‘Your impact investing journey’ is sponsored by Tiedemann Advisors. This series will explore the role of a financial advisor in helping clients navigate the many steps involved in building and maintaining an impact investing portfolio. The primer focuses on the essential topics and questions that are top of mind for high net worth individuals, family offices, foundations and other investors when starting out on their impact investing journeys.
Like traditional investors, impact investors can have varied goals and objectives. Some impact investors seek to align their portfolio with a singular issue like climate change and want 100% of their capital committed to climate solutions. Other investors may prefer to diversify their impact investments across a range of social and environmental issues, as well as global and local issues, such as income inequality, sustainable land management, education, affordable housing, and/or diversity and inclusion.
As such, impact investing should be a customized journey for each investor. A strategic and experienced impact advisor can help an investor map out this journey into individual steps along a timeline that meets their goals and objectives.
At Tiedemann Advisors, we use a proprietary impact diagnostic tool to walk investors through every stage of the impact investing process. One of the first stages is a detailed survey that attempts to get at the heart of what an investor really cares about – impact, performance or, as is often the case, a blend of both. Unlike the questionnaires that are common among financial advisory firms, our diagnostic tools contain both quantitative and qualitative elements that are designed to generate a holistic picture of an investor’s needs and goals.
These diagnostic tools are especially useful for investors like family offices or foundations that may have multiple stakeholders, since each stakeholder can take the survey separately with their advisor. We often work these kinds of multi-faceted investors to aggregate the survey results and find areas of alignment to build a thoughtful, strategic and impactful approach. These tools are also helpful for facilitating conversations between different family members, particularly multi-generational families, where there may be conflicting goals and objectives.
These technology-enhanced diagnostic tools are just the beginning of the impact investing conversation. To get a more complete picture, we also ask for information such as:
- Goals and intentionality: Defining your mission and values;
- Approaches and motivations: Choosing from a variety of investment approaches that can range from broad to deep impact in public and private markets; and
- Risk and return expectations: identifying an investor’s performance expectations, risk tolerance and the time horizon for the impact investing strategy.
The part of the questionnaire that investors are often most interested in is understanding the different options available to them when it comes to allocating to impact strategies. There is still a lot of confusion in the marketplace about the best way to generate meaningful impact in a well-diversified investment portfolio. This is why when we construct a portfolio, we will look at including one or more of the following four specific impact investing approaches:
- Values aligned strategies. Customized accounts that exclude companies with business practices that run counter to client values and include companies with business practices that advance their objectives, typically seen with passive investment structures.
- ESG integration. Investment strategies whereby the impact thesis and investment thesis are inextricably linked through the incorporation of ESG factors used in financial analysis and decision-making. These factors can be utilized across asset classes, sectors and geographies, and are typically seen in active management strategies promoting aligned shareholder engagement.
Brad Harrison is a managing director at Tiedemann Advisors.
Tiedemann Advisors is an investment advisor. This information is intended only as an illustration of the services offered by Tiedemann, and is intended to serve as the basis of a discussion with a Tiedemann professional. This information is not designed for any particular client or type of client, and Tiedemann’s services may not be suitable for all clients. You should consult with your tax and legal advisors prior to entering into any wealth planning or trust arrangements.