According to individual asset owners, it is necessary to incorporate sustainability in an investment portfolio for maximum returns. While sustainability issues such as climate change, public health, and social change continue to emerge daily, assessing investment opportunities and risks are becoming increasingly necessary for investors.
Incorporating ESG factors in investment portfolios helps investors maximize their returns. So, how does one maintain sustainability when handling an investment portfolio? Here are four ways to maintain sustainability when managing a portfolio in the long term:
Be Clear on Motivations in the Investment Portfolio
Investors should define why they need sustainability when managing a portfolio. The internal stakeholders should be part of the team that defines the investment philosophy. On the other hand, stakeholders push asset owners to demonstrate ethical, social, and environmental concerns about the investments.
Design an Operational Model
Proper leadership is the backbone for supporting, implementing, and meeting sustainable investing goals. An excellent operational model comprises a Chief Executive, Chief Investment Officer, risk committee, and investment committee. After setting the goals, you should formalize and document them for accountability in the future. Asset owners should look for the right resources to support a long-term investing strategy.
Identify Implementation Approaches
Investors should choose approaches that suit their investment philosophy; the typical implementation approaches among many investors include Company Engagement mytoptweets: company engagement aims to drive improvement in ESG activities through dialogue with investors.
Thematic Investments: These are investment decisions based on specific themes to solve challenges in global sustainability. ESG Integration: Alongside financial analysis, the ESG criteria can help identify different opportunities throughout the investment process. Such moves help investors know what to include and avoid when making investments.
Restriction Screening: It is essential to use risk-based or values-based criteria to guide investment decisions. These approaches guide investors in choosing the appropriate investing activities based on the asset class.
Define Investment Strategy
Once asset owners understand the above approaches, they can determine the approach to utilize in their investments. In addition, they can determine the time horizon to integrate sustainable investing methods across different investment portfolios. For instance, investors can introduce sustainability approaches when rolling over or investing in a new approach.
Also, a dedicated investment strategy focusing on a fixed income may engage new green and sustainable bond options. It is challenging to achieve portfolio integration across different investment teams, and asset classes require implementation over the years. Operational governance makes it easy to refine the investment strategy over time.
Building sustainability when managing a portfolio remains challenging for most asset owners and investors. The everyday struggles include insufficient resources to operationalize a strategy and pressure to meet the needs of stakeholders.
These challenges risk implementing an approach without cohesion which limits the growth of the reputation. Regardless, implementing any of the four highlighted ways is a sure way to maintain sustainability in an investment portfolio. Consider utilizing any of the ways or a combination for the best results for the asset owners.