Four steps to your sustainable portfolio

Sustainable investing sounds trickier than it really is. Answering these four questions for yourself will help you put together the sustainable portfolio that truly meets your goals.

1. How sustainable do you want your portfolio to be?

This is no yes-or-no question; there are different levels of sustainable involvement.

Whether sustainability should play the main role in your portfolio or only a minor one: Ask your bank or wealth manager how many sustainability profiles they can offer you. At LGT, for example, we offer four profiles for portfolio advisory:

• Traditional: Sustainability is a secondary consideration for you. Your investment decisions are mainly driven by financial criteria.
• Basic: You include a minimum sustainability standard in your investment decisions.
• Enhanced: You apply high sustainability standards and your portfolio investments support sustainable development.
• Enhanced Plus: Your portfolio has very high sustainability standards and a strong bias towards investments that make a positive contribution to society and the environment.

The financial advantages and risks vary from portfolio to portfolio. A good wealth manager can help you making a choice that fits your financial situation and your objectives, such as investment horizon and risk appetite.

Keep in mind that the level of sustainability does not have to compromise the returns of your portfolio. Recent studies have shown that sustainable investments perform at least as well as traditional investments (see  University of Oxford and Arabesque, BMO Global Asset Management, Financial Service Provider MSCI and NYU Stern School of Business).

2. What are your values?

What a question.

First and foremost, take some time to figure out your values. They help to concretize the theoretical concept of sustainability in such a way that concrete investment objectives can be derived from it.

What do you care about personally and deeply? What cause is it your mind keeps wandering back to over the years? What injustice touches a nerve?

Do you care about social wellbeing - supporting people in low-income countries to have access to quality healthcare? Or is it climate action - stopping how the majestic white glacier which stunned you years ago from melting into muddy water? Or is it biodiversity - raising awareness of the extinction of whole populations of animals and plants which has hastened alarmingly?

Once you have thought about your values and main aims, you can discuss and evaluate the investment opportunities together with your personal wealth manager. Ideally, your wealth manager employs dedicated investment specialists who specifically select stocks and bonds to construct a portfolio which has a positive impact in the area you care about. This approach is called sustainable thematic investing and is becoming increasingly popular.

Another way to construct your portfolio according to your values is exclusion: Instead of investing in the causes you want to support, as in thematic investing, you exclude from your portfolio the investments which have a harmful impact. In other words, you focus on avoiding negative environmental and social impacts.

Banks and wealth managers which truly care about sustainability exclude certain unsustainable sectors themselves. If this is something you care about, ask yours if they do too. LGT, for example, refrains from selecting instruments involving activities in thermal coal and controversial weapons for any mandate.

3. Do you want to make all the decisions yourself?

Think about how much expertise, time and energy are you able to invest in managing your portfolio.

In the case of a portfolio management mandate, you set the direction, and investment experts manage your portfolio and decide on investments according to your specifications. This process is relatively straightforward and manageable.

However, if you want to be more actively involved and make well-informed and swift investment decisions yourself, a portfolio advisory mandate is more suitable for you. Depending on your profile, you receive advice based on your individual values and goals from a dedicated investment expert or relationship manager, and you profit from investment ideas and proposals.

4. How do you find the right partner?

Once you have found your personal answers to the three questions outlined above, it’s time to evaluate whether your current wealth manager or bank meets your criteria.  

In a time when almost all companies talk about how sustainably they operate, how can investors differentiate between the truly sustainable banks and the green washers? How can clients separate empty promises from sophisticated services? How can investors be sure their portfolios really do have a positive impact?

Here are three main points to watch out for:

Considering these criteria should help you find the bank or wealth manager that truly suits your needs and aims. We wish you the best of luck.