The other thing that we’re seeing is from the customer side — that they want things that have social impact and environmental responsibility and products that serve those needs.

Abigail Noble

In the last blog, we explored why there is an increased focus on investing with the aim to create a more positive impact on society (whether environmentally or socially, or both).

There are many themes where there is a dramatic shift, and these can have the most positive impact on the society that we live in; these include energy transition, social infrastructure, next generation medicine, electric/autonomous vehicles, AI and cloud computing, agriculture and naturalness and new forms of industry.

In this blog we will explore this further and provide examples, based on our portfolio, on how this can be implemented and where it might fit for investors.


The challenge with ethical investing has always been the negative screening aspect; which means that you cannot invest in certain things (like arms, tobacco etc).

This meant there was very little engagement with companies to transition to a more positive position because ethical fund managers would never invest in them. This might have contributed to why the market delivered not only poor returns but also limited opportunities for investors.

But this is changing; Orsted was an oil and gas company which transitioned to a world leader in offshore wind. Pure ethical funds would never invest in this company until it had transitioned. However, some sustainable funds would, because they believe that once a company is committed to that transition and where there is active engagement to change, then not only is the end outcome good for society, it is also good for investors. This is an important shift where there is a need to blend old thinking with new.

How have we approached this?

To explain this, we have focused on our Positive Impact Portfolio (previously our Ethical Portfolio). This has been constructed using our process, others may do it in a different way.

Within the portfolio we have a mix of pure ethical funds, sustainable funds (some of which are more rigid than others on transitioning) and impact investing.

We established the portfolio in 2014 and are looking to make changes to some of the holdings in the next review. The primary reason for the changes is that the opportunity set is greater, and we can now access sustainable funds in the US, Emerging Markets and Asia.

To provide some feel as to the types of holdings and why they would fall into the sphere of delivering a positive impact to society we have picked four long term holdings, and one new investment. We would stress that we are not recommending that an investor should invest in these, separate research would need to be done.

Renewables Infrastructure Group plc – this is a traded investment trust that invests in renewable energy infrastructure assets in the UK and Europe. The assets include wind, solar and battery storage and aim to contribute to a zero-carbon future.

Civitas Social Housing plc – this is a traded investment trust that invests in real estate dedicated to investing in social care housing. The primary aim is to deliver positive financial returns and large scale measurable social impact through increasing the availability of social housing and improving the quality of social housing.

Impax Environmental Markets plc – this is a traded investment trust which focus on areas like resource scarcity, replacement of aging infrastructure, environmental pollution, energy security and climate change adoption and mitigation technologies.

Rathbone Ethical Bond Fund – this invests in high quality investment grade bonds. The types of holdings that the manager focuses on include Chelmer Housing Partnership which focuses on Social Housing, Places for People which is a housing association and Dolphin Living which provides social housing. Other examples include Great Rolling Stock Company, which finances the provision of new and improved passenger and freight rolling stock by leasing carriages to rail companies.

In terms of new holdings, one example, would be Vontobel Matrix Sustainable Emerging Markets Leaders. This is an investment company with a long-term heritage focusing on impact investing that has a positive impact on the environment or society under the phrase “doing good”. They exclude undesirable companies or sectors based on convictions or on international norms, for example weapons. They actively engage with the companies to make positive changes.

Just looking at these investments there is a mix of themes including renewable energy, social housing, improving infrastructure and active engagement. There will always be a cross-over between the investments, but to have a good mix of different themes will ensure a positive impact on the society and environment around us.  

In our portfolio we want to have a small number of holdings so that each one has a story and offers something that will positively impact the world around us. In the first blog we indicated that we were concerned about the sudden use of ESG; investment managers with no track record are rushing out new ideas, but we want to focus on those with a proven credentials and offering something real and genuine.

What about returns, and where does this fit

Everyone who builds an “ethical” portfolio will have a different approach. We do not think there is a wrong way, if the outcome is to deliver a positive impact. We have tweaked the new portfolio to increase the weighting to fixed income (debt) and specialist investments to 50% (previously 41%).

In terms of returns and volatility (the movement in the daily price), we have found these to behave differently to the other portfolios we manage.

There are two measures of performance; one is the beta and one is the alpha. A beta score of 1 means that the portfolio will move with the market, above 1 is “riskier” than the market, and below one is less “risky”. Our standard portfolios have a rating above 1 but the returns are above the market (alpha) which justifies this higher level.

With this portfolio the beta is about 0.8 which is significantly below the market, and yet it considerably outperforms the market.

In English, what does this mean?

The current and proposed portfolio has assets which don’t react in the same way as the markets; social housing, renewable energy etc. This means that it offers the potential for some downside protection. This is only based on our portfolio (as opposed to other strategies) but in 2015 when markets pulled back strongly in the third quarter, this was one of our best performing portfolios. However, in 2016 and 2017 when the markets raced ahead this lagged slightly. In 2018, although the portfolio was down, it didn’t fall as much as the others. In fact, over the last two years this has been our best performing portfolio.

The point is that it offers something different.

In terms of where it might fit for investors. There is no perfect answer because everyone is different, but we see two potential opportunities:

  1. These investments offer investors diversification and can be blended alongside an existing portfolio of assets and should behave differently which might provide some downside protection without giving up the potential for upside returns
  2. We have investors who actively want to invest in something that makes a positive impact on the world we live in. In our mind we really developed it for the younger generations and we still see this as primarily aimed at that age group, but the reality is that this for anyone who wants to invest this way

Positive Impact Investing

There is little doubt that we will see more and more investment houses pushing ESG. Care is needed and there will be winners and losers over the next few years.

Since we set up our Ethical Portfolio (now Positive Impact Portfolio) the market has evolved, and we believe that investors want something that gives a positive outcome in terms of the environment and society. In addition, they don’t feel they should compromise significantly on returns as was the case in the past.

The different terminology is confusing, but the outcome is often the same; calling our offering the Positive Impact Portfolio is a way of encapsulating all the different options.

We want the holdings to have a positive story; within this we believe they can hold their ground against some of the best funds out there, and active management is the way to deliver that positive outcome both for society and investors. (Of course, past performance is no guide to future performance!!).

So, to conclude some may scoff at the rise of the millennials, but the information flow has changed and the thirst to make a difference is growing. The investment industry is often slow to adapt, and currently it is an underplayed market. We think this will change, and in the future, there is no reason why some of these holdings don’t come into the main portfolios we manage.

Note: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.