Hari Balkrishna knew he wanted to be an investor from a young age. After years working his way up the ranks, it turned out that another of his long-held passions – fighting climate change – would give him his first chance to run his own mutual fund as a fully-fledged portfolio manager at T Rowe Price.

His fund operates within a relatively new but growing segment of the investment market: impact investing, where investors deploy capital to generate a measurable social impact and solid financial returns.

Balkrishna has worked at T Rowe Price since 2010 and over the years had pushed for the US asset manager to create its first impact investing fund, a wish he was granted in 2021 when it launched the T Rowe Price Global Impact Equity fund with him at the helm.

‘When I saw the opportunity in the marketplace for public equity impact as an asset class a couple years ago – and that’s something I pushed pretty hard for internally – that became the genesis of our Global Impact Equity fund about a year and a half ago,’ he said.

‘Really the leg work for it began two and half to three years ago in terms of building an impact framework, so we could measure it and put a portfolio together. It’s been a phenomenal journey, I’ve loved every minute of it, notwithstanding these crazy markets.’

To meet his mandate, Balkrishna and his portfolio management team comb through a slew of facts and figures to determine whether a company lives up to his fund’s investment thesis.

In a nutshell, Balkrishna and his team focus on for four criteria:

• analyzing a prospective holding’s materiality (whether profits or revenue align with the fund’s sustainability and social criteria);
• measurability (developing a model of how a company might impact society or the environment);
• additionality (a technical term for deciding if a company’s impact may improve through investment);
• and its resilience (whether the impact of a company is also a sustainable business model).

Applying these lenses not only determines if a company will fit into his $5.3m fund, but also helps Balkrishna and his team weed out others which may be greenwashing, he said.

As well as the four criteria, his fund is split into three main impact investing ‘sub-pillars’: 51% in social equity and quality of life; 41% in climate and resource impact; and 5% in sustainable innovation and productivity. The remainder of the fund’s assets is in cash.

‘To me, this is the mandate. When I think about investing with impact, we’re talking about companies which have the wind in their sails when it comes to their business models,’ said Balkrishna.

He said the performance indicators he and his team rejected say as much, if not more, about their investment strategy than the ones they have adopted.

‘We’ve shied away from using what’s called an impact calculator, where a company might tell an investor “Hey, if you put $10,000 into a fund you’ll save X amount of trees or save however many gallons of water.” I find that analysis to be quite misleading… We’d rather give a transparent stock-by-stock view,’ he said.

His philosophy on transparency also echoes growing criticism of ESG criteria, as many asset managers over the past year have taken flak, and in the worst cases been fined, for misleading investors on the true ESG impact of their holdings.

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‘When I think about investing with impact, we’re talking about companies which have the wind in their sails when it comes to their business models’

‘The nonsense in the space bothers me because after much of what people have done in the past years – slapping labels on funds without doing the legwork despite the risk of misleading investors – I don’t want legitimate players to be adversely affected because of that,’ he said.

He welcomes a more widespread regulation of ESG funds and said that more rules within this nascent investment space will help ‘raise the bar’ on ESG and impact investing.

Like most of his impact investing peers, Balkrishna’s fund has underperformed over the past year, losing 29.4% through to the end of October, roughly in line the sector average of the Global Growth category where his fund sits. However, this hasn’t shaken Balkrishna’s conviction in the fund’s mandate.

‘I’m convinced that many of these stocks we own will be on the other side and will be stronger and better over time. There’s also been a very meaningful de-rating of positive growth stocks – that style has been under pressure this year,’ he said.

Stock focus

Plastic water bottles are one of the more noticeable destructive scourges on the environment. They take somewhere between 400 - 600 years to decompose and close to 80% of bottles in use currently will end up in landfills rather than be recycled.

That’s one of the reasons why Tomra Systems, a Norway-based sustainable technology company that looks to make recycling more useful, has captured Balkrishna’s eye. That, and because it has a solid financial standing at 70% market share of the reverse recycling industry in Germany. As Balkrishna puts it, the company, which makes up just shy of 1.4% of his fund, has got an ‘incredible runway to grow’.