Leveraging impact investing as a vehicle for diversification and growth

TSAM ESG is the definitive forum for leading asset managers and investment professionals, providing a dedicated and comprehensive platform to discuss best practices in impact investing, sustainable investment risks and opportunities, and guidance on navigating emerging regulations. I recently spoke with Amy Malkani from TSAM ESG about our approach to impact investing.

Defining Impact Investing

ESG looks at the environmental, social, and governance dimensions primarily from a financial perspective and how these elements impact a company's future cash flow and individual value. On the other hand, impact investing goes further. It looks into investing in companies tackling social and environmental issues, generating returns that are in lockstep with their impact. Impact investing aims to invest in companies that not only produce measurable impact but better mitigate systemic risks often overlooked in traditional portfolios.

Working with Investors

More and more investors are looking for impact, even if the impact itself isn't their primary concern. As a portfolio diversifier, impact investing is becoming increasingly popular because it goes beyond ethics and is a better way to invest: with the future priced in. Snowball's traditional investors are high-net-worth individuals, investor family offices, endowments, medium-sized foundations, and pension funds. We aim to have other types of investors interested in a particular asset class or theme.

Avoiding Impact Washing

The risk of impact washing, or using the guise of impact investing in promoting a company's social or environmental credentials, is a concern for impact investors. Investors should look beyond a company's claims and scrutinise its impact process (which goes beyond metrics) to ensure that its investments genuinely produce measurable and positive outcomes. Many funds also take impact into account only during due diligence and then in reporting back to investors, rather than integrating impact into the investment and decision-making process, which is what we do – another thing for investors to check if they want to ensure fund managers are taking impact seriously.

Using Investment Frameworks

Snowball uses pioneering impact standards to evaluate the impact of companies. The framework assesses companies' measurable impact across five key categories: Missions and behaviours, what drives the organisation and how determined it is to live those values; Impact process, The impact thesis and how impact is measured; Active engagement, how each manager supports and engages with their investees to improve outcomes; Catalytic, whether the fund manager is acting as a pioneer on impact and Impact risk management, the management of the risks around investing for impact.

In 2019, we were awarded the Impact Strategy Award by Pensions for Purpose for our work in collaboration with the Impact Management Project on measuring enterprise impact. This framework builds on and learns from the work of others. This includes NPC with the KL Felicitas Foundation, the Impact Management Project, and the Operating Principles for Impact Management, developed by the International Finance Corporation.

We use a bullseye to report on the impact of our portfolio. The bullseye denotes the impact intensity of the Snowball portfolio by showing the percentage of our portfolio that sits in each ring of the bullseye. We continually work with our managers to improve the positive impact that our investments create and, therefore, to drive the impact score toward the centre of the bullseye.

Snowball's diversified portfolio outperformed traditional portfolios in 2022 for three main reasons: it was genuinely diversified, a significant part of its portfolio wasn't correlated to traditional markets, and the returns were inflation-linked, producing real returns. We invest in assets that provide real returns while mitigating the risks of environmental degradation and social inequality, generating not only returns but also better-quality returns.

Watch the full conversation:

If you have any thoughts on the article or would like to learn more about Snowball, please do be in touch at hello@snowball.im