SUSTAINABLE INVESTING

White Paper: Building Impact Portfolios

03.22.2017

We present a framework to building diversified portfolios that balance the objectives of maximizing risk-adjusted financial return and generating social and environmental impact. The potential of impact investing is often illustrated in stories of individual investments. New entrants to the field and experienced participants alike are drawn to the idea of putting capital behind an inspiring social entrepreneur, an innovative business model, or a transformative technology. For investment advisors, the excitement over these kinds of one-off investment opportunities presents a dilemma: how to combine them into a portfolio that satisfies an investor’s impact objectives while also meeting the investor’s risk and return requirements?

Though finance is itself a relatively new field, it offers some guidance on how to approach this novel challenge. Modern Portfolio Theory (MPT), introduced by Harry Markowitz in 1952, gave investors a theoretical and mathematical toolkit for portfolio design.1 Investors instinctually understood the value of diversification, but until the arrival of MPT, they lacked a systematic process for constructing portfolios that could deliver the highest expected return for the least amount of risk.

MPT remains the foundation of the investment management industry today and offers impact investors a starting point when building portfolios that maximize both financial and “social” return for a given level of risk. While this paper is geared towards institutional investors, such as foundation endowments, family offices and the firms that advise them, any investor interested in moving beyond a deal-centric approach to impact investing and towards one that integrates impact throughout the investment process may find it useful.


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The information provided is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy, or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

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