IMP Matrix Rating: A1 to C2

What: EQ Investors is a London-based wealth management firm, providing us with their fund selection advisory services to construct an actively managed portfolio of stocks, bonds, and listed real assets. Ours is a bespoke “positive impact” portfolio in that fund manager selection is based on a proprietary methodology that identifies the actual impact footprint of funds’ underlying positions. Therefore, it goes beyond ESG in that it looks directly at whether companies’ product and services (or use of proceeds for bonds) are actively good for society and making a positive contribution to the sustainable development goals (SDGs). See below the logo for a graph showing how the portfolio maps onto the SDGs, and how it aligns with our three pillars.

Who: Given that this is a diversified portfolio, the stakeholders affected are broad-based and global.

How Much Impact: The portfolio has a CO2 footprint which is 15% less than the MSCI World index, and a full 52.5% less than the FTSE 100, with about 1,300 tonnes of CO2 emissions per GBP 1 million invested, vs. 1,500 and 2,700 for the other two indexes, respectively. In scenario analysis, this portfolio has been modeled to be consistent with an economy where emissions are 25% lower today, and become net neutral by 2060 (which is consistent with a 1 degree C increase in global temperatures). The FTSE 100, on the contrary, has 2x the current global economy’s emissions, without a path to generating any mitigation.

Our Contribution: Unfortunately, however, given that this is a portfolio of publicly listed/available securities, our additionality is minimal, and only comes from the engagement of fund managers with underlying investee companies. However, we’ve been promoting this style of “positive impact” investing in public markets with several other investors, including much larger institutional mandates, in the hope that if more and more investors adopt such approach, it will affect companies’ cost of capital and therefore drive real change.

Impact Risk: The main risks to generating impact are that selected fund managers don’t succeed in their engagement with underlying companies - to make “good/green” companies better for the world, and to make “harmful” companies less bad for the world. Another key risk is that EQ’s methodology for calculating positive impact footprints of portfolio companies remains a niche way of investing, and does not drive meaningful change in the capital markets. Lastly, our own impact risk lies in the fact that to invest in active fund managers such as the ones EQ predominantly recommends, we pay higher fees: if the impact created there is not commensurate to those fees, the risk is that greater impact would have been possible elsewhere by donating the savings to effective charities (and investing in passive liquid funds).

Sample Investment: Hermes Impact Opportunities Equity Fund