Rennie Hoare, Head of Philanthropy at C. Hoare & Co, discusses how a charitable trust can make the biggest impact with investments and, simply, 'invest well'. Hear more from Rennie at our FundForum International event later in the year.
The concept is simple. If you have a traditionally invested portfolio, the negative externalities (carbon, human rights issues, payday lending), may outweigh the good that you do with your grant-making.
To overcome this, charities and individual donors are starting to look across both areas of activity – investments and the grant-making – and try to achieve a higher positive impact. By considering both of these assets, and having them work equally hard, they achieve “total portfolio impact”.
Changing investments... for the good
At the end of 2019, we converted the final part of our charitable trust (the GBT) investments into social impact investments. This means that, as well as making a financial return, all investments are intentionally set to make a positive social and/or environmental impact. In this way, we are making sure that the positive effect of the GBT goes beyond the 300+ grants we make every year.
The investments now comprise: a portfolio of catalytic direct equity and debt investments, discretionary impact mandates and Snowball, an impact investment fund we co-founded. Established in 2016, Snowball is a diversified fund that gives investors access to a global, multi-asset, multi-manager portfolio which maximises positive social and environmental impact alongside competitive financial returns.
The fund provides investors with exposure to a range of public and private assets that support the UN’s Sustainable Development Goals. Its holdings range from housing the homeless and community owned renewable energy in the UK, to microfinance in the developing world.
The ethos behind Snowball is that people should not have to choose between investing for their own financial future and the future of society and the environment.
All investments have impact, be it positive or negative, and Snowball’s investment strategy is to use the financial markets as a force for good, directing capital towards activities that benefit people and the planet, minimising risk and without sacrificing returns.
For example, Snowball is an investor in the Bridges Social Outcomes Fund which invests in contracts typically commissioned by local authorities in which the investor receives a return if agreed outcomes are achieved.
"Having a framework which is designed to monitor and compare managers across companies and asset classes makes measuring impact, and therefore the success of investments, more manageable."
These investments can be incredibly powerful as they are focussed on disadvantaged groups – for example children on the edge of care, the homeless and pupils not achieving their potential. The quality of the intervention is closely monitored and adapted to ensure the best outcome is achieved and the impact can be long term and life changing.
Investing off the grid
Equally, Snowball has exposure to PEG Africa via the I&P Afrique Entrepreneurs venture capital fund investing in sub-Saharan Africa. PEG provides off-grid solar home systems in Ghana, Senegal and the Ivory Coast to customers who would never be able to afford them otherwise.
The success of a such a strategy relies heavily on how you measure the true impact of these investments. To address this issue, Snowball has developed a proprietary measurement framework which assesses impact at the point of investment, and subjects all its holdings to ongoing, long-term monitoring and evaluation. The fund views impact through a long-term lens, considering the outcomes against what would have happened had an investment not been made.
The framework not only measures but also seeks to improve the impact of the companies in the portfolio, both by using active portfolio decision-making, and by engaging with management. In line with our own investment philosophy, Snowball believes in a highly active approach, placing particular importance on the culture and philosophy of the managers in which it invests.
This is particularly important for identifying those managers whose values are aligned with Snowball’s and who genuinely want to improve the social and environmental outcomes their investments generate.
"It is currently estimated that an additional investment of $2.5 trillion per annum is required to meet the UN’s Sustainable Development Goals. Government spending alone cannot meet this figure, so there is an important role for Charities and Foundations to play."
Having a framework which is designed to monitor and compare managers across companies and asset classes makes measuring impact, and therefore the success of investments, more manageable.
A total portfolio impact approach must answer the question “how do we achieve the greatest impact with each pound we have?” Funds such as Snowball are a powerful way for charitable trusts to ensure that they can create the maximum societal and environmental good at every stage in the investment process and can amplify the impact of an organisation many times over.
Investing together more powerfully
It is currently estimated that an additional investment of $2.5 trillion per annum is required to meet the UN’s Sustainable Development Goals. Government spending alone cannot meet this figure, so there is an important role for Charities and Foundations to play.
By ensuring that their portfolios not only adhere to, but indeed, further their programme's aims, they can transition from traditional grant-makers to truly mission-driven investors.