Like justice, impact investing must be seen to be done.
And at 58 pages, the second Harbour Asset Management Sustainable Impact Fund report released today shows the investment style is a disclosure-heavy process.
“Impact measurement across different environmental and social pillars can be challenging, especially when trying to compile metrics for the entire portfolio and make meaningful comparisons,” the report says. “Most available data relates to climate metrics, but the Fund’s impact is much broader than this.”
However, Harbour portfolio manager, Chris Di Leva, said a few headline figures do reflect the real-world effect of the underlying fund investments.
Companies in the fund portfolio, for example, have helped save 1.4 billion cubic metres of water, added more than 8,900 megawatts of renewable energy generation and supported the construction of 17,763 social housing developments.
The fund maps all investments against the UN Sustainable Development Goals (SDGs) with both internal analysis and third-party data from Institutional Shareholder Services used to justify choices.
Di Leva said a Harbour impact investment committee makes the final call on potential portfolio inclusions.
“And there have been times when the committee has been more excited than others about the analyst selections,” he said.
Harbour manages the Australasian equities and fixed income components of the multi-asset impact fund in-house with T Rowe Price and the UK specialist firm, Mirova, charged with international share allocations. The fund also has a small exposure (about 5 per cent) to NZ start-ups via the Icehouse Ventures Sustainable Tech Fund.
The third-party managers are subject to the same transparency requirements as per in-house holdings, Di Leva said.
Mirova, recently appointed as an underlying manager for the Westpac-BTNZ KiwiSaver and other funds, is a pure-play impact firm, he said, while the T Rowe Price Global Impact Strategy was one of the first to earn accreditation by the Responsible Investment Association of Australasia under its impact definitions, he said.
Di Leva said listed markets, and bonds (which represent 40 per cent of the Harbour portfolio) are just as capable of providing ‘impact’ as direct holdings, which has been the traditional approach for investors looking to effect measurable change in specific social goals.
“Impact is important but we’re cognisant that this is still an investment fund,” he said. “Investors want to see that impact but they will also want to achieve good investment outcomes over the long term.”
The Harbour fund, for instance, is benchmarked against standard market indices rather than ESG-adjusted yardsticks.
Launched in December 2021, the impact fund has underperformed benchmarks since inception, down just over 6 per cent to the end of September this year versus the index -0.3 per cent: for the 12 months to the end of September the fund was up more than 4 per cent in gross terms or 2.51 per cent after fees compared to the benchmark return of 8.17 per cent.
Di Leva said the portfolio is underweight the ‘magnificent seven’ US large cap stocks that have driven most global share market performance over the last couple of years.
“The fund is more exposed to small- and mid-cap stocks, which over the long term have historically delivered a premium,” he said.
Harbour seeded the impact fund with $1.5 million with assets now about $8 million while the jury is still out in a couple of wholesale mandates.