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ESG and Impact Investing

Overview


With increasing interest and activity in Environmental, Social, and Governance (ESG) and impact investing, clients are seeking ways to enhance the ESG alignment of their investments and have a positive impact while generating financial return. At Goldman Sachs Asset Management (GSAM), we provide holistic solutions that are designed to combine the positive impacts of ESG and impact investing with the rigor and risk-return standards of investment management.

Our Philosophy


ESG and impact investing are, first and foremost, investing.
They require the same discipline and rigor as any investment practice. We approach this strategy on an investment basis, not a philosophical one, and target institutional grade, market rate of return investments.
Using the right tool for the right context is critical.
There are an array of ESG and impact investing approaches – and tools with varying financial and impact characteristics – which may be appropriate for different investment contexts.
An effective ESG and impact investing strategy begins with a client-focused process—not a product-focused process.
We believe the correct strategy is found at the intersection of a client’s impact objectives, their investment objectives, and market opportunities. A customized approach enables a clear entry point, grounded in thoughtful portfolio construction.
Successful execution requires deep, broad and dedicated resources.
Constructing ESG and impact investment portfolios requires deep ESG and impact investing expertise in addition to strong conventional investing capabilities.

Our Approach: How We Partner With Clients


ESG Alignment
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Refers to predominantly passive, public market strategies that seek to avoid controversial exposures (such as tobacco companies) and optimize for other ESG-favorable variables (such as carbon efficiency) in a risk-managed manner, in order to better align the portfolio with the client’s values per unit of tracking error.

ESG Integration
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Is the purview of active managers across public and private markets that incorporate ESG factors into fundamental, bottom-up investment processes as a means to drive value.

Impact Investments
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Are typically in private markets and aim to deliver sustained alpha, seeking market rates of return while achieving targeted impact on environmental and social issues. Concessionary impact investments—which seek to preserve capital but may sacrifice some financial return objectives to achieve impact—are a small part of our work, and are implemented solely at a client’s request as they are not appropriate for most investors.

At GSAM, we focus on ESG and impact investing. For some clients, grant substitutions and/or philanthropy are an important part of their full spectrum of capital deployment. While we do not focus on these activities, we can help clients think through how they fit into a holistic program.

The ESG and Impact Investing Landscape


ESG and Impact Investing

Key Differentiators


Our investment capabilities are integrated into client portfolios through a holistic and customized approach. We believe the following characteristics differentiate our ESG and impact investing capabilities:

Unique commitment to ESG and impact capabilities

We have dedicated resources, with over 18 ESG and impact investing experts, which are fully embedded into and leverage the broader division.1

 

Breadth of investment offerings

We can implement ESG and impact investing across asset classes, through a combination of open-architecture solutions and in-house products and capabilities across public and private markets.

Holistic implementation approach

Our dedicated ESG and impact investing client strategy team can holistically advise on a portfolio, implementing the strategy seamlessly across asset classes and investment strategies, with a highly curated investment approach and fiduciary mindset.

Our Offerings


Goldman Sachs Asset Management continues to develop innovative solutions to help our clients better implement ESG and impact considerations in a thoughtful, risk-managed way. Our ESG and impact effort spans asset classes and impact themes, including:

Proprietary GSAM Strategies
Our investment teams provide proprietary solutions across asset classes. For example:
  • Our Quantitative Investment Strategies team (QIS) optimizes portfolios to better align with certain ESG factors while using sophisticated risk-management techniques. For example, please see our work with New York State Common Retirement Fund on a risk-aware, low emissions equity strategy.
  • Our Fundamental Equity team (FE) actively manages ESG-integrated strategies.
  • Our Fixed Income team (FI) implements ESG portfolios that exclude certain holdings and can optimize for other ESG factors.
Open-Architecture Solutions
The acquisition of the assets of Imprint Capital Advisors LLC (“Imprint”) in 2015, one of the largest ESG and impact investing advisors in the industry, formed a new vertical in the Alternative Investments and Manager Selection (AIMS) Group, AIMS Imprint. AIMS Imprint is dedicated to sourcing, driving due diligence on and investing in ESG and impact managers across asset classes and impact themes.
  • AIMS Imprint designs custom portfolios of ESG and impact managers in both public and private markets.
  • AIMS Imprint is focused on launching well-structured, risk-managed programmatic solutions for accessing impact private equity. These strategies leverage AIMS Imprint’s rigorous manager selection, portfolio construction and risk management alongside impact investing expertise.

Examples of Our Partnership with Clients


Client Description

A $2 billion Minnesota-based family foundation. The client’s mission is to improve the quality of life for present and future generations by dedicating its resources to support, unite, and empower those it serves.

 

Client Objective

In 2013, the board embarked on a process to discover how the endowment could be restructured to further its mission. After committing in 2014 to investing 10% of its endowment to mission-aligned strategies, the client sought specific investments that would generate financial return, meet its fiduciary duty and drive program learning.

GSAM Solution

We worked with the client to source, diligence, recommend and manage mission-aligned investments, including public and private funds, direct investments and some program-related investments (PRIs). Following the Investment Committee’s designation of an additional $100 million to a carbon efficiency strategy, we worked with the client to help design a less-carbon intensive Russell 3000 strategy. This resulted in relationship-building between the Foundation and CEOs of carbon-conscious companies. The client has committed more than $150 million of capital and we have a dedicated annual review of the portfolio to identify opportunities to further refine impact alignment.

Client Description

A Roman Catholic congregation of women based in Missouri. The client had over a decade of experience in negative screening, shareholder advocacy, and below-market community development investing.

 

Client Objective

In 2011, the organization’s leadership decided to take the endowment in a new direction by pursuing impact investing to advance their mission. The client was looking for long-term capital preservation and investments that aligned with their mission and values. Specifically, they wanted their investments to have a positive environmental impact that “promotes the compassionate care of creation” by addressing climate change, detoxifying the environment, and exercising responsible stewardship of natural resources.

GSAM Solution

We worked with the client to source, diligence, recommend and manage a pool of strategies dedicated to direct impact investments within private equity, private debt and real assets. 85% of the restructured portfolio was dedicated to market-rate mission-related investments, with up to 15% exposure to high impact, below-market mission-driven investments. Our strategy included an assessment of a specialty consumer lending company that provided "pay-as-you-go" solar energy services to more than 300,000 off-grid homes in East Africa.

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