Impact Investment Portfolios: Including Social Risks and Returns

Brandstetter, L., & Lehner, O. M. (2015). Opening the Market for Impact Investments: The Need for Adapted Portfolio Tools. Entrepreneurship Research Journal, 5(2), 87-107.

85 Pages Posted: 9 Nov 2014 Last revised: 28 Oct 2015

See all articles by Lisa Brandstetter

Lisa Brandstetter

Upper Austria - University of Applied Sciences Upper Austria

Othmar Manfred Lehner

University of Oxford - Said Business School; Hanken School of Economics - Department of Accounting

Date Written: November 5, 2014

Abstract

Impact investing as an activity as well as a concept has grown in recognition on a true global scale. Yet, apart from anecdotal success stories of some specialised forms such as social-impact bonds, little is known about the field and the complex interplay between agents, instruments and regulations. Neither the rationales of the various participants in the field, nor the evaluation criteria for some of its instruments have been scrutinized so far in-depth. Especially the important constructs of risk and returns from a financial as well as a social impact perspective have so far been used in various fashions, thus rendering the instruments incompatible to each other. Such standardized metrics however are a pre-requisite for the inclusion of impact investments into the portfolios of traditional institutional investors. Much can be gained from this, not only would a huge inflow of capital improve the social and environmental sector but early evidence shows that the overall performance of mixed portfolios would profit because the low correlation of impact investments to traditional markets reduces portfolio risk and increases sustainability. In addition, more and more investors demand ESG factors to be considered when it comes to building portfolios. This book thus looks at risks and returns from a blended perspective and subsequently proposes an early model of opening the traditional Markowitz optimisation model for ESG factors through the use of Black-Litterman approaches.

Keywords: impact investment, social risk, social return, social finance, ESG, sustainability, environmental finance

JEL Classification: G1, G2, P3, M13, Q2

Suggested Citation

Brandstetter, Lisa and Lehner, Othmar Manfred, Impact Investment Portfolios: Including Social Risks and Returns (November 5, 2014). Brandstetter, L., & Lehner, O. M. (2015). Opening the Market for Impact Investments: The Need for Adapted Portfolio Tools. Entrepreneurship Research Journal, 5(2), 87-107.. Available at SSRN: https://ssrn.com/abstract=2519671

Lisa Brandstetter

Upper Austria - University of Applied Sciences Upper Austria ( email )

Franz-Fritsch-Strasse 11
Wels, A-4600
Austria

Othmar Manfred Lehner (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Hanken School of Economics - Department of Accounting ( email )

FI-00101 Helsinki
Finland

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