Shades of Green
By Lisa Wade
Impact investment is taking off.
There is no doubt, funds are being launched, business names changed, even the Pope is on board. At the recent Vatican impact conference it was revealed by Jackie VanderBrug, investment strategist at US Trust that “Fifty-eight percent of baby boomers say that social and environmental impact is important” with regard to their investments “Ninety-three percent of millennials will say that. In fact, millennials are starting to say, why are you even asking me this question?”
But what exactly does that mean? And how can we invest efficiently and profitably?
At Impact 2080 we are just about veterans to this “impact” investment space and have come to realise that for it to truly take off we all need to broaden our definitions of impact investment. We have started to look at the world in terms of shades of impact, to make it easy we have used the colour green. Green means environment to many but to us its bigger, its a pathway to understanding so that all investors can start to align their values to their investments. Simply, positive returns are indicated by green, to us its just the shade of green you want and how “positive” you want your returns, positive in every sense of the word. We have developed an investment matrix to allow investors to see their investment universe through this lense.
To create this lense we have broadened our investment philosophy from a traditional 2 dimensional risk/reward approach to a four dimensional approach, or 4D investment philosophy as we call it internally.
What are the four dimensions? Risk, Reward, Impact and Alignment. The last two categories can transparently be subjective and that’s ok. However it is possible with the magic of data to assign values to this subjectivity and apply investment process around portfolio construction. I’ll leave the investment geek stuff here but rest assured you can construct a portfolio to any shade of “positive” or green you like.
So what do we do, we take every investment in the world, run it through some screens and work out the shade of “green” it is. We then ask our customers to consider how green they want to be and we construct their impact investment world. Sounds simple? Yes it is, every person is a shade of green, whether we like it or not ALL our investments have impact.
A short hand version of how we shade the green goes a bit like this. We have four shades, light green, olive, dark green and Emerald. We say light green is a small amount of positive impact, that may be a small negative screen e.g. you don’t invest in cluster bombs or gambling, a really good example of this is Russell investments RARI AU Equity. Then we have Olive, you may have some more screens or simply put a small percentage of your portfolio in sectors that positively contribute to good social and environmental impact, then as you get to dark green the percentage of these companies and project exposure grows all the way up to Emerald investments which are investments we consider so amazing we would put our money into them. They contribute positively to the world in terms of what they do and why they do it, it could be a solar farm, a solar schools project, an organic farm, a responsible investment fund, a solar fund, a 3D printing company, plus the returns have to be good, so at any one time this looks like about 40-60 holdings just to give you some perspective.
For our portfolio’s we manage our exposure like any other traditional portfolio manager, higher weightings in thematics we believe in and companies we think will be profitable and projects with high returns, we just add the dimension of adding their impact into our numbers. We call this the Impact Multiplier of an investment, whatever it may be we always know the Impact Multiplier of our portfolio just as we know expected risk and reward and we always know how aligned it is to our values. We think each and every person should have access to this information and are working on building that as a service, with the help of Bloomberg this is 100% possible. It isn’t an accident that Impact 2080 is made up of an ex market maker and derivatives trader turned impact investor, an ex-hedge fund manager and a banker, the three of us intersect our worlds in shades of green to create positive investment solutions with all of our financial and structuring experience.
We could spend an entire day arguing definitions of shades of green but really the reason why we look at the world this way is to simplify a complex process to enable investors to align THEIR values to their investments. We don’t want to tell people what to think, we want to enable them to get the shade of green they want.
Simple. Just like a plane taking off, might be a private jet or you may get on the light green airbus 380, investors deserve to choose.