By diversifying and adding green investments to your portfolio, sustainable green investments can open up many exciting new possibilities and benefits – but also present costs and diversification hurdles.
For sustainable investing opportunities to be maximized, investors need to understand how to select and use appropriate ESG scores and rankings. Public has created this guide on creating a sustainable portfolio to assist with this task.
Diversification
Diversification is at the core of creating a sustainable portfolio, from reducing fossil fuel exposure and investing in green companies, to investing in firms focused on finding solutions and mitigating climate change effects. At Greenstone Investment Group, we work closely with you to identify your ESG priorities and develop an investment portfolio which best satisfies them.
Many investors, whether consciously or unknowingly, are taking steps to incorporate sustainability into their investments. Baby Boomers in particular are receiving encouragement from their Millennial children to pay greater attention to environmental, social and governance (ESG) factors when making investment decisions.
Other investors may be motivated by personal values and goals or fiduciary obligations to clients, constituents or plan participants; others seek competitive financial returns with no compromise between ESG considerations and financial returns. A growing body of research supports this idea.
ESG (Environmental, Social & Governance) Scores
One of the first questions when creating a sustainable portfolio is to establish your priorities. Are your primary concerns eliminating fossil fuels, investing in companies addressing climate change or prioritizing community investments? Morgan Stanley takes an individualized approach with each client in order to find investments which fit best with their goals.
ESG ratings serve to give investors an understanding of the impact a company might have on society and the environment, yet one provider alone may not give an accurate picture.
Humankind Value, an ethical business metric designed to assess companies on how well they treat people and the planet, measures companies on this. A company that treats its employees well may have an impressive score while one dumping sewage into local water supplies may receive negative consideration.
Humankind Value
Sustainable investing may not offer as high returns as traditional investing; nonetheless it has become an increasingly popular trend. Many individual and institutional investors alike are seeking investments with strong ESG commitment.
Though there are various strategies for building a sustainable portfolio, all have one thing in common – long-term considerations are central. A company unable to withstand over time cannot operate sustainably regardless of its environmental performance metrics.
Sustainable International Leaders prioritizes businesses that have established longevity in their markets. Over time, we have seen how resilient business models allow resilient companies to continue providing service even during unforeseen events, making these ideal investments with true Humankind Value.
What Goes Around Comes Around
An increasing segment of investors are focused on the social and environmental impacts of companies they invest in; however, measuring these “externalities” can be challenging; for instance, coal-burning power plants produce energy but pollute the environment while contributing to climate change – thus eliminating it from sustainable portfolios.
As people become more aware of their ecological footprint, more companies are prioritizing sustainability when making business decisions. Sustainable investing – or ESG investment – has grown increasingly popular; some may perceive that ESG investing sacrifices financial returns.
Recent studies have demonstrated that investments incorporating ESG factors outperform their peers. The old saying, “what goes around comes back around,” perfectly captures this concept; for instance if you torture people they will eventually stop trusting you and revolt; similarly if you pollute the air with carbon dioxide it will harm both humanity and your business.