Taking a total portfolio view
Taking a total portfolio approach means recognizing that investments across asset classes can have positive or negative impacts on society and the environment; and it means using impact considerations as a lens through which to view your portfolio holdings.
When first embarking on their impact investing journey, many investors take a simplified approach and treat impact investing as a discrete “carve-off” strategy – one that is mostly allocated to “Impact First” investments in private markets. However, if you perceive impact investing as only a sleeve within your larger portfolio, you may miss additional opportunities to achieve positive impact with the rest of your assets. Or worse, you may unknowingly be invested in companies or projects that are directly at odds with your impact strategy.
With a total portfolio approach to impact investing, you can still seek an appropriate investment return for any given strategy or asset class, while also seeking to generate positive impact (or minimize negative impact) with those investments. In doing so, you can get much closer to aligning all your assets with your values.
TOOLS FOR IMPLEMENTING A TOTAL PORTFOLIO APPROACH
There are many different tools you can use to invest with impact beyond the assets you have allocated to mission- and program-related investments. These include:
- Using positive screens for thematic SDG alignment
- Negative screens set at certain revenue exposure thresholds
- Divestment from industries with unethical products or services
- Shareholder engagement to encourage better corporate practices
These tools are particularly useful for public market investments. Setting revenue thresholds for negative screens can uncover exposure to controversial products, such as equity investments in convenience store operators with tobacco sale revenues. On the fixed income side, many provincial and municipal governments issue green, social or sustainable bonds, which rank pari passu to their vanilla issuance but are mandated to only fund projects with positive environmental or social impact. Even cash equivalents can be redirected for impact by moving deposits to a community development bank or credit union that invests in social enterprises, charities or nonprofits.