In our fourth installment, Mission-Aligned Investing: Measure, we answer: ‘How do you measure a mission-aligned portfolio?’
Your organization set the objective, picked the strategy and selected the manager. Now it is time to measure the investment’s ongoing performance and impact, both fundamentally and quantitatively, on a risk and return basis. How do you effectively measure performance?
The measurement of an Environmental, Social, Governance (ESG) portfolio or fund is complicated because there is currently no industry standard. Some managers take a more quantitative approach by considering a variety of data points, whereas others provide more qualitative measurements on the ESG impact. Thus, making comparisons and conclusions difficult. For the most part, as many ESG investors know all too well, it is up to your organization to define a set of metrics to measure financial return and social impact. Fear not, we are here to help!
As with any portfolio, the central question becomes “what did you set out to do and are you doing it?” While this is no different from the scrutiny applied to any section of the investment portfolio, this question becomes less clear-cut when investor values are integrated. We recommend re-framing the question to “Does the investment mandate chosen align with the value set we’ve laid out to meet the objective overall?”
For example, an investor looking to safeguard against tobacco, a divestment strategy aimed at excluding holdings related to tobacco, might suffice. Even within this strategy, we recommend a periodic review and update of the holdings list. However, for the investor who wants to integrate certain values such as minority and women’s inclusion into their portfolio, the measurement task is more complicated. For that reason, we established a Mission-Aligned Investing Scorecard, which encompasses a list of criteria used to measure the investment against.
When it comes to measuring the impact and return of an ESG strategy, we favor a holistic approach. A Mission-Aligned Investing Scorecard incorporates criteria that most investors regularly review and evaluate today while allowing for a framework to measure mission-alignment. This is important because ESG investing, by design, does not fit neatly into today’s traditionally-evolved metrics and management. Risk and return are measurable, however, they are influenced by the mission-alignment served. This Mission-Aligned Investing Scorecard can be used regardless of the value set adopted or whether the investor is an individual, family office, endowment or retirement plan.
The Mission-Aligned Investing Scorecard brings full circle why an investor chose the ESG strategy in the
• What was the underlying motivation?
• What was the original thesis for the investment?
• What were the screening/integration thresholds considered when the decision was made?
• Are strategies and threshholds memorialized in the IPS?
The information contained herein is confidential and the dissemination or distribution to any other person without the prior approval of Fiducient Advisors is strictly prohibited. Information has been obtained from sources believed to be reliable, though not independently verified. Any forecasts are hypothetical and represent future expectations and not actual return volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. The opinions and analysis expressed herein are based on Fiducient Advisor research and professional experience and are expressed as of the date of this report. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is risk of loss.