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YOUR PARTNER IN RI IMPLEMENTATION

Every organization will have different approaches, goals, and interpretations of Responsive Investing. At FEG, we start with a discovery process and then help you build the RI portfolio right for your organization. If you would like to partner with us to develop a custom questionnaire, click here. 

Read on to discover implementation considerations including performance, the spectrum of RI investing, levels of implementation and intentionality, discovering your organization's starting point, and measuring RI's impact.

 

Performance: Should We Invest?

While many investors express concern that RI strategies generate lower returns, several studies indicate otherwise.

 

esg ratings and correlation

 

In comparing standard indices with their ESG indices counterparts, competitive performance is possible. 

 

competitive performance

 

Incorporating Responsive Investing In Your Portfolio

  • There are many different ways to invest. The types of RI available can be placed on a spectrum of intentionality. SRI is typically selecting what not to invest in. As you move across the spectrum, the investments become more specific and directed.

 

levels of intention

 

  • For many investors matching mission with investing takes one or a combination of the following five primary methods:

Negative Screening
(Exclusionary)

Avoidance from companies or industries (ex. tobacco, gambling, pornography, abortifacients).

Positive Screening
(Best-in-class)

Investing in specific sectors, companies, or projects with clear positive impact (ex. Identifying environment friendly company, clean technology, renewable energy, urban revitalization).

Impact Investing

Targeted investment aimed at solving  social or environmental problems (ex. Bridge financing to local non profit organization, lending capital for revitalization).

Thematic Investing

Targeting specific strategies that mirror the values of the investor (ex. human rights, political contributions, economic development, etc.).

Full ESG Integration

Systematic and explicit inclusion of ESG criteria in the decision-making process to identify externalities and generate a better representative value of a company.

 

 

  • There are many levels to investing. Determine what level of intention you are willing to take with responsive investments. Importantly, the level of intention can change over time.

 

intentionality 

 

 

Integration Framework

ESG portfolio construction needs are viewed the same as any traditional portfolio.  For example, focus on asset allocation, risk, manager selection, and security analysis.

  • Portfolio Construction Considerations
    • Asset allocation based on capital market assumptions and economic outlook
    • Are there material ESG factors that can impact the asset allocation?
  • Risk Analysis
    • Downside return assumptions and does ESG help or hurt?
    • Diversify by security, style, region, sector, and ESG focus
  • Asset Allocation Considerations
    • Strategic vs. Tactical
    • Values vs. Value
  • Manager Selection
    • Holistic approach to ESG or exclusionary only?
    • Specialist ESG firm or traditional firm?
    • Active vs. Passive
  • Security Analysis
    • ESG factors that will drive performance
    • Relative or absolute ESG criteria
    • Engagement opportunities with corporate management

 

Discover Your Starting Point

When the discussion arises about RI, there are several considerations. To help set your investment goals and expectations, FEG will take a deep dive into the discovery process.  

 

SAMPLE CONSIDERATIONS

Objectives Why are we considering RI?
IPS Amend current IPS vs. develop separate ESG IPS
Portfolio What level of intention?
Slice of endowment v. other option
Enterprise Governance – Board Approval Process
Fundraising – new donor opportunity
Risks – loss of some supporters

 

The sample survey below is one way we help ensure committee, board, and staff members and are on the same page for your organization's needs and  objectives. We develop a report that shares the results and helps to identify potential areas for discussion, or implementation. 

 

questionnaire and report

 

Portfolio Examples 

FAITH BASED ORGANIZATION

faith based

  • Exclusionary screening only
  • Low cost index options
  • No sin stock exposure
  • Monitoring manager alignment with governing body guidelines (ex. USCCB)
  • Values driven decisions at the front of the process

HOLISTIC ORGANIZATION

holistic org

  • Belief ESG criteria can drive shareholder value
  • General exclusions (partial sin stock)
  • ESG integrated into the decision making
  • ESG specialists considered in manager selection but not exclusively
  • General approach to improve overall portfolio health
  • Financial return first w/ social benefit included

ENVIRONMENTAL ORGANIZATION

envir org

  • Divestment from fossil fuels
  • Partial divestment from sin stocks
  • Complete ESG integration
  • Active allocation toward positively aligned environmental solutions
  • Effort to increase gender and racial diversity
  • Direct impact investments with complete alignment with mission

 

Measuring Impact

  • There are a number of ways to measure the impact of responsive investments. Responsive investments are not a separate asset class, and you can approach implementation by either selecting an impact within a given asset class or selecting a specific issue and look across the asset classes to achieve that outcome. 
  • Below is  one example of measurement using the United Nations Sustainable Development Goals. This can be tailored to the specific metrics your organization utilizes to measure impact.

 

UN SDGssample report card

 

 


 

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