When the term “sustainable investing” entered the mainstream in the mid-2000s, it primarily referred to how an investor chooses to allocate capital. In other words, can you invest money in a way that aligns with your values and still earn decent returns?
This question raises several others: How much risk are you willing to take? Do you want minimum exposure to certain industries unfriendly to the environment or society? With sustainable, impact, ESG, and similar investment strategies growing in popularity, there is now a wide array of tools available for investors looking to achieve these goals.
In this article, we explore some of the many ways to “managing a sustainable portfolio”.
Process of Managing a Sustainable Portfolio
● Identify Your Investment Objectives
Clarifying your investment objectives is the first step in designing and implementing a responsible investment strategy. The investment objectives you choose will depend on factors such as your financial goals and risk tolerance.
When investing for retirement, the factors that matter most to you will differ from those that matter most to a young investor who is buying their first home.
● Analyzing Emerging Trends And Developing Scenarios
From time to time, it is important to take a step back and review what’s happening with your portfolio. This will help you identify trends that may impact your sustainable portfolio. Some examples include:
- A new competitor is entering the market
- New technology is being developed
- A new government policy impacting your industry
- Changes in social values that may affect your industry
● Incorporate Environmental, Social, and Governance Factors
Environmental, social, and governance factors are important when selecting a sustainable investing company. They will provide clues as to whether or not a company is a good fit for your sustainability strategy. They allow you to see how well the execution of their sustainability efforts aligns with your overall strategy.
In other words, you won’t be able to achieve a high level of sustainable investing if you pick and choose environmental, social, and governance factors that don’t align with your overall strategy. Instead, you should choose factors that will strengthen your entire portfolio. Some factors to consider include:
- Company carbon footprint
- Company social initiatives
- Political donations
- Company gender pay equity
- Company employee benefits
- Company-supplier and contractor policies
- Company corporate structure
● Monitoring And Evaluation
After you have created your sustainable portfolio, it is essential to regularly monitor it to ensure that everything is on track and that you don’t have any significant issues that may be coming up. This will help you confirm that you are managing a sustainable portfolio well and are on track to achieving your goals. In other words, you need to monitor your sustainability portfolio to identify and correct any issues arising.
When you approach investing with a focus on sustainability, you are looking beyond just the numbers and statistics and are instead considering the bigger picture. Sustainable investing is not for the faint of heart; however, it can be extremely rewarding when you see your original investment choice paying off and positively impacting the world.