With the growing demand for sustainable investments and the increasing need for responsible investment practices, a new wave of reliable investing strategies has been introduced to the world of finance.
As such, numerous principles and strategies must be considered when seeking to integrate sustainability into your investment processes through sustainable portfolio management.
Sustainable portfolio management is a sophisticated process involving integrating environmental, social, and governance considerations into investment decision-making.
This blog post will provide an overview of sustainable portfolio management and detailed guidance on integrating sustainability into your investment processes.
What Is Sustainable Portfolio Management?
Sustainable portfolio management integrates environmental, social, and governance (ESG) considerations into investment decision-making processes.
Sustainable portfolio management aims to maintain portfolio profitability while minimizing the environmental and society’s potential impact. In other words, sustainable portfolio management is about balancing financial returns with environmental and social considerations to reduce the risk for investors and maximize the benefits for all stakeholders.
Sustainable portfolio management is now expected to become a standard process that all investors must follow. The Sustainable Investment Standard (SIS) was introduced in 2018 by the United Nations Environment, Ethical Investment Network, Principles for Responsible Investment, International Integrated Reporting Council, and the Investor Initiative.
The SIS is a global framework for responsible investment that promotes and simplifies sustainable investment practices. The SIS is designed to help all stakeholders achieve sustainable outcomes by integrating the “Three Ps” of sustainable investment – people, planet, and profit.
Therefore, sustainable portfolio management is the process of incorporating these three areas into investment decision-making processes.
Key Steps in a Sustainable Portfolio Management Process
Step 1: Define Your Investment Objectives
Before you can start designing and implementing a responsible investment strategy, you must clarify your investment objectives. Your investment objectives will vary depending on factors such as financial goals and risk appetite.
For instance, if you’re investing for retirement and want to minimize your investment risk, the environmental, social, and governance factors most important to you will differ from those of a young investor investing for their first home.
Step 2: Review Emerging Trends And Develop Scenarios
When designing your responsible investment strategy, it’s essential to consider the impact each of your investment assets will have on the environment and society. This will allow you to design a responsible investment strategy that can adapt to changing circumstances and emerging trends.
Step 3: Incorporate Environmental, Social, and Governance Factors
The next step toward designing a responsible investment strategy is incorporating your investment assets’ environmental, social, and governance factors into your decision-making processes.
If you are investing in stocks and shares, you can use screeners to screen out companies that do not meet your ethical standards. Alternatively, you can use ethical investment funds, which already screen out companies that do not meet your ethical standards, thereby saving you the time and effort of doing it yourself.
Investors are increasingly demanding sustainable investments, as they want to be sure that the financial assets they hold are not causing damage to the environment or human rights.
What’s more, there are also significant financial benefits to be gained from sustainable investing, making it an essential and profitable process for investors. For instance, sustainable investors can reduce financial risks, given that sustainable investments are designed to minimize the potential impact on the environment and society.
That said, sustainable portfolio management can potentially positively impact society and the environment, given that responsible investment practices are designed to maximize the benefits for all stakeholders.