{"id":77313,"date":"2023-02-28T10:52:17","date_gmt":"2023-02-28T15:52:17","guid":{"rendered":"https:\/\/www.riacanada.ca\/?p=77313"},"modified":"2023-02-28T20:43:36","modified_gmt":"2023-03-01T01:43:36","slug":"bringing-impact-into-portfolio-management-reflections-from-impact-frontiers","status":"publish","type":"post","link":"https:\/\/www.riacanada.ca\/wordpress\/magazine\/bringing-impact-into-portfolio-management-reflections-from-impact-frontiers\/","title":{"rendered":"Bringing Impact into Portfolio Management: Reflections from Impact Frontiers"},"content":{"rendered":"\n
As part of a global program, a cohort of asset managers and owners in Canada just spent 18 months grappling with the practical challenges of how to bring impact considerations into the creation and management of their portfolios. While not straightforward, their work was ultimately fruitful. These cohort members are now able to manage their portfolios\u2019 real-world impact alongside financial performance and to see the relationship between the two. Cohort members\u2019 reflections could help others wanting to invest with impact. <\/p>\n\n\n\n
Impact investing considerations<\/h2>\n\n\n\n
The investment sector is used to having standard, widely understood numbers and metrics for financial performance that all investments use. But that\u2019s not the case with impact performance due to the multi-dimensional complexity of impact \u2013 as one must consider who is impacted, in what way, and to what degree. For example, the benefits of a company producing renewable energy for Africans and one developing plant-based proteins for North Americans are very different, even though both investments could be within an environmental portfolio. To present a picture of a portfolio\u2019s impact, then, one must use an integrated framework for scoring impact that is relevant to that portfolio. <\/p>\n\n\n\n
So that\u2019s what cohort members did. <\/p>\n\n\n\n
Overview<\/h2>\n\n\n\n
Impact Frontiers is an educational initiative to advance the state of impact management practice. Cohort members worked together and studied alone to learn and test new ways to measure and manage impact and integrate impact into their investment practices. Members experimented with new approaches on real portfolios, developed tools to use in their work and gained insights from peers and impact measurement experts. <\/p>\n\n\n\n
No Easy Template; Rather, a Replicable Process<\/h2>\n\n\n\n
Clear about the impact outcomes they were looking for from a portfolio, cohort members then determined which metrics would support attainment of those outcomes. They developed custom frameworks that combined data points, research and analysis to score investments on social and environmental metrics, and then plotted impact metrics against a relevant-to-them financial metric, such as return on equity. <\/p>\n\n\n\n
These were custom frameworks that worked for their portfolios \u2013 for example, some examined carbon intensity, others the number of new jobs created, and others how well an investment increased the resilience of the local food system. <\/p>\n\n\n\n
Cohort members found that a key benefit of this work was its wide applicability and understandability:<\/p>\n\n\n\n
Process was widely applicable. <\/strong>While metrics and resulting graphs were different, cohort members found the process applicable and helpful for everyone. Large asset managers with many varying funds were able to develop a flexible assessment that could be piloted with one fund and then extended across to others. Managers with small staff teams were able to develop a framework that would not be too onerous to maintain. <\/li>
Results were widely understood<\/strong>. Cohort members found that the final graphs helped colleagues see and understand impact, and how it could continue to be measured alongside financial performance, supporting company buy-in. Other members found the graphs demonstrated that positive impact contributes to the success of a business \u2013 which is valuable when speaking with potential investors.<\/li><\/ul>\n\n\n\n
Cohort members pointed out several challenges to measuring impact. Many gaps in data, even with more established commonly used metrics like GHG emissions, presented a common challenge, as did inconsistent reporting expectations. But a challenge is sometimes also an opportunity. Several cohort members found the problem of data gaps could be minimized by incorporating a more qualitative approach into scoring and even using storytelling. <\/p>\n\n\n\n
Tips for all Investors<\/h2>\n\n\n\n
Work with and learn from others.<\/strong> While impact measurement is an emerging field, there is a robust global community of expertise. Working with others within your own team or within wider impact measurement networks is incredibly useful. Different perspectives and experiences will be handy as you experiment, test and roll out a new integrated impact-finance methodology. <\/li>
Break away from a siloed perspective.<\/strong> Leading investors examine impact right at the start of their due diligence, and from all angles \u2013 company products as well as operations, negative as well as positive impacts, and the interconnection between stakeholders that may affect impact. <\/li>
Do. Then Re-do. <\/strong>It\u2019s worth remembering that once an impact scoring framework has been made, it\u2019s not set in stone. New learnings and data will, and indeed should, refine and modify the framework over time. <\/li><\/ol>\n\n\n\n
It is Worth Doing<\/h2>\n\n\n\n
The hard work to integrate impact is worth it, not least because it meets the growing calls for more transparent, robust and understandable impact measurement, management and reporting in Canada\u2019s investment sector. <\/p>\n\n\n\n
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