Global impact multi-asset: Constructing a one-stop portfolio solution

Impact investing in public markets offers investors an accessible, liquid way to pursue positive social and/or environmental impact at scale, alongside a financial return. Multi‑asset impact investing comes with the additional benefits of a balanced, one‑stop solution for impact investors; the breadth of a global investment universe spanning equity and fixed income markets; and the advantages of multi‑asset investing in generating a financial return and mitigating downside risks, such as cross asset‑class diversification and tactical asset allocation (TAA).

Constructing global impact multi‑asset (GIMA) portfolios uniquely integrates impact considerations with financial performance. Here are five key principles that guide the effective construction of GIMA portfolios:

1. Investing in underlying impact strategic components

2. Expanding the impact opportunity set

3. Diversifying equity risk with high‑quality environmental, social and governance (ESG)‑labelled bonds

4. Implementing an active asset allocation across the impact universe

5. Ongoing monitoring from both investment and impact perspectives

1. Investing in underlying impact strategic components

The first principle emphasises that every investment within the portfolio should align with impact objectives. This means selecting securities that not only aim for financial returns but also seek to contribute positively to social or environmental issues.

We achieve this principle by investing in global equity and fixed income impact securities that we select following our proprietary impact research process. It includes a quantitative as well as qualitative assessment of the impact thesis of every investment, ensuring that all holdings are aligned with at least one T. Rowe Price impact pillar (Fig. 1). These pillars aim to represent the most pressing challenges faced by our planet and society and are aligned to the United Nations (UN) Sustainable Development Goals (SDGs).

This framework helps to ensure we deploy a consistent standard when assessing potential investments. This approach involves investing in sectors—such as renewable energy, sustainable agriculture, financial institutions in emerging markets or health care companies—designed to generate additional and measurable benefits to underserved populations alongside financial returns.

The impact teams utilise the sector and thematic expertise of the Responsible Investing analysts, as well as the deep and wide fundamental global research platform. This dual perspective keeps the impact portfolios aligned with their goals.

2. Expanding the impact opportunity set

The second principle focuses on broadening the range of investment opportunities available within the impact space. A broad investment universe is one of the advantages of a GIMA strategy.

A typical strategic asset allocation (SAA) of a GIMA portfolio could be 50% global impact equity, 40% global impact corporate bonds, and 10% ESG‑labelled high‑quality bonds. This SAA extends over both stock and bond markets across the global investment opportunity set, allocating capital across the equity and debt sides of corporations as well as investing in debt purposely issued by development banks to finance large‑scale environmental and social projects, which are not easily accessible to many investors otherwise. By expanding the impact opportunity set, investors can tap into a wider array of innovative solutions that address pressing global challenges.

Our portfolio design is ever evolving, remaining current with trends and developments in impact investing. If we identify secular rather than tactical opportunities, we will consider changing the SAA of the strategy and adding and removing underlying impact components.

3. Diversifying equity risk with high‑quality ESG‑labelled bonds

The third principle advocates for including high‑quality,¹ long duration, ESG‑labelled bonds in the portfolio to diversify equity risk.

The bedrock of traditional multi‑asset portfolios is mixing stocks and high‑quality government bonds. These two asset classes should have a negative correlation in certain market conditions, generating diversification benefits. Stocks have offered the most attractive long‑term return potential compared with most other assets but often are accompanied by short‑term volatility. Bonds can provide a stabilising effect in a portfolio that is predominantly equity‑focused, especially during periods of market volatility.

ESG‑labelled bonds, such as green bonds and social bonds, are specifically designed to finance projects that have positive environmental or social impacts. Typically issued by development banks, they fall under the definition of supranational bonds. They are highly correlated with standard government bonds historically and exhibit similar diversification benefits with equities.

By investing in high‑quality ESG‑labelled bonds, we aim to achieve a more balanced risk profile while staying true to our impact investing philosophy. This diversification helps to cushion the portfolio against equity market downturns, enhancing overall resilience.

4. Implementing an active allocation across the impact universe

The fourth principle involves using TAA within the impact investment universe and maintaining a dynamic process of asset allocation.

This approach allows us to adjust the asset allocation based on market conditions, economic indicators, and emerging trends within the impact universe. We also follow an ongoing risk management process to monitor the portfolio’s structural profile, as well as tactical risk exposure when the market environment shifts. TAA can enhance potential risk‑adjusted returns by capitalising on short‑term opportunities while maintaining a long‑term focus on impact.

5. Ongoing monitoring from both investment and impact perspectives

The final principle underscores the importance of continuous monitoring of both financial performance and impact outcomes.

We regularly assess how the portfolios are performing in terms of returns. The GIMA team holds regular strategy meetings. This forum reviews risk exposures, discusses TAA and dynamically manages overall portfolio risk.

For the impact side of the mandate, we regularly monitor our investments’ progress toward clearly defined social or environmental outcomes through key performance indicators and industry‑recognised frameworks. Our impact engagement programme also helps monitor each company’s progress toward achieving desired outcomes. All insights gained during the impact measurement and engagement process feed back into the investment management process.

We publish our findings in terms of impact measurement in our impact strategies’ annual impact reports.

Conclusions

In conclusion, constructing GIMA portfolios requires a disciplined approach, aiming to achieve impact alongside financial returns. By adhering to these five principles—ensuring all components are impact strategies, expanding the opportunity set, diversifying with ESG‑labelled bonds, implementing active asset allocation and ongoing monitoring—we aim to create robust portfolios that contribute positively to society and the environment while seeking financial success. This holistic approach positions investors to navigate the complexities of modern markets while fulfilling their commitment to impact investing.