Total Portfolio Impact in Investment Management

How different investment strategies across asset classes can contribute to the overall impact of a total portfolio.

The investment management industry is experiencing a fundamental change as two long-running trends converge: first, a belief that material environmental, social and governance (ESG) characteristics can be a driver of better long-term investment performance, and second, a demand from clients to understand the social and environmental impact of their portfolio alongside investment performance. While much of the debate over the last decade has focused on whether and how specific investments can integrate ESG or achieve impact, we believe that the conversation has begun to fundamentally change. Many clients now have an expectation that any robust investment process will integrate material ESG characteristics regardless of asset class, and are increasingly seeking to define, measure and enhance total portfolio impact.

This shift reflects an acknowledgment that every investment has impacts, both positive and negative, whether intended or not. The question for investors is whether they choose to understand and incorporate impact into investment decision-making. An investment can be deemed to have an overall negative impact on society or the environment, a neutral effect, or even an overwhelmingly positive influence by contributing to solutions to social and environmental challenges—there are a range of outcomes.

Just as investors have portfolios with investments across various asset classes with different risk/return expectations, which collectively contribute to their total portfolio performance, investors can have portfolios with investments across the impact spectrum, which collectively contribute to their total portfolio impact. Thereby, impact is an additional dimension to investing and portfolio construction.

The need for investments with positive impact has never been greater; there is a growing urgency to address the challenges facing the world and an acknowledgment that the “same old approach” is not enough.