A new research paper from Athena Capital Advisors – Social Finance and the Post-Modern Portfolio: Theory & Practice – offers advisors a simple approach to accommodate and measure the distinct social values of their clients.
Authored by several members of the Athena portfolio management and research teams, and published in the Journal of Wealth Management, the research and its findings support a new approach to Modern Portfolio Theory that introduces metrics of social return in the construction of portfolios, to accommodate the unique goals of individual investors or institutions pursuing values-based investment strategies. The article appeared in the Spring 2016 edition of the Journal, which was published on 29 January, 2016.
“Historically, it’s been difficult to measure impact investments because most investors reside at different points on the ‘social return’ spectrum; some may be seeking the largest possible social impact from their investments and others may desire the highest risk-adjusted returns while staying aligned to their social values,” says Athena Founder, CEO and Chief Investment Officer Dr Lisette Cooper. “Through this research, we sought to advance the current thinking around how to quantify and measure impact investments. Until now, the existing literature hadn’t accounted for the personal and subjective components that are inherent to values-based investment strategies.”
The growth of the values-based investing segment has been well documented. As of 2015, the signatories to the United Nations Principles for Responsible Investment controlled roughly $59 trillion in assets, while the latest estimates calculate roughly $60 billion of total assets under management dedicated directly to impact strategies. With experience in values-based investing that spans over ten years, roughly 25 per cent of Athena’s clients incorporate impact strategies either within or throughout the entirety of their investment portfolios. The firm’s capabilities in this area extend to all major asset classes, and include impact, ESG and SRI screening or shareholder activism.
Beyond introducing a new lens through which to measure and quantify impact investments, the paper also proposes a simple approach to implementing values-based strategies. Utilising a heuristic approach to assess an individual’s or institution’s varying degrees of interest in certain causes, the model takes into account not only financial goals and risk tolerance, but also the social return goals and potential tradeoffs. The research also proposes strategies in reporting social return outcomes, while highlighting efforts from the Sustainability Accounting Standards Board (SASB), The Global Impact Investing Network (GIIN) and B Lab to introduce standards that would serve to further enhance impact measurement and reporting.
“This paper represents the culmination of decades of experience coupled with intensive research into the utility clients gain through making investments aligned with their personal values,” says Athena President and Deputy CIO David Lynch. “We’re proud to have made a meaningful contribution to advance the study and dialogue around impact investing and we believe this effort will help make these strategies more accessible to a wider range of investors and institutions.”