Sustainable Investments: 4 considerations when choosing a portfolio

1. What are your personal objectives when investing in a sustainable portfolio?

Sustainable investing can mean different things to different people, but you should always focus on what is most important to you when investing your savings. Some of the most common sustainable objectives I hear from our clients are around preferred areas of interest or exclusion lists. For example, your objective might be;

• Avoid investing in companies or practices you find unethical or harmful to society and the environment.
   
• Achieving tangible environmental and social outcomes.
   
• Favour companies that prioritise solving environmental, social and governance (“ESG”) issues.
   
• Achieving comparable returns to investments with no sustainable mandate.

The important thing is to think carefully about what you are trying to achieve and consider how you can meet this objective through your investment portfolio.

2. What are the investment managers objectives when managing a sustainable portfolio?

If you are looking for a professional to manage your investments sustainably, it is important to understand how they would develop a plan to meet your requirements. Different investment managers will integrate sustainability in different ways. For example:

• Negative screening - excluding investment in certain companies or industries, for example, excluding investment into tobacco manufacturers.
   
• ESG themes – investing in companies which contribute to a particular environmental or social theme, such as investments focused on renewable energy companies.
   
• Impact Investing – investing where there will be a measurable social or environmental outcome as well as financial gain, for example, investing in a wind farm seeking to generate a certain amount of electricity per year.
   
• Best in class – investing in companies which perform better across ESG metrics against their industry or sector peer group, such as investing in one car company above another as it produces lower carbon emissions.

3. Do your sustainable objectives align with your investment managers’?

If you are looking to invest in a professionally managed portfolio, find out whether your objectives align to those of the investment manager. If not, you should engage with your investment manager on whether they can accommodate your objectives into the investment strategy or consider if you would be happy to compromise on any of your objectives. Some objectives may require trade-offs with other portfolio objectives, such as expected returns or diversification. As such, an in-depth discussion may be helpful to ensure you are comfortable with your investment portfolio.

4. What does successful look like for you?

Like your objectives, your measure of sustainable investment success will be personal. 

• If your objective is to avoid investing in certain companies or practices you consider unethical or harmful, a measure of success might be that this has been adhered to during your investment period. 
   
• If you are focused on achieving tangible environmental or social outcomes, you should identify what these outcomes are and ensure you have access to the data to quantify this. 
   
• If your measure of success is relative to a portfolio with no sustainability objectives, you should choose a benchmark to do this. This will enable you to compare metrics like performance or ESG.

Navigating the world of sustainable investments is complex. If you are considering a sustainable investment solution and would like to discuss your objectives, we can help you. Our experienced wealth managers can help you understand these and other ESG and socially responsible investment terms and develop a personalised investment strategy that aligns with your values and goals.