Four steps to your sustainable portfolio

Answering these four questions for yourself will help investors put together the sustainable portfolio that truly meets their goals.

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

This is no yes-or-no question; there are different levels of sustainability preference. 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.

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 sustainability consideration does not have to compromise the returns of your portfolio. Studies have shown that sustainable investments perform at least as well as traditional investments (see University of Oxford and Arabesque; NYU Stern School of Business as well as our overview on balancing profit and purpose here).

2. What are your values?

What a question.

First and foremost, take some time to figure out your values. They help to concretise 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? For example, 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?

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 thematic investing and has become popular over the last years.

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 which wealth manager or bank meets your criteria.  

But how can investors separate empty promises from sophisticated services? Here are three main points to watch out for:

• Transparency: Most importantly, banks and wealth managers should be able to give their clients clear and transparent information on how sustainable their investments really are. If they don’t inform you how their sustainability assessment work, you can ask for more information: If they don’t have their own sustainability rating, why is that the case? If they do, how does it work? Where do they get their sustainability data from?
• Sustainable investing expertise: How many sustainable investing experts does your bank or wealth manager employ? How long has the team been around?
• Sustainability strategy: Also, look for a bank or wealth manager that has a clear and detailed sustainability strategy, not only regarding sustainable investments, but also sustainable operations. Is the firm committed to social justice? For how long has the company been pursuing a sustainable strategy? Is this a recent development, or is it part of their beliefs and identity?

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