and forecasts of return and risk.

ESG strategies intend to invest in companies with measurable ESG outcomes, as determined by Brown Advisory, and seek to screen out particular companies and industries. Brown Advisory relies on third parties to provide data and screening tools. There is no assurance that this information will be accurate or complete or that it will properly exclude all applicable securities. Investments selected using these tools may perform differently than as forecasted due to the factors incorporated into the screening process, changes from historical trends, and issues in the construction and implementation of the screens (including, but not limited to, software issues and other technological issues). There is no guarantee that Brown Advisory’s use of these tools will result in effective investment decisions.

Certain of the information contained in this Sustainability Report represents or is based on forward-looking statements or information. Forward-looking statements are inherently uncertain, and changing factors, such as those affecting the markets generally, or those affecting particular industries or issuers, may cause events or results to differ from those discussed.

References to investment strategies or individual securities or issuers are intended to illustrate the application of Brown Advisory’s investment and research process only and should not be viewed as a recommendation of any particular strategy, security or issuer. The investments described in the selected case studies were not made by any single fund or strategy and do not represent all of the investments purchased or sold by any fund or strategy.

This Sustainability Report is provided for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any security or any interest in any investment vehicle. Any such offer or solicitation will be made only pursuant to a prospectus.

With respect to information derived from Morningstar: © 2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

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It is not possible for an investor to invest directly into an Index.

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