Socially Responsible Investing: How to build a green portfolio

Socially responsible investing (SRI) has gained popularity in recent years thanks to a growing focus on pressing issues like climate change. In 2021, the UN Development Programme conducted The Peoples’ Climate Vote, which revealed that 1.2 million people across 50 countries believe climate change is a global emergency. Many companies are stepping up by implementing sustainable programs and policies. So for investors who want to make a difference through their portfolios, here are a few tips for you.

What Socially Responsible Investing Means

To properly practice SRI, we first need to know what it entails. AskMoney has a guide to sustainable investing that defines it as investing in assets managed with environmental, social, and governance (ESG) considerations. These include factors like clean and renewable technology, carbon emissions, and water conservation. Social elements, meanwhile, also include community development, working conditions, and the like, while the governance area can include political affiliations, anti-corruption, and nepotism issues.

You would also need to learn about the PRI, which pertains to a global organisation aiming to encourage and support the uptake of responsible investment practices in the investment industry. The PRI investor initiative is supported by the UNEP Finance Initiative and UN Global Compact, and all PRI signatories commit to implementing the six Principles for Responsible Investment across their respective organisations. Investors can access the PRI Academy to find these principles, as well as other resources and lists of possible actions for incorporating ESG issues into investment practice.

Investors are often told to rely on profitability and practicality, but with SRI, you can afford to lean on your personal beliefs. It’s much more fruitful to commit to investing in socially responsible companies whose actions align with your morals and values. And while others may worry about the risks of this style of investment, CNBC reports that SRI investing is on the uptick and may reach the $50 trillion mark in the next 20 years. Moreover, ESG mutual funds have launched in record numbers, and there are now a variety of ways for investors to deploy their capital in ESG factors.

How to Build a Green Portfolio

Find Causes That Matter to You

Take note of the values that you find most important, and do your research to find companies that share these same values. Many of these funds or companies will have a public commitment to furthering certain environmental or social causes— inclusivity, affordable housing, the use of renewable energy, and the like. The Australian Ethical Emerging Companies Fund, for instance, has a high weighting in healthcare and tech stocks. Other small and mid-cap stocks also provide more sustainable-investing opportunities, because they set their sights on fewer, more focused targets.

Look to the Experts

Those new to investing might have some difficulty charting this new territory, so it might be helpful to seek outside insight and expertise from trusted experts to inform your decision-making as much as possible. Don’t end your research after investing in the company of your choice— instead, monitor the latest trends in that industry. Keep an eye out for new innovations or regulations that could change the trajectory of your investment. Another option would be to find a financial advisor with an ESG background to help you properly balance risk with your desire to invest in social good.

Beware of Greenwashing

Greenwashing refers to the act of pretending to have environmental or sustainability credentials. These past few years, there’s been a lack of regulation on the government’s part, which is why greenwashing has become so common. Now, the Australian Securities and Investments Commission (ASIC) is now conducting a review that aims to establish whether the practices of funds align with their promotion of these words. But it’s always a good idea to do your own personal digging to be on the safer side.

There’s nothing wrong with wanting to turn a profit while supporting the things you’re passionate about, and SRI lets you do exactly that. And as long as you prioritise these sustainable elements in your investment management, you’ll be able to build a portfolio that can affect the world positively. 

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Rhiann Jeffrey

Rhiann is a freelance journalist from Brisbane, Queensland. She specialises in finding newsworthy stories within the world of finance and commerce. In her free time, she enjoys going for runs with her dog and alphabetising her record collection.

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