What Is Sustainable Portfolio Management? And How to Get Started.
Everyone interprets sustainability differently, and this variation of opinions has found its way into asset management. The difference in interpretation of sustainability also means that different investors employ different strategies in creating a sustainable portfolio; some of these strategies are combined.
However, the fact that each approach used to create a sustainable portfolio has different benefits for both companies and consumers. Firstly, the fact that there is no firm definition of sustainability gives a chance to several companies to evolve into sustainable companies. Secondly, there are several options that an investor can choose depending on their definition of sustainability.
But generally, if you have been asking yourself what sustainable portfolio management is, you should know that the common idea around sustainability is that what goes around comes around. And therefore, your investment portfolio should only include those companies that can operate for a long time without causing troubles that come to haunt them in the future. Below are key strategies to get started in sustainable portfolio management.
The best-in-class strategy selects companies with the best ESG performances compared to other companies in the sector. The strategy is applied based on ESG score change over time or based on the current ESG score. Since no company in the sector is excluded from the best-in-class strategy, there are possibilities of including a polluting company provided that it has a good ESG score within its sector.
Exclusionary Investment Strategy
An exclusion strategy will also help you answer the question of what is sustainable portfolio management since the investor can exclude certain companies from their portfolio. For instance, an investor may choose to exclude those companies that do not show any respect for human rights, gambling, and other companies that deal with unhealthy products like the tobacco industry.
An investor can engage with a company as a shareholder and influence the company on ESG matters. Investors can also use their voting rights to question the company during general meetings. Therefore, an active ownership investment strategy can also exclude dubious investment practices.
Impact Investing and ESG Integration
It is one of the straightforward ways of addressing the question of what is sustainable portfolio management. Impact investing seeks to positively impact environmental and social issues; they draw clear environmental and social objectives to which the company is fully committed.
On the other hand, ESG integration, ESG opportunities, and risks are systematically integrated into the investment strategy. And therefore, impact investing and ESG integration can be applied to invest sustainably.
In thematic investing strategy, an investor pays attention to particular trends; however, most are ESG centered. Examples of the thematic investing strategy include clean energy technology, green healthcare, or green real estate, all considered sustainable investing.
One way to get started with a sustainable investment portfolio and answer the question of sustainable portfolio management is by embracing the best-in-class and exclusion investment strategy.
You can also take active ownership as a shareholder to influence the company’s decisions on ESG matters. Impact investing, ESG integration, and thematic investing are also key ways to get started with sustainable portfolio management.