Developing impact investing products is a relatively new field. While there is a fairly well-trodden path in venture capital and private equity, there is less of a track record in public debt and equity markets. But that is changing fast. Given the accelerated pace of impact product development, it is important that it is done well to protect the integrity of the impact investing market.

How to use these resources

After a reminder about the importance of a strong impact thesis and the need for a clear theory of change, the module looks at impact portfolio construction and impact portfolio risk management.

Resources

Developing an impact investment thesis and process 

Creating a Strong Investment and Impact Thesis (opens new window)

Global Impact Investing Network

Reading time: 3 minutes

A very short introductory article on the considerations a fund manager should make to create a compelling investment and impact thesis. The article covers the sort of questions a fund manager should contemplate, covering both the thesis and how it would fit in the marketplace. A variety of additional resources are identified from those relevant for first-time managers, various impact asset classes (private equity, private debt and real assets), and case study portfolio approaches for existing impact funds. 

What the reviewer found helpful: “Useful links to additional resources for wider reading specific to different asset classes” Chloe Mallo

introductory

Impact investment selection and portfolio construction 

The Investors Perspective: An Illustration of How We Can Build Portfolios that Match Impact and Financial Goals with Intentions and Constraints (opens new window)

Impact Management Project

Reading time: 30 minutes

The paper presents a framework for investors that encompasses the dimensions to consider when setting impact goals as part of their investment strategy and decisions. The paper then illustrates through model portfolios how it is possible to transition from a traditional portfolio to one with impact goals. The paper demonstrates how traditional asset allocation principles can be used to build a portfolio satisfying both the investor’s need for investment efficiency and their desire to incorporate impact goals.

What the reviewer found helpful: “A great starting point for investors considering whether and how to incorporate impact goals into their investment decisions”   Yinni Hu

introductory RECOMMENDED READ
The Investors Perspective: Constructing a Portfolio on the Efficient Impact Financial Frontier within One Asset Class (opens new window)

Impact Management Project

Reading time: 45 minutes

Impact Management Project is looking to deliver context and clarity around the best way to build an impact portfolio in this 15-page document. Relevant to investors across the spectrum of financial returns sets out a clear, four-step data-driven methodology. Uses the experience of Root Capital to provide a highly useful case study.

What the reviewer found helpful: “One of the best documents I have read on impact investing anywhere: clear, interesting and practical.” Chris Cullen

intermediate RECOMMENDED READ
Incorporating Impact Criteria in Portfolio Construction: From Policy to Implementation (opens new window)

World Economic Forum

Reading time: 10 minutes

The report uses a case study showcasing how a Foundation moved its assets from a 2% allocation to impact investments to 85% over 6 years . The report provides an overview of the framework used to establish, execute and maintain the impact investment policy and strategy and looks at how to look at individual investments in the context of overall portfolio construction to diversify across risk exposures and balance impact and financial considerations . The impact on optimised portfolio construction of these considerations is discussed in the context of being an early mover in the space and how this will change as the market matures.

What the reviewer found helpful: “Useful introductory overview of the different due diligence considerations for public and private strategies” Chloe Mallo

intermediate

Risk Management

Risk, Return and Impact: Understanding Diversification and Performance within an Impact Investing Portfolio (opens new window)

Impact Assets

Reading time: 45 minutes

Some of the early work describing the three-dimensional risk/return/impact thesis. An accessible document designed to run through some key considerations when constructing an impact portfolio. Discusses the key issues around risk and impact return and places them in the context of the developing impact market at that time.

What the reviewer found helpful: “An important discussion of why risk matters to investors and its central role in effective decision making.” Chris Cullen

intermediate RECOMMENDED READ
Shifting the lens : A Derisking Toolkit (Five Risks and Seven Strategies) (opens new window)

Bridges Ventures & Bank of America Merrill Lynch

Reading time: 40 minutes

The report identifies a range of risk factors and explores possible de-risking strategies for each that can lower the risks of impact investing for asset owners. The report includes recommendations to asset owners and “matchmakers” – including governments and advisors – that can help de-risk products and incentivise more asset owners to invest with impact. The report includes examples and case studies for each risk factor, de-risking feature and for a wide range of asset classes.

What the reviewer found helpful: “The report gave a helpful overview over the risk-related barriers to impact investing and puts forward a wide range of ways to address them.”   Yinni Hu

intermediate

Regulation

New ESG Disclosure Regulation (SFDR) (opens new window)

Allen & Overy

Reading time: 10 minutes

In light of new EU regulations on ESG disclosures, the paper provides a thorough overview of the Sustainable Finance Disclosure Regulation (SFDR) and supplementary Taxonomy Regulation, and how in practice the changes to required disclosures will  impact different types of firms and products and when they come into effect. The report covers some high-level FAQ type questions followed by a more detailed breakdown of the requirements applicable to different firms looking at disclosure, policies and reporting as well as additional requirements under the Taxonomy Regulation.

What the reviewer found helpful: “An “FAQ” for private banks, wealth managers and advisers on SFDR regulation ” Chloe Mallo

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