The top five factors to consider when building a sustainable investment portfolio

23/08/2022 by Ali Sajwani

Investment is changing. More and more of us–and big investment firms–are carefully examining their investments to ascertain their ‘green’ credentials. For many of us, this means they do not cause any environmental damage, but also that they act with integrity, honesty, and a new level of openness when it comes to sustainability practices.

I think it’s a long-overdue reaction to the years of ‘greenwashing’ and hidden investments – such as a portfolio from an investment house that includes investments in things that go against your moral, ethical, or religious standpoint.

As it seems to be trending more and more, I decided to investigate what we need to do to make a sustainable investment, and here are my top five tips:

  • Due diligence: A company might say it is sustainable, green, and ethical, but what about five years ago? Has it changed? What are its vision and mission? Where does it operate? What about its supply chain? Take time to investigate, and your efforts will pay dividends in the future. There are several helpful websites to help in your quest to discover the reality of a fund or index, including Bloomberg, Morningstar, and Refinitiv. Do you wish to exercise shareholder voting rights by investing in a company? Your influence may be small, but groups of shareholders can help push a company towards fulfilling its ESG goals. Often, we forgo voting rights when an investment is overseen by a fund manager.
  • Use the tools: There are many services online now that can ascertain the reality of a company’s dealings. Truth, honesty, and integrity are the watchwords. I am reminded of investment house State Street’s move towards enabling more women to gain access to the boardroom with the placement of a bold ‘Fearless Girl’ statue placed in front of Wall Street’s famous Charging Bull. The statue drove more conversation about gender equality, but just months after the statue’s unveiling, State Street paid USD 5 million settlement fee after claims by the U.S. Department of Labor that it had discriminated against female and black employees through unfair pay practices. We need to ensure we find the right companies to invest in that are aligned with our values.

As Julie Iskow, Executive Vice President and COO at Workiva, writing in Forbes, puts it: “A new generation sensitive to the long-tail impact of investments is judging companies on performance metrics beyond financial returns. They demand demonstrable evidence of sustainable practices and community concern, and they’re pushing companies toward ethical reporting standards of those practices.”

  • Crowdfunding platforms: Some crowdfunding platforms do the work for you – and investigate a company’s claims and offerings. Seedrs and Crowdcube, for example, have a strong focus on allowing ESG-focused entities to raise capital via their platforms. Crowdfunding is safe, regulated, and easy–and a great way to create a diversified portfolio. While responsible investing certainly looks set to grow, companies in the sustainability and future energy sectors, for example, are often considered risky investments, so ensure you read all the available information provided by the crowdfunding platform before committing large sums.
  • Think of the future: What counts as a sustainable business activity now might be frowned upon in five or ten years. How might your investment perform? If it’s a new sector, how can you be sure your investment is solid? Bear in mind political stances are shifting, new sectors are rising, and perceptions of traditionally solid investments like fossil fuel companies are changing. If you are like me, you might enjoy discovering the trends and trying to keep abreast of them. Most major investment companies – such as Blackrock – produce trend and opportunity reports – and it often costs nothing to subscribe to such reports.

To conclude, I would say, just as with any investment, take advice, join forums, and seek expert advice and mentors. Think of the future, think of your financial goals, and don’t act until you are certain the investment opportunity is truly right for you.

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