A Guest Post by Ishita Gupta, Paraplanner at Brand Financial.
Sustainable investments lie on a green spectrum and choosing the right shade matters. The deeper the shade, the more sustainable the investment.
Where a portfolio falls on the spectrum, is often determined by the way it’s constructed. While a light green portfolio will apply screens to exclude companies most notorious for unsustainable practices, portfolios at the darker end of the spectrum are generally more specialised and tend to include investments that are targeted towards specific environmental or social issues.
For example, if we were to seek a portfolio that minimises carbon emissions, a light green portfolio might exclude the big miners. A dark green portfolio, on the other hand, would identify and seek out companies actively developing clean energy solutions. One could say that a light green investment is the equivalent of a ‘do no harm approach’; whereas, a dark green investment is more of a ‘do more good’ approach.
The darker green portfolios tend to be smaller, less diversified and consequently more volatile. Increased volatility means the returns could be significantly above or below the average market return. Typically, people interested in such investments are driven more by the social or environmental impact of the investment rather than maximising financial returns.
Figuring out the shade that best suits you is imperative. Your shade of green reflects your motivation to invest responsibly and your appetite for risk.
If you are driven to invest ethically but constrained by your financial needs, you can choose a light green investment strategy. Your portfolio will look similar to a more traditional investment portfolio but without the BHPs of the world and will provide returns similar to the market. Alternatively, if your investment decisions are driven more by the impact they create versus financial returns, a dark green portfolio may be better suited, keeping in mind the additional risk associated with a specialised portfolio.
Sit down with your advisor and work out where you lie on the spectrum, while considering the potential impact on your overall financial goals. Regardless of where you may end up, you can build a portfolio that not only provides competitive returns but also the satisfaction of being a responsible investor.
If you’re keen to be green reach out to us at 1300 369 045 or contact@justinbrand.com.au.
