How to Invest in Sustainable Portfolios

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How to Invest in Sustainable Portfolios
Anneke Zwart, Student (University), Netherlands

Investments are more and more trying to align their investments with their values. They have begun to think differently about potential investments portfolios, and are increasingly willing to invest in sustainable funds or portfolios.
But, what are ‘sustainable’ investments really? Sustainability has become a word that can be interpreted in many ways. At the moment it relies too much on voluntary corporate disclosures such as annual reports in which sustainability is been looked at in different ways. Due to ambiguities around the true meaning of ‘sustainability’, it is difficult to determine what investments are sustainable and what investments aren’t. Even business people who focus on operating in a sustainable way do not even know what sustainability is and what it isn’t.

For example, a company that has increased efficiencies with regard to its water use may say that it is operating ‘sustainable’ on that dimension. However, some people argue that organizations need to go further than efficient water use alone. Also, sustainable means integrating sustainable water policies in an organization’s overall operation.

This makes it extremely difficult – especially for individual investors – to invest in sustainable portfolios.
Alex Davidson (2015) provides some tips and pitfalls for investors on sustainable investing:
  1. LEAVE IT TO EXPERTS: It is perhaps better to leave the judgment what is sustainable to experts in the field of sustainability at the moment. Such experts are able to investigate organizations’ degree of sustainability – going further than corporate disclosures – in more detail. There are some well-known sustainable funds of this type available.
  2. AUTOMATED MONEY MANAGEMENT PLATFORMS: another way to for individual investors to go for sustainable investing is to consult money management platforms that will collect a sustainable portfolio based on 1) the investor’s answers about investment preferences and 2) a particular logarithm. The disadvantage is that such automated money management platforms are based on the same cloudy information on which no accurate conclusions in terms of sustainability can be made.
  3. TRUSTED FIRMS: Chat Reynders recommends individual investors to search trusted firms with a large portfolio of liquid indexed goods. Search for and invest in sustainable portfolios of those trusted firms that match best with your outlined values. Less liquid indexes may look more attractive at first sight, however they bear the risk of having more fundamental problems.
  4. GLOBAL IMPACT INVESTING NETWORK (GIIN): another way to find information about sustainable investing strategies is to consult GIIN, a non-profit organization that gives access to lots of researches and strategies regarding sustainable investing.
Source: Davidson, A. (2015) "A Guide to Sustainable Investing" The Wall Street Journal


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