‍Aligning Your Entire Portfolio for Positive Impact

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03/2025

‍Aligning Your Entire Portfolio for Positive Impact: Key Considerations

At first glance, aligning your portfolio for positive impact might seem straightforward—simply invest in companies that do good and avoid those that don’t. But in reality, it's more complex. Here’s why.

Defining Investor Impact

Investor impact isn’t just about selecting ethical stocks; it’s about causing meaningful change. As Kölbel and Heeb (2020) explain in The Investor’s Guide to Impact, there are multiple levels of impact. Companies have real-world effects, but investments do not always have direct influence. In addition, investors often act through intermediaries like asset managers. The key question is: What additional, causal, and intentional change does your investment trigger? Simply divesting from harmful companies doesn’t necessarily pressure them to change. On the other hand, purchasing shares in a company deemed exemplary does not change anything, as the shares are simply changing hands. In the following, we discuss these impact mechanisms and their implications for different asset classes using hypothetical examples.

‍Engaging for Change

Imagine discovering that a company, “Evil Inc.1,” produces toxic chemicals. Selling its stock on the secondary market does little to alter its behaviour. However, investing through “Positive Persuaders Asset Management” (PP AM), which actively engages with companies on environmental and social issues, can have a tangible impact. PP AM’s activist approach might push Evil Inc. to implement better practices, improving its ESG ratings and, in turn, its stock performance2. This engagement strategy adds an impact layer beyond mere divestment.

Scaling Sustainable Innovations

Beyond improving existing companies, scaling new sustainable business models is crucial. This is where private equity (PE) and venture capital (VC) can play a role. If you have a long investment horizon and can tolerate illiquidity, investing in funds like “Environmental Accelerators General Partners” (EA GP) supports companies driving the net-zero transition. Since EA GP has a strong track record, its fundraising success raises questions about whether your capital is truly additional. However, given its clear and credible impact focus, it aligns with your personal ambitions, and you conclude it remains a valuable investment.

In the VC space, “Future VC” supports climate-tech startups facing funding challenges. Hence, you think that your capital has greater additionality in that context. But in this case, higher impact potential comes with higher risk, as VC returns are more dispersed than PE returns. To mitigate risk while maintaining exposure, you opt for a fund-of-funds approach instead of investing in “Future VC” directly, accepting higher costs for diversified impact.

Real Estate: A Hands-On Impact Strategy

Your impact considerations extend beyond financial assets and private market investments. Inheriting a residential property, you initially consider demolition for a higher-return concrete building. But knowing that construction contributes 37%3 of global emissions, you instead choose sustainable renovation. With expert guidance, you upgrade insulation, install heat pumps, integrate solar energy, green the building’s facades, and design a biodiverse garden, thereby creating an eco-friendly and liveable space. This direct ownership allows you to engage personally in sustainable impact.

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Key Takeaways for Impact-Oriented Investors

  1. Two Key Impact Mechanisms: Investors can drive change through active engagement (e.g., influencing corporate behaviour) or by funding impactful businesses constrained by capital scarcity. If investing directly, you can engage yourself, as with real estate. If investing through managers, carefully assess their engagement strategies.
  2. Impact Mechanism Varies by Asset Class: In public markets, divestment alone has limited influence. Active engagement through specialized asset managers may be more effective. In private markets, capital allocation can directly support scaling impactful businesses. The best approach depends on asset type and availability of impactful opportunities.4
  3. Balancing Impact with Risk and Return: In some asset classes, integrating impact does not affect risk-return profiles, while in others, it does. In public markets, incorporating impact is mainly a matter of due diligence and selection, typically preserving traditional risk-return characteristics. Private market impac investments may involve trade-offs in liquidity, risk, returns, or costs. Investors seeking positive social or environmental outcomes should integrate impact goals at a strategic level to address these considerations consciously.
  4. A Holistic Wealth Strategy is Essential: Weighing impact, values, returns, risk, and liquidity requires a nuanced approach—simple two-dimensional financial comparisons won’t suffice. A comprehensive wealth strategy, potentially embedded in family governance, enables thoughtful decision-making. Involving family members in this process sharpens priorities and ensures long-term alignment with impact objectives.

Conclusion

Investing for impact adds complexity, but it also presents opportunities. Whether through active engagement, capital allocation, or hands-on asset management, awell-thought-out strategy allows investors to align financial goals with positive environmental and social outcomes. If impact investing is part of your vision, integrating it into your overall wealth strategy is essential—not just an afterthought.

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1 This and the following investment examples are entirely fictitious but are based on therelevant research findings on the topic; see in particular Kölbel, Julian F; Heeb, Florian; Paetzold, Falko; Busch,Timo (2020). Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact. Organization & Environment, 33(4):554-574.

2 There is evidence that active shareholder engagement on ESG topics led to an «abnormal outperformance» of the companies stocks’ subject to these engagements (see Dimson, Karakas & Li, 2013) and that improved ESG scores were accompanied by improved stock performance (see Nagy, Kassam & Lee, 2016)

3 Building Materials And The Climate: Constructing A New Future | UNEP - UN Environment Programme (2023).

‍4 Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact by Julian F Kölbel, Florian Heeb, Falko Paetzold, Timo Busch :: SSRN

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Nadja Bleuler

Chief Economist, Partner
Über MFO
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