Sustainable investing is an increasingly important topic for the investment world. Given the growing concerns about climate change and other environmental risks, investors are interested in how they can make sure that their investments are not contributing to these risks.
That’s where sustainable portfolio management comes in.
Sustainable portfolio management practices are designed to align investments with a company’s values and achieve measurable impact in one or more of these areas.
However, sustainable portfolio management doesn’t give up on your favorite stocks just because they don’t meet your personal standards for ethical behavior. Collaborative efforts between investors have resulted in a number of companies taking measures to protect the environment, support their employees and respect their customers.
This guide covers everything you need to know about sustainable portfolio management, including what it is, why it matters, and how you can implement it. It may seem daunting at first, but once you get started, you’ll be surprised by how easy it can be.
What Is Sustainable Portfolio Management?
Sustainable portfolio management is aligning investments with a company’s values. It means that an investment manager or investor takes into account not only financial performance but also social, environmental, and governance (SEG) factors.
For example, an investment manager might make a decision to avoid investments in fossil fuels because they are aware of the negative environmental impact of using them, even if they are profitable.
A sustainable portfolio is only as good as its underlying assumptions. If an investment manager expects to see a particular level of growth that is not justified by a company’s current situation, the portfolio will not be sustainable.
Why Is Sustainable Portfolio Management Important?
Investors who pursue sustainable portfolio management can benefit from several things, including:
- Financial Returns – Sustainable portfolio management can help investors achieve financial goals, such as retirement or funding university tuition for the next generation.
- Make a Positive Change – Investing with an ethical approach will mean putting your money to the benefit of society and the world around you.
- Risk Reduction – Sustainable portfolio management can help balance their investment risks, which is a welcome bonus.
- Expression of Values – Sustainable investing allows investors to express their values through their investments.
How to Implement Sustainable Portfolio Management?
There are many different ways to implement sustainable portfolio management. Some may feel easier than others, while others may take more time and effort. It all depends on you and your own values.
One way to implement sustainable portfolio management is to avoid short-term thinking. Sustainable companies are often slower growing than their less sustainable counterparts. However, sustainable companies are also less likely to be affected by economic downturns. Therefore, sustainable companies can provide an investor with long-term growth.
Also, ensuring you are using your values when selecting investments is the key to sustainable portfolio management. To do this, you must first assess your investment goals. If you care for the environment, look for companies actively using eco-friendly business measures.
You can also partner with an investment adviser with sustainability as a core principle. They have invaluable experience in sustainable portfolio management and can help you find companies worth your money.
The Bottom Line
The core of sustainable investing is that you are investing in companies that are doing the right things for society, the environment, and the people that work for them. This is nothing new, but for many years, it was very much in the minority.
Today, the world’s biggest investment and insurance companies are investing billions in companies that are doing the right things for society, the environment, and the people working for them.
It’s worth noting that sustainable investing is still profitable. Investors who pursue sustainable portfolio management can benefit from several things, including avoiding short-term thinking, seeking out sustainable funds, investing in individual companies, and considering socially responsible funds.
