This interactive presentation outlines the four basic principles that inform how Heron deploys capital.
At Heron we have asked ourselves if there are hidden costs and benefits to society when money is invested. As a result, we have begun weighing the social performance and risks alongside our financial return expectations for every enterprise in our portfolio. Our current strategy focuses on using all of our capital and all the financial tools available to us to invest in enterprises, which is where we believe the most measureable impacts happen. Thus, we have joined a movement of impact investors, values investors and others attempting to ensure that their investments maximize social and financial performance together. Heron, along with others, is also collecting data and developing metrics so that we can invest in those social benefits and mitigate social costs as part of a long-term investment strategy.
Four main operating principles outline our thinking in broad brush strokes.
“Take an enterprise view.” At Heron, we see enterprises as the unit of impact because it is enterprises that employ people, use or abuse natural resources, serve community needs through their products and services, cause pollution and so on. An enterprise’s impact is not primarily its corporate philanthropy, promises of good behavior or even its return to investors. It is the manifestation of its operations, supply chain and products and services on people, place and planet.
Many investors think about their portfolios in terms of the various asset classes that they invest in, using modern portfolio theory to guide their choices. Investors use a variety of financial vehicles depending on the investment and the asset class. For example, they might invest in stocks or private companies through funds.
Yet, when you peel back the layers of financial instruments and intermediaries, nearly all of those dollars are invested in enterprises. Ultimately, whether you’re an accredited investor or an individual with a 401(k), your investment portfolio is a collection of enterprises that are putting your dollars to work for better or for worse.
Second, know what we own. If we don’t know what enterprises we’ve invested in, it’s impossible to know how they might be positively or negatively impacting society and the planet. Many financial vehicles don’t allow investors to know with any certainty what enterprises they own. Heron has been moving away from these kinds of investments in order to have greater visibility into our own portfolio.
Third, “all investing is impact investing” because every enterprise is having some kind of impact as it goes about its business. Often, enterprises are having positive impacts in some areas and negative in others. For example, a company could be providing well-paid jobs in a low-income community, but doing so by extracting a natural resource in a way that damages the environment and negatively impacts the health of people in the community.
Finally, we see investing as an influence strategy. Directing capital toward enterprises that are having a net positive contribution to society is one way Heron hopes to use our investments to help people help themselves out of poverty. We hope to help others invest with their values, help improve the quality and availability of impact data, and much more.
Building a portfolio that supports a social mission is an ongoing process. These four principles can guide that process no matter what your values and goals.