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 allow investors to tap into new areas of the market and align their values with their portfolios. can help to do so.
In fact, a recent Investopedia survey found that 58% of readers said their interest in ESG increased in 2020, and two-thirds said they look to invest more in companies with strong ESG profiles over the next five years. making plans.
If you’re interested in aligning your values with your investments, knowing the main ideas can help streamline the process. Below, we’ve outlined three key steps to follow that can help you make your portfolio more sustainable.
1. Set Your Investment Goals
Investors who know the reason for saving and investing usually have more commitment. This is especially true for long-term goals such as education planning or retirement. Once you know the investment objective, you can determine your time horizon and how much investment risk you are willing to accept. These are the fundamentals for creating a diversified asset allocation.
2. Clarify what impact you want to make with your investment
- Understand how you want to make an impact. Are you interested in efforts to become carbon-neutral and water conservation? Or the health care sphere of influence? Or even abolish gambling? Sustainable and impact investments are broad-based, managed investments that address a number of focused and narrow, thematic items that target specific concerns. Knowing your expectations and areas of interest can help you determine the amount you will keep for the length of your investment time frame.
- Consider why you might want to change your asset mix. Are you interested in diversifying your current assets or are you hoping to replace some of your holdings with something more ESG-friendly? Are you primarily interested in performance or access to new investments? Keep in mind that depending on the time frame of your investment, changes may affect the results. Also, some changes may have tax consequences that will need to be factored into the equation.
We also suggest that you consider the following as you consult with your financial advisor to identify options that best suit your values:
- Which ESG factors are most important to you? Are you interested in aligning your investments with certain environmental, social, or governance-focused themes?
- Do you want a broad exposure to a variety of investments or do you want to invest in a specific type of fund?
- Do you know how much of your portfolio you want to allocate for this type of investment?
3. Assess Investment Opportunities
Now, it’s time to bring it all together and look at investments that align with your goals.
Today, asset managers have mutual funds, exchange-traded products and separately managed accounts that centrally consider multiple ESG data in decisions. By integrating ESG into their established approaches, you can leverage investment expertise while investing in your values.
It is possible that you already have ESG holdings in your portfolio. If so, review the details and see if the holdings in the portfolio or fund align with your preferred focus. Some examples of what you want to know are:
- If you are interested in eliminating plastics, what is the company’s involvement in petrochemicals? What type of packaging do they use? What programs do they have in place to reuse or replace plastics?
- If corporate governance is a concern for you, do company values in areas such as employee management policies, stakeholder rights and executive pay equity align with yours within mutual funds?
- If the climate is a concern, what is the company’s carbon rating? How do they compare to others in their field? What policies do they have in place to reduce or offset their carbon footprint?
Thinking about these variables will help you identify investment opportunities that best suit your goals and priorities.
Work with a Financial Advisor to Build a Personalized Portfolio
An Ameriprise financial advisor will provide investment, solutions and portfolio allocation recommendations tailored to your specific goals and risk tolerance. They can also help you gain a better understanding of the performance you can expect from sustainable and impact investing.
Historical flows over the past year have shown that socially responsible investing is likely to stay here. 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 impact investing
This information is being provided as a general source of information only and is not a solicitation to buy or sell any of the securities, accounts or strategies mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be regarded as a recommendation or advice designed to meet the particular needs of an individual investor. Please consult a financial advisor regarding your particular financial situation.
ESG factors can cause the fund to forgo certain investment opportunities and/or exposure to certain industries, sectors or sectors.
Ameriprise Financial, Inc. and its affiliates do not provide tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Diversification and asset allocation do not ensure profit or protect against loss.
Investment products are not federal or FDIC-insured, are not deposits or obligations, or are guaranteed by any financial institution, and involve investment risks, including potential loss of principal and price fluctuations.
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