A few key lessons Heron learned as we began the process of transforming our portfolio toward 100 percent impact.
When Heron decided to begin investing for impact, we did not start from scratch but from an existing portfolio. This forced us to ask the question: How can we take better responsibility for what we own today?
In our early attempts at reevaluating, we chose to view our portfolio through a mission/non-mission lens. Eventually we had about 40 percent of our endowment classified as “mission-aligned.” This mission portfolio was comprised of various investment vehicles and tools; the common thread was that both social and financial criteria were used to identify investments.
When we chose to embark on the journey to 100 percent for mission, the first step was to take a look at what was held in the remaining 60 percent of our endowment, which at the time was passively invested through marketable funds intended to achieve diversification across the U.S. and non-U.S. (developed & emerging) markets.
Are we better off divesting from certain companies, or should we engage with them in order to encourage improved employment practices?
Using a Bloomberg terminal and MSCI’s ESG (“Environmental, Social, Governance”) Research, we viewed our portfolio through an enterprise lens. We quickly learned a few key lessons:
1.Mission/non-mission overlap. Some enterprises (such as Google) were found in both our mission and non-mission portfolios, thereby making irrelevant the “percent for mission” distinction by investment vehicle.
2.Imperfect social data screens. Many companies included in the mission portfolio were selected based on false positive screens. For example, certain companies that we would perceive to be ”net extractors” through a social and environmental lens happen to rank very well on corporate philanthropy and community spending metrics (e.g. Halliburton). This drove us to rethink the types of screening factors used in our investment processes.
3. How to best optimize — divest or engage? At the time of examination, two of the largest employers in our non-mission portfolio were Walmart and FoxConn (a.k.a. Hon Hai Precision), both of which are rather notorious for their extractive employment practices. This finding led us to ask ourselves: are we better off divesting from such companies, or should we engage with them in order to encourage improved employment practices?