This report outlines how impact investing has been intertwined with portfolio management at The Russell Family Foundation (TRFF). It highlights the potential for social, environmental and financial benefits in any investment portfolio, whilst also leaving a positive impact on those companies, communities and stakeholders involved.

The following five key areas are highlighted in the report:

Learning through experimentation

Engaging in a ‘pilot’ investment toward socially responsible mediums such as environmental mutual funds, community bank deposits, program-related investments, allowed the board new-found knowledge to allocate additional capital to expand, thus identifying other education and advocacy efforts. These efforts include working on the Carbon Disclosure Project, investment in Enterprise Community Partners for affordable and green housing and working with former professionals to provide insight into mission-related investing.

Reframing processes

As impact investing is focused on providing social, environmental and financial benefits, revising investments is an annual process to honour the company mission. This starts with the transition from traditional investments; divesting from all fossil fuel holdings to focus on industries that align with portfolio objectives. Collaboration and exposure with similar industry professionals is important to TRFF, providing the foundation with valuable insights that improve the quality of their impact investments.

Having difficult conversations

The idea of investing to promote positive impacts for all companies, communities and stakeholders is not attractive to many. The financial returns predicted by most do not prove viable, particularly when promising solid returns to wealthy clients. TRFF has proven that impact investing has outperformed its expectation and is a solid investment strategy, providing strong financial returns whilst providing life-changing social benefits.

Thoughtful portfolio management

Asset allocation at TRFF revolves around family values and having a charitable purpose, whilst also being financially viable and providing income. Focus is on asset growth, diversification and financial and non-financial results. The allocation is driven to provide stakeholders increasing returns and create the results that the investment was intended to, for example, sustainable forestry producing employment opportunities.

Reflecting on investment practices

TRFF promote the following processes and encourage others to implement these into their own practices.

• Rethink your investment policy statement (IPS).
• Choose between total portfolio activation or create a carve-out.
• Commit to shareholder engagement.
• Make incremental changes.
• Engage in peer-to-peer collaboration.
• Explore catalytic opportunities.
• Take a look at your own portfolio.
• Learn from the field.

This report would be useful for foundations and portfolio managers wanting to chart their own course in pursuing investments that support positive change and impact.

1. Impact investing has grown tremendously. The market size of sustainable, responsible and impact investing in the US was estimated at $8.72 trillion (2016), whereas in 2012 it was "just" $3.74 trillion. Investors have discovered they can assemble portfolios that support their mission and generate competitive financial returns.
2. A barrier to impact investing is managers believing they will not uphold their fiduciary responsibility due to a lack of diversification. The TRFF portfolio has disproved this, outperforming its blended benchmark.
3. The DivestInvest movement launched in 2014 with 17 foundations and managing $1.8 billion in assets. Today, it amounts to $5.5 trillion in assets. This is through the combination of sovereign wealth funds, pension funds, cities, universities, houses of worship, health care organisations, insurance companies, philanthropy, non-profits and individuals.
4. Philanthropy should embrace a fiduciary definition that upholds mission by marrying wise financial management with positive social impact.
5. TRFF has developed a strategic goal of increasing an allocation to private assets in a disciplined and diversified manner that helps achieve a dual mandate: increasing portfolio returns and driving intentional outcomes, or impact, with financial resources.
6. TRFF positions its investments for asset growth, diversification and exposures that achieve both attractive financial and non-financial, or impact, outcomes.
7. Those opposed to impact investing contend that selling stocks means relinquishing influence. This position plays down the power of divestment.