Macro Asset Allocation with Social Impact Investments

Massimo Biasin,Emanuela Giacomini,Luca Riccetti,Roy Cerqueti,Anna Grazia Quaranta,Nicoletta Marinelli

doi:10.3390/su11113140

Massimo Biasin, Emanuela Giacomini + Show 4 more

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https://doi.org/10.3390/su11113140

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Journal: Sustainability	Publication Date: Jun 4, 2019
Citations: 15	License type: CC BY 4.0

Affiliation: University of Macerata

Abstract

Using a unique dataset of 50 listed companies that meet the majority of the OECD requirements for social impact investments, we construct a social impact finance stock index and investigate how investing in social impact firms can contribute to portfolio risk-return performance. We build portfolios with three different methodologies (naïve, Markowitz mean-variance optimization, GARCH-copula model), and we study the performance in terms of returns, Sharpe ratio, utility, and forecast premium based on a constant relative risk aversion function for investors with different levels of risk aversion. Consistent with the idea that social impact investment can improve portfolio risk-return performance, the results of our macro asset allocation analysis show the importance of a large fraction of investor portfolios’ stake committed to social impact investments.

Highlights

Social impact investments (SIIs) require that investors strive for financial success while targeting specific social and environmental needs of society at large
Using a unique dataset of 50 listed companies that meet the majority of the OECD requirements for social impact investments, we construct a social impact finance stock index and investigate how investing in social impact firms can contribute to portfolio risk-return performance
There is a huge overweight of the Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) index when it is in the set of feasible assets

Summary

Introduction

Social impact investments (SIIs) require that investors strive for financial success while targeting specific social and environmental needs of society at large. This same proposition occurs in a wider spectrum of investment approaches that integrate societal and environmental factors into decision making. SRIs have evolved from “negatively screening” harmful products or practices to “pro-actively screening” for environmental, social, and governance (ESG) opportunities by integrating social and environmental factors into their portfolio selection. They are distinct in their focus on investments that are characterized by their deliberative intention to: (i) generate specific positive social impact, and (ii) precisely measure the achievement of their social outcome goals [1]

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