Optimising for impact, risk and return

Dec 12 2022 · 4 minute read

Optimising for impact, risk and return

Snowball was founded six years ago. Since then, we have constructed a portfolio that places equal importance on impact, risk, and financial return. Much has changed over that time, not least the proliferation of new impact funds. This, of course, represents great progress. Our strategy to achieve market financial returns alongside deep and meaningful impact has gone mainstream: we are lonely no more.

This brings challenges in its wake. Good impact is not binary. Many emerging managers want to get impact right, but there is little clarity – or consensus – about what good practice looks like. New impact frameworks and initiatives emerge seemingly daily, but it remains hard to integrate these into an effective strategy which generates positive impact and mitigates the negatives.

Part of our mission at Snowball is to grow the impact investing market, so we have always sought to share our processes and methodology. Our first two impact reports set out how Snowball assesses enterprise and manager impact to construct a high-impact portfolio.

But we realised it was now time to turn the lens on Snowball. Do we walk the walk ourselves when it comes to impact? Do we practice what we preach? We invited The Good Economy to hold us to account. The results are shared in this recent report written by The Good Economy - Optimising for Impact, Risk and Return.

So, what did we learn? First, that we’re doing a lot right. The Good Economy found that we have “developed a market-leading approach to embedding impact considerations throughout the investment process”. We are constantly evolving and iterating our impact processes, so it’s heartening to know that we remain at the forefront of the sector.

But there remains much scope for improvement. We can track the success of our engagements more thoroughly. We can do more to evidence our progress in driving behavioural change in capital markets. And we can spend more time considering potential negative impacts. We debated with The Good Economy whether tying remuneration to impact was appropriate for Snowball and if there was any useful value derived by aggregating impact KPIs across the portfolio. We remain unconvinced. Snowball has a diverse, multi-asset portfolio addressing all the Sustainable Development Goals, and there can’t be a one size fits all approach to impact. But the process reinforced the continual need to reflect, learn and innovate to improve our impact practice.

Moreover, by making the results of the verification public, we are lifting the bonnet on our impact practice. We want to challenge the lack of transparency in the investment industry – where every framework is proprietary and cannot be shared lest it contains a competitive advantage. At Snowball, we approach things from a different starting point: why wouldn’t we share our impact methodology and learnings?

So we hope this report serves as a call to action for other impact managers to conduct their own impact verifications and share the findings. This will help weed out impact washing and, more importantly, help build consensus around good impact practice. Then everyone wins.

For more information, please contact jake.levy@snowball.im

Jake Levy, Investment Manager at Snowball
Jake Levy, Investment Manager at Snowball