The 100% impact portfolio

A portfolio focused entirely on impact investments is still a rarity – even among charity investors. Rennie Hoare, Head of Philanthropy at C. Hoare & Co, is hoping to change that. He has overseen the transition of the Golden Bottle Trust, a charity supported and managed by the bank, to a 100% impact strategy.

Charities typically distribute around 4% of their assets each year in grants. However, the Golden Bottle Trust distributes significantly more, targeting 15%. “We felt the need to start considering the impact of the other 85%. You have to look at both your portfolio and grant-giving and try to ensure they are maximising impact and doing the most good they can.” Rennie believes that focusing on impact investments “should be the new normal” way for grant-giving charitable trusts to be invested.

Intentionality is key

Prior to joining C. Hoare & Co, Rennie worked for a large US asset manager, where he helped with the integration of Environmental, Social and Governance (ESG) considerations into the investment research process. The experience left him “wedded to active management and fundamental research.”

This experience and understanding of the limitations of ESG investing was pivotal for the Golden Bottle Trust, which aims for a deep understanding of the impact of its investments. Of particular significance to the strategy is what Rennie refers to as “intentionality”. This is the key distinction between impact and more general ESG investing. “Impact investments set out to intentionally deliver an environmental or social return, alongside a financial return.

“If a business is set up to intentionally deliver an environmental or social outcome, it is more likely to keep on repeating that performance. However, if it’s a by-product, the set-up of that business could change. You could end up in a business that doesn’t have the social or environmental footprint you would like to see.”

The path to 100%

The Golden Bottle Trust is not new to impact investing, having allocated close to a quarter of its investments to impact since 2011. Five years later, the charity acted as a founding partner in Snowball, a multi-asset social impact investment fund. Moving the rest of the portfolio to a 100% impact strategy was simply the “the next step on the journey”. This previous experience with Snowball meant that the “ground had been prepared” when it came to convincing the charity’s trustees that an impact strategy could generate the returns they were looking for.

The shift to a 100% impact strategy has been effected with the help of outside managers, including Cazenove Capital. “There was no need to reduce our return ambitions” to accommodate the impact focus, Rennie points out. Cazenove have been investing for impact for years and were able to provide comfort that switching fully to an impact focused strategy would still enable the Golden Bottle Trust to meet its financial return targets.

“The one thing that our trustees did want to understand was could we do it in a sufficiently liquid way,” Rennie observes. “We wanted to make sure that we had funds available for distribution and we didn’t tie it all up into structures that meant we couldn’t fulfil the trust’s objective of making impactful grants.”

“More opportunities than people imagine”

The impact investment universe is now very large with a proliferation of funds being launched in the past couple of years. Overall the Golden Bottle Trust through its managers has considered hundreds of investments.

“A lot of people think that impact can only be done through early-stage, very long lock-up investments. We had to dispel those myths around impact investment. There are liquid tools you can use that also have impact built into them.” Across the whole portfolio, most of the Golden Bottle Trust’s investments are made through collective investment funds, although unusually the charity has a significant number of direct equity and debt investments.

Covid-19 and recent performance

Rennie believes that the portfolio has “performed better” over the past few months than a more traditional portfolio might have done.

“Our portfolio has had a bias towards quality, growth stocks, which have performed particularly strongly. We naturally avoid more cyclical areas of the market, such as the energy sector. In addition, we have been overweight in our allocation to health care and companies creating solutions to environmental needs,” he says.

A “best for the world approach”

The charity does not target specific social or environmental needs, opting for a more generalist approach. “There are some charities that are more mission-aligned,” he notes. Charities focused on environmental issues may invest primarily in clean energy. “By contrast our investments benefit both people and the planet.”

Investments include a fund providing housing and support for very vulnerable groups, including those experiencing domestic violence and homelessness. They also include green bonds connecting poor rural communities to the grid in Pakistan as well as listed equities that, through their products and services, can help reduce carbon emissions.

More than any one social or environmental cause, Rennie sees the Golden Bottle Trust’s mission as impact investment itself. “We want to be the charity that proves you can invest this way and meet your grant-making obligations and, hopefully, change the way capital is allocated.

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How Cazenove Capital helps

The portfolio that Cazenove Capital manages for the Golden Bottle Trust
aims to maximise positive impact on people and planet. 100% of the portfolio is invested in funds where we have a high degree of conviction that underlying companies are acting in the best interests of all their stakeholders. 68% of the portfolio goes further than this, actively contribution to solutions to environmental and social challenges. Based on data from Schroders’ award-winning impact measurement tool SustainEx, we have determined that the portfolio creates six times the social benefit of the MSCI World Index. It achieves this through investments in health services, access to water and connectivity. The portfolio also supports the planet by investing in companies helping to reduce emissions and find solutions to clean energy needs. We can now provide detailed impact reporting to help clients understand the impact of their portfolios.

To find out how we can help you develop an impact portfolio to meet your objectives, please contact Lyn Tomlinson or your usual Cazenove Capital contact.