Generating Sustainable Returns with Rob Roy

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Maddi Heckman:

Hello, this is Maddi Heckman with Markets Group, and I'm joined today by Rob Roy, SVP, chief investment officer, and co-head of sustainability at AdventHealth. Rob, thanks so much for joining us today.

Rob Roy:

Thank you for having me, Maddi.


Well, let's jump right in if it works for you, and I'd love for you to tell us all a little bit more about how your oversight of the organization's investment strategy, retirement business, and sustainability initiatives are all intertwined.


Sure. I'm happy to spend time on that. I've had the pleasure of working in AdventHealth since 1998, and over time, the way that I've tackled different problems has led to a breadth of responsibility that today goes beyond investment and also includes our retirement business and sustainability for the firm. All of these are elements that people don't often think of when they think of healthcare, but there's many parts of the industry that support what we always think of, that front line healthcare worker. And all of these elements link together through the same mission that the organization is pursuing. For us, it's the pursuit of whole person care. Our mission statement is extending the healing ministry of Christ, which means to care for and love people in the best way that we can.

And so to do that well, we need an investment portfolio that helps to support the financials for the firm. And so our team pursues excellence in that space, bringing the technical knowledge that we have from capital markets and portfolio construction and trading for the purpose of supporting that front line ministry that we're doing.

The same is true of the retirement business. We have nearly 100,000 employees and more than 150,000 people in our retirement plans. We take care of people through people. And so by bringing expertise to helping manage the retirement portfolio, we're taking care of those front line workers all the way back to the corporate office and the backroom staff that our team is and support when we do that. And then finally, I'm really happy to say that as of about two years ago, maybe a little bit more, our board decided that having a robust framework for all of our sustainability efforts is one of the biggest items that we ought be focused on.

It's made the top 10 list for our board, and I had the great pleasure of being asked to co-lead that with Marisa Farabaugh, who is our senior vice president, chief supply chain officer. She runs another big part of the business, and the two of us have been working to improve our environmental footprint for the overall organization because it's pretty difficult to say that we are focused on providing full-person care and taking care of the individual while at the same time there's a number of ways that we're either polluting, we're not working in the best possible way.

So focusing on how we do our work and finding these opportunities to clean up the environment, to deal with supply chain issues and how our financing and all of these interesting ways that you can see that applied. How we do that work is as important as that kind of frontline work that you think about. And when we do it well, there's another dimension of benefit or blessing that we can bring to the communities in which we operate. So that's how I think about tying all of those things together that are among plenty.


Rob, in our last meeting, you shared a bit with me about transformational projects that have had a significant impact on the community or the environment. Can you share one of those with us today?


Sure, I'm happy to. As we dug into our environmental sustainability, the first leg of that was to understand what the issues were because neither Marisa or I were environmental experts in some way. We were chosen because they liked the way that we think and frameworks, and they know that we'll take things apart in an analytical way and then try to find the best way forward. And because we're both finance-focused, we would do it in a very cost-conscious or financially-focused way. So once we understood what the issues were, then we wanted to measure. So we went about, we did all of our greenhouse gas measurement using Scope 1, 2, and 3. We then looked at that and said, "Wow, these numbers are really big. If we're a healthcare company, we're going to have to do something about transforming this. And so what are the ways that we could possibly act to transform that?"

It turns out for health systems, one of the biggest environmental impacts is what we call Scope 2, which means it's mostly purchased electricity. And the way that you get your electricity, you're basically taking responsibility for however your utilities are creating that electricity. So in some regions of the country, there's more coal. In other regions, there might be more renewables or there might be more gas, but there's an opportunity to source your power in a more renewable way. And so we started to look into how do these power purchasing agreements work? What are the technical details? What's the marketplace look like for them? What are the financials? Physically, how do they work? And as we dug into it, it became to us that we have an opportunity to transform the power that we're consuming. Today, AdventHealth consumes more than a terawatt hour of power, which means that's more than 100,000 homes in the United States is the power footprint.

We went then to our partners, and in this case, we use the relationships that we have, especially in our investment portfolio, to say, "Look, of all these investment partners, we know that you're probably all doing things in renewable power. We're trying to do things. Where can we connect together and find deals?" And so with one of our partners, Brookfield, we were able to find a very competitive wind farm deal. Marisa and I had the privilege of going out there. You may have seen the pictures on LinkedIn. We actually went out to West Texas. We climbed the wind turbines. It's frightening, but sort of exciting to see those things up close. And we have now signed two power purchase agreements, one with Brookfield, which was for an existing wind farm that is as of January 1st of this year, supplying a little bit more than 40% of our total power now. And we've signed another development agreement with NextEra to provide or to develop about 3,000 acres of solar-powered electricity. We believe that'll come online at the end of '25.

And so in the first two years of being focused on environmental sustainability, we've had the privilege to learn a lot and put in place two big power purchase agreements, which are going to bring AdventHealth to 100% renewable electricity by 2026. And we believe those deals will be financially accretive to the organization. They both today model the positive net present values. So we're pretty excited about that.


Wow, amazing. Rob, where are you generating innovation for you and your team?


I think curiosity for us is the biggest fuel for innovation. If you're constantly trying to learn and you're putting yourself in connection with smart people, you're going to find new ideas constantly. And so I think that's a bit of who I am. If I talk to people close to me, they'll say, "Man, you just never stop wanting to learn something." And so I think I've created a bit of a culture around our teams that we're always trying to learn, we're always trying to get better. That's probably the fuel part.

The spark comes from the fact that over time we've transformed from just running investments or just sort of being on this investment island, which supports an operating business, but it's very separate than the healthcare. There's been this bridge that's kind of been built so that now we're in that conversation. We know what the business is trying to do to transform, and we've said, and we now have the buy-in for it, it's like, "Hey, look. Our team has such an interesting and unique perspective having spent our whole lives in capital markets, dealing with investment managers and GPs and traveling the world and building just this unique set of relationships, if you involve us in strategy discussions and trying to understand what the company's doing, every once in a while we're going to find these transformational ideas that we can bring across to the operating business."

So the spark, I think between that good culture of always being hungry to learn and giving us the fertile opportunity to find ideas within our world that we could help transform our operating business, I think that was the spark that's starting to turn some of these ideas into reality.


Okay. So Rob, in our last meeting, you also shared with me your perspective on the role of the CIO and how your role of CIO is a bit different than maybe someone else's. It would be great to have you share your thoughts behind why it's so critical for CIOs to have a seat at the table and what levers can be pulled to get them there.


Yeah. The first part of that is easier for me to answer, and I think I've touched a bit on it in my previous answer, which is just when you look at a senior management team, everybody brings relatively unique backgrounds and insights. When you're building the best teams. The reason why you want diversity in your teams is because you want the most well-rounded perspective on every issue so that collectively you can get to the right answer. That is why you want to do it that way. So when you look at your senior management team, while everyone has a unique perspective, from an industry perspective, probably nobody else on that team has spent their entire career on or around Wall Street or global capital markets. So your relationships are unique, the way that you think about things is unique. Most of the other people on that team are going to have some sort of medical, administrative, accounting, operational, finance, legal, branding, HR. You're the only person that has that unique perspective. And so getting that perspective into the room should add some value.

Now, I'd say a lot of times if I'm sitting around, I probably have nothing to add where I've got more questions and I've got ideas. But every once in a while, you're going to come up with something that nobody else could have done. And that is a huge advantage to your organization if you can get into that position. The second part of your question is harder because each organization has a unique culture, and I don't know how to get you a seat at the table, but as our CEO, Terry Shaw, said many times, if you want to get promoted, solve people's problems. Notice the issues that are trying to be worked on, be proactive about finding solutions for them and bring those forward. I would think that that would be probably the most common way to get a seat at the table, is to start showing up proactively with potential solutions to issues that you know are being wrestled with at the organizational level.


That's great advice. I love that. So Rob, what's next and new and exciting? What initiative do you have on the horizon or in the pipeline for AdventHealth?


Yeah, on the investment side, we are in a relatively unique position. I know in talking to my peers over the last few weeks that many are struggling with portfolio composition, especially around private markets. We began our private markets program much later, just over the last few years. And so we're really in the phase of increasing allocations and commitments, and I know that that's a very different thing. So we're excited about doing that at a time that is a little bit more opportunistic for us. To do that well, we have to continue to build the team. I think we have 13 people on the investment team today, and we'll be growing now so that we support those efforts well.

On the sustainability side, look, I mean, it's a journey of a lifetime. I was overjoyed that as an organization, we dedicated ourselves to it a couple of years ago. I was slightly mystified, but also pleased that I was selected to help with it. I was very clear that I had no idea what I was doing, but we would figure it out. We've learned a lot. We've, I think, begun to accomplish quite a bit, but the road ahead of us is so much longer than the road that we've traveled. And so while we've been focused a lot on emissions, we really haven't started to build out our efforts on waste and water. Even within the emission space, we have some really exciting initiatives for this year. One is to put together a solid plan for how we're going to reduce the energy use intensity across all of our facilities. Another one that's really exciting is to tackle the way that we use anesthetic gases.

Most people wouldn't think of it right away, but anesthetic gases, many of them are thousands of times more potent than CO2. They're not terribly expensive, and they're not harmful in the immediate moment when they're vented. And so most places just sort of use these things and don't think about it. But we're going to be going through a transformation process or leading a transformational process with our anesthesiologists and anesthesiology groups that we work with externally to together come up with a great plan for how we can reduce the impact on our communities through things like that. It will just keep going. The roadway will be out in front of us probably for a long time.


Well, Rob, thank you so much for your time today. Thank you for being here and sharing your thoughts with our listeners. We really appreciate it.


It's been a pleasure, Maddi. Thank you for reaching out. Happy to participate.