Is your investment portfolio positioned for a future that may look vastly different from the past?
Some of the world’s largest investors are asking this very question.
They are rightly concerned that large trends such as climate change, surging population growth, and resource scarcity will negatively impact their returns over time. They have seen too many examples of poor governance, abusive labor policies and lax environmental controls ruining company reputations and brand values. In short: They want to know more about what they own. This new level of due diligence is destined to become the norm as investors seek to manage these risks.
Charged with managing massive sums for pension plans and endowments, these large investors are increasingly adopting what is known as a “Sustainable and Responsible Investing” (SRI) model –incorporating environmental, social and governance factors into the investment process. Their objective: To invest in companies that are financially attractive AND are who among the leaders in the management of these new risks.
We live in a time when many companies around the globe are adopting more sustainable business models. And those firms who have done so most successfully have been shown to perform better. This has been particularly evident in times of stress, such as the recent financial crisis. In a recent white paper, State Street Global Advisors found that the companies who scored at the top if their industry on SRI factors outpaced the lowest-scoring group in each of the six calendar quarters of the 2008-09 bear market. This risk reduction is of interest to investors of all types.
Thanks to a greater awareness of these new risks, Sustainable Investing is a rapidly-growing phenomenon. To meet investor demands, companies are providing higher levels of climate risk disclosure than ever before. Firms such as Fidelity, and even Google Finance, post some of this corporate data on their websites.
Once relegated to the investment backwaters, pooled investment vehicles with an “SRI focus” now include literally dozens of active and passive mutual funds and ETFs, with more launched each month. Likewise there are many boutique investment managers available on advisor “separate account platforms” that specialize in SRI, while scores of others routinely adapt their existing models to an SRI framework.
So, there are many options, but don’t be overwhelmed. Fisher Investments on technology sector can help you with this. But if you choose to do this yourself, the first step for any investor is to find out what you already own. With a little information, and some planning, your portfolio can better reflect your values while being more ready for a future that may differ from the past.
Written by Scott Sadler, Boardwalk Capital Management