Sustainable and impact investing has gained momentum in recent years and shows no signs of slowing down. Also known as impact investing, socially responsible investing (SRI), or environmental, social, and corporate governance (ESG), these strategies can help investors capitalize on new areas of the market and align their values with their portfolios. (1)
In fact, survey found that 58% of readers said their interest in ESG grew in 2020, and two-thirds said they plan to invest more in companies with strong ESG profiles over the next five years.
If you’re interested in aligning your values with your investment, knowing the key considerations can help streamline the process. Below, we outline three key steps to take that can help you make your portfolio more sustainable.
- Define your investment goals
Investors who know the reasons for saving and investing generally have more commitment. This is especially true of long-term goals, such as educational or retirement planning. Once you know the purpose of the investment, you can determine your timeframe and how much investment risk you are willing to accept. This is a key element in creating a diversified asset allocation.
- Clarify the impact you want to have with your investment
- Understand how you want to make an impact. Are you interested in efforts to be carbon neutral and water conservation? Or a health care impact zone? Or even eliminate the game? Sustainable and impact investing is a broad-based, managed investment that addresses many narrow approaches and thematic elements that focus on specific issues. Knowing your expectations and areas of interest can help you determine the investment you will hold during your investment time horizon.
- Consider why you want to make changes to your asset mix. Are you interested in diversifying your current assets or do you expect to replace some of your holdings with more ESG-friendly ones? Are you primarily interested in performance or access to new investments? Keep in mind that, depending on the time horizon of your investment, changes can affect the outcome. In addition, some changes may have tax consequences that need to be taken into account in the equation.
We also recommend considering the following when consulting with your financial advisor to identify options that align with your values:
- Which ESG factors are most important to you? Are you interested in aligning your investments with specific environmental, social, or governance issues?
- Do you want broad exposure to different types of investments or do you want to invest in certain types of funds?
- Do you know how much of your portfolio you want to allocate to this type of investment?
- Evaluation of investment opportunities
Now, it’s time to put it all together and look for investments that align with your goals.
Today, asset managers have mutual funds, exchange-traded products, and separately managed accounts that centrally consider a wealth of ESG data in decisions. By integrating ESG into an established approach, you can leverage your investment expertise when investing in your securities.
You may already have ESG ownership in your portfolio. If that’s the case, review the details and see if ownership in a portfolio or fund aligns with your preferred approach. Some examples of what you might want to know are:
- If you are interested in eliminating plastics, what is the company’s involvement in petrochemicals? What kind of packaging do you use? What programs do you have to reuse or replace plastic?
- If corporate governance is your concern, are the company’s values in mutual funds aligned with yours in areas such as employee management policies, stakeholder rights, and executive salary equity?
- If weather is a concern, what is the company’s carbon rating? How do they compare to others in your industry? What policies do you have in place to reduce or offset your carbon footprint?
Thinking through these variables will help you identify investment opportunities that align with your goals and priorities.
Work with financial advisors to create a custom portfolio
Ameriprise’s financial advisors will provide investment recommendations, solutions and portfolio allocations that align with your specific goals and risk tolerance. They can also help you better understand the performance you can expect from sustainable and impactful investments.
Last year’s historic entry has shown that socially responsible investments are likely to remain. A thoughtful approach and the right investment advice can help you incorporate it into your portfolio.
Learn how to talk to your financial advisor about sustainable and impactful investing
This information is provided only as a general source of information and does not constitute a solicitation to buy or sell any securities, accounts or strategies mentioned. This information is not intended to be used as the sole basis for investment decisions, nor should it be construed as recommendations or advice designed to meet the specific needs of individual investors. Please seek advice from a financial advisor regarding your specific financial situation.
(1) Although these terms are often used interchangeably, they have some important differences. Additional information regarding the impact and flow of sustainable investment funds can be obtained from Morningstar. Morningstar, “Global Sustainable Fund Flows: Q2 2021 Review.” Retrieved 25 August 2021.
ESG factors may cause the Fund to ignore certain investment opportunities and/or exposure to certain industries, sectors or regions.
Ameriprise Financial, Inc. and its affiliates do not provide tax or legal advice. Consumers should consult their tax advisors or lawyers about their specific situation.
Diversification and asset allocation do not guarantee profits or protect against losses.
Investment products are not insured by the FDIC, NCUA, or any federal agency, not deposits or liabilities of, or are secured by, any financial institution, and involve investment risks including potential loss of principal and fluctuations in value.
Ameriprise Jasa Keuangan, LLC. Miembro de FINRA y SIPC.
© 2021 Ameriprise Finance, Inc. All rights reserved.