Fran Seegull is president of the U.S. Impact Investing Alliance, which works to increase awareness of impact investing in the United States; foster the deployment of impact capital across asset classes globally; and partner with stakeholders, including government, to build the impact investing ecosystem. Seegull also serves as the executive director of the Tipping Point Fund on Impact Investing, a donor collaborative focused on scaling the field with impact integrity.
Previously, Seegull was the chief investment officer and managing director of ImpactAssets, where she headed investment management for The Giving Fund — now a $3 billion impact investing donor-advised fund. She has a bachelor's degree in economics from Barnard College and an MBA from Harvard University. She serves on the investment committee of Align Impact and the advisory boards of SOCAP and the CASE i3 Initiative at Duke University. Seegull joins many others in reimagining capitalism in the future.
What’s your background in leading the nation’s premier field-building organization committed to accelerating impact investing?
My journey into impact investing began nearly 25 years ago at Harvard Business School. I was working in family philanthropy as a program officer for the Peter Norton Foundation (established after the success of the Norton AntiVirus program), and we were making grants in very innovative, creative ways, especially for the time.
Eventually, I started thinking about how the endowment was invested and whether it was consciously or unconsciously invested at cross purposes to the foundation's mission. That’s what led me to business school: my desire to explore how the financial capital markets and for-profit business models could create positive and measurable social, economic and environmental impact alongside financial returns.
At the time, Harvard Business School was rooted in the Milton Friedman model of neoliberalism, where the purpose of a corporation was understood to be about maximizing shareholder value. I believed this view was fallacious because it failed to account for businesses' negative and positive externalities.
Since graduating from Harvard, I've been running, consulting or investing for impact through mission-driven businesses and/or funds. I also serve as executive director of the Tipping Point Fund on Impact Investing (TPF), a donor collaborative and sister organization to the U.S. Impact Investment Alliance. The two organizations share a mission of growing the impact investing field with integrity. Whereas the Alliance employs public policy advocacy, investor engagement and field building, the TPF utilizes grantmaking to move the dial.
How did you, Darren Walker and others come together to launch the Alliance, and what did you imagine was necessary to accelerate the evolution of this field?
We believed there was a need to build and fortify the field and practice of impact investing and to advocate for supportive policies in Washington, D.C. This was the early fall of 2016, and I had the conviction that impact investing would have broad bipartisan appeal. We also knew that the success of the impact investing movement wasn’t just about getting more capital to flow to impact but that we also needed public policy advocacy, impact data metrics and measurement tools, and strong research to do so with impact integrity.
The Alliance was envisioned as an organization that could take on key field-building responsibilities. Like any other industry, public policy work is critical to ensure the laws and regulations allow for and incentivize the desired practices.
One of the initiatives of the Alliance is the Coalition on Inclusive Economic Growth, which convenes 60-plus impact-oriented businesses and investor organizations devoted to coordinating public and private action. What are your top policy priorities currently?
In 2021, we co-authored a coalition policy docket offering recommendations for federal policymakers on two topics and approaches: One, a bottom-up focus on community investing; and two, a top-down transition to stakeholder capitalism.
Our bottom-up approach to community investing includes a suite of incentives to support the revitalization of communities of color, rural and indigenous communities. Through collaboration with community-focused organizations and community leaders, we work to share expertise and create the tools necessary to help facilitate the flow of impact capital.
Top-down, we view the need for public policy around transitioning from shareholder primacy to stakeholder capitalism. Elements such as the future fiduciary duty, the ESG corporate disclosure agenda and asset manager accountability fall in that area of capital market reforms.
Impact investors generally think of total return as financial return plus or minus social and environmental returns. How do you prove that alpha is created through impact investing, and does that formula resonate with you?
This is a special moment in time. Still, there is a common misconception that impact investing necessitates a financial trade-off.
There are many examples where you can have your cake and eat it, too. If you believe the world is changing — whether it’s from climate change, growing public health issues, refugee and human rights crises, or other issues — a whole range of social, economic, demographic and environmental forces are not only redefining what it means to manage risk but also creating new investment opportunities to help solve our most significant global challenges. There are absolutely ways to create a premium to financial return through impact investing.
We are also looking more closely at beta risk. Research shows that beta drives 75% to 95% of all portfolio returns. Moving beyond modern portfolio theory ponders the impacts of business and investment decisions on entire systems, like society and our planet. We’re starting to focus more on inequality as a systemic risk, understanding that we may need a different set of tools and frameworks than those used to consider environmental factors.
One of the banners that critics have gone after is ESG: environment, social and governance. Do you feel that debate has either accelerated or decelerated this movement?
Some people think of ESG as a product. We think of it as an investment process whereby investors and fiduciaries look at environmental, social and governance factors to see which ones are useful or financially material and then take them into account.
Unfortunately, we’re seeing the politicization of ESG and the rise of anti-ESG and anti-diversity, equity and inclusion (DEI) movements in the United States. It’s important to remember that these politicized attacks against ESG are fundamentally different from good-faith critiques related to the need for better transparency, accountability and higher bars for impact.
But despite these critiques, transparency on a range of ESG factors is coming to the market. Corporate disclosures of certain financially material ESG factors like climate risk will soon be mandated in the United States via SEC rulemakings and state-level legislation. The European Union goes a step further by using double materiality, whereby companies consider not just financially material factors to their business but also the impact on stakeholders.
Whether you like ESG or not, disclosure is finally happening after long-standing calls from investors for better transparency. Even if the SEC rules are challenged or delayed, many U.S. companies will be subject to the EU standard because they are suppliers to global companies. The EU regulation will be the tide that lifts all global boats, we believe, for asset managers and corporations alike.
Please provide us a view into your vision for the future of impact investing, what your hopes and aspirations are for the field, and when you will know we’re there.
When we first launched the Alliance, Darren and I boldly declared that “the future of investing is impact investing.” The Alliance is the U.S. representative to the Global Steering Group for Impact Investment, founded by Sir Ronald Cohen. Now, such entities in 35 countries worldwide seek to accelerate the field of impact investing.
I am excited for the years to come to see the global regulatory agenda come into sharper focus. Various governmental agencies and private sector standard-setters are working on how to get to a north star where total return is based on financial return as well as impact. The ultimate success of this field would be manifesting a more equitable, sustainable economy by finding a way to reliably price externalities and value all stakeholders.
MORE INSIGHTS: Family offices prep for Corporate Transparency Act
By CHARMAINE TANG
With the global proliferation of legislation and regulation requiring increased reporting and disclosure of formerly private information and data, family offices that leverage or invest in technology will benefit in compliance, efficiency and productivity. In the U.S., the federal Corporate Transparency Act (CTA) may be the catalyst for family offices to finally fully leverage or upgrade their technology platforms.
Is your family office ready for this new compliance issue?
Starting Jan. 1, 2024, the CTA will affect compliance and privacy for many family offices, private investors and privately held entities. Requiring these companies to identify all beneficial owners across their operations will fill a transparency gap for the U.S. government across nonpublic small businesses (i.e., fewer than 20 employees) but demand significant financial resources and time. According to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), about 32.6 million existing businesses and 5 million more annually will be affected. Reporting for the CTA will be costly, projected at a hefty $22 billion in year one and $6 billion in year two for initial and ongoing requirements. “This is not going to be cheap for companies,” said Brooke Hopkins, a partner and managing director at AlixPartners.
What are the CTA + Environmental, Social and Governance (ESG) implications?
In 2021, Congress enacted the CTA to address the lack of transparency pertaining to smaller companies and their beneficial owners. The CTA requires certain types of U.S. and foreign entities to report information about their beneficial owners to FinCEN. Global fines for money laundering and other financial crimes surged more than 50% in 2022, Hopkins said. “During the last several years, money laundering has been exacerbated by COVID, as well as the global markets and digital opening up,” she said. “Bad actors launder illicit funds through the U.S. using shell and front companies. It is those “bad actors” that FinCen hopes to catch in the act under the CTA. The proliferation of illicit acts (e.g., human trafficking, modern slavery, forced labor) have disproportionately hurt vulnerable populations, children and marginalized groups, resulting in significant ESG implications.
Who will be affected?
Existing and future U.S. nonpublic and foreign “reporting companies” with $5 million or less in gross receipts or sales and 20 or fewer employees will be required to report Beneficial Ownership Information (BOI).
- “Reporting company” Definition: A reporting company is a domestic or foreign corporation, LLC or similar entity that was formed or registered to do business and filed with a secretary of state or other similar office and which does not fall within one of the 23 types of exempt entity types.
- FinCEN’s List of 23 exempt entity types: Most exempt entities are already subject to federal reporting requirements (i.e., public companies, banks, broker-dealers, large operating companies).
What is a beneficial owner?
A beneficial owner is any individual who exercises substantial control over a company or who owns or controls at least 25% of a company, as defined by FinCEN. This could include senior officers (e.g., CEO, COO, CFO, CLO/GC) with substantial influence over important decisions, Hopkins said.
How does CTA reporting work?
For companies registered after Jan. 1, 2024, CTA reporting must be done within 30 days of formation. For existing companies, CTA reporting needs to be completed by Jan. 1, 2025. Any changes in beneficial-ownership information must be reported within 30 days.
What are reporting companies required to report?
- Name (DBA)
- Physical address
- Jurisdiction of formation/registration
- Taxpayer Identification Number (TIN) or Foreign TIN for foreign entities without an Employer Identification Number (EIN)
What are beneficial owners required to report?
- Full legal name
- Date of birth
- Residential address
- Unique identification number
What are company applicants required to report?
- Full legal name
- Date of birth
- Business address
FinCEN’s identified and targeted carve-out for CTA
“FinCEN has targeted a portion of the market that has grown over the years," Hopkins said. "Anything you can put the dollars in to get that integration, which is the third phase of money laundering.” Key areas to watch include art, real estate, special purpose vehicles (SPVs) — “anywhere where there are layers upon layers of entities.”
Using technology and third parties to support compliance and operational excellence
“Family offices are not just about people and not just about technology. It’s the combination thereof,” said Tomas Hurcik, co-founder and CEO of Orca AG, a legal, tax and compliance software-as-a-service (SaaS) platform. “You can have the perfect people in place, but if they don't have access to the right information when they need it and how they need it, they will be unable to support you.”
FinCEN reporting “has to be done accurately and consistently … it’s not just a one-and-done,” Hopkins said. “One thing FinCEN has identified is that if you have third-party providers such as AlixPartners, technology like Orca, outside counsel, etc. assisting your company, those third parties become part of the applicant process and can act on your behalf, monitor the data, keep up with changes and also legally make sure any changes that FinCEN makes can be kept up with and these changes be incorporated.”
Recommendations for compliance and ongoing maintenance
Hopkins recommends the following:
- Gather your family office’s internal and external teams from operations, legal, compliance, audit, governance and technology to review your current technology stack to evaluate if it (1) supports current compliance requirements, risk exposure and operational demands and (2) the risk and cost to the overall family office by not enhancing its technology capabilities.
- Have procedures and controls for reporting, including interim for changes.
- Establish a policy and procedures for how to address, who is accountable and monitoring.
- Include controls for how to monitor beneficial ownership and ownership/influence control.
- For M&A, as part of compliance due diligence, ensure that the target companies have fulfilled their reporting obligations as well as their own compliance structure.
- Reassess AML procedures and controls, as CTA will provide an opportunity for data mining by regulators and law enforcement to identify potential wrongdoing
To comply with CTA requirements, processes will need to be in place to gather, store and report beneficial ownership information (e.g., documents such as operating agreements, subscription agreements, identification such as passports).
The CTA has significant implications for family offices as well as domestic and foreign small businesses and entities. In addition, the act helps minimize risk related to crimes against humanity and related financial exploitation, helping to burgeon global ethics and ESG initiatives. Technology will be a key foundational pillar in the years to come. When it comes to family offices, it is about finding the optimal balance between technology and people to enable you to move quickly and effectively. If family offices do not evaluate tech and people, this may lead them to being reactive, exposed and unable to move forward effectively. Similar risks exist for other small businesses under the CTA.
Let’s be transparent. There is no safety in what you don’t know, especially when it comes to U.S. government enforcement. Now is the time to prepare for the CTA and understand your risks and opportunities for tracking, monitoring, and reporting relevant beneficial ownership information.
This article includes insights from Brooke Hopkins, A partner and managing director at AlixPartners LLP, an expert in corporate operational compliance, ESG, risk and investigations. (Note: This article is not intended to provide legal advice but to provide general information and discussion on current events and possible solutions. You should seek your own legal advice and other professional counsel regarding your specific needs, situation and circumstances). Refer to www.fincen.gov/boi for details.