Aligning philosophy and motivation shall be the origin of sustainable investing.
Commencing to dive deeper into sustainable investment is an outstanding decision. The green portfolio management will be impactful to wide-ranging sustainable issues like public health, climate change, and also social justice.
Moreover, the arrangement from asset owners and companies in acknowledging environmental, social, and governance (ESG) aspects will also generate the opportunity to gain return above-market returns.
Interestingly, during the first half of 2020 when the COVID-19 pandemic struck the world, sustainable funding in the forms of stock and bonds outperform the traditional instruments. The downside risk is smaller amid the global recession and market volatility.
Steps and How-to do Sustainable Investing
At least 4 of 5 asset owners agree that sustainable investment is the proper strategy to lessen climate change-related risks. This is shown in the study from Morgan Stanley Institute for Sustainable Investing in February 2021.
To give a more precise perspective, here are the necessary steps to do sustainable investment:
- Clarify the Motivation and Philosophy
Before determining where to invest, the company must decide the trigger point behind integrating sustainability factors into the whole investment process. During this step, all the internal key stakeholders from the investment teams to the leaders must arrange the investment philosophy together.
There are plenty of backgrounds that could be the motivation and philosophy. For example, investment to gain a promising return or to mitigate climate-change risk. The implementation could be done by funding companies or enterprises that are actively involved in eco-friendly waste management to eco-friendly waste collection.
After that, the ethical, environmental, and also social concerns of the company will be obvious. This would also be attached as part of the company’s branding.
- Identify the Implementation
In the next step, the investor can determine which approach is the most appropriate in reflecting their philosophy investment. The common primary approaches are:
- Restriction Screening
Avoiding investment from specific sectors or parties based on risk-based criteria calculations.
- ESG Integration
Weighing the environmental, social, and governance along with financial analysis. Thus, the risk and opportunity will be distinguished during the whole investment process. The investment decision will also be easier to be measured.
- Thematic Investment
Kind of investment focusing on specific theme or sector, for example, waste management Indonesia. It’s related closely to the objective of solving global sustainability challenges.
- Impactful Investment
Allocating investment to fund a company or organization to get a specific and positive return. Usually, the target is related to the social and environmental aspects, as well as the financial return.
Doing proxy voting or active dialogue with the invested company or issuers could be an effective way to engage better
3. Define the Investment Strategy
This strategy could be accomplished by measuring the sustainability considerations for the subsequent investments. To accomplish the integrated portfolio, the company must implement and refine the philosophy that might take years to develop.
4. Create Operational Model
This operational design will support the sustainable investing implementation. Commonly, the typical governance model requires the involvement of the Chief Executive, Investment Committee, Risk Committee, and Board of Directors.
Also, it’s necessary to formulate a report or formal website to document the progress of current sustainable investment. This will also beneficial in aligning the concept between key stakeholders.
In the long term, sustainable investment surely is an assuring approach. For waste management Indonesia, Waste4Change has attained the trust from Agaeti Ventures together with East Ventures and SMDV in March 2020.
The opportunity for collaboration is still open to formulate better waste management Indonesia. More info at w4c.id/RWM.
4 Steps to Sustainable Investing. https://www.morganstanley.com/ideas/sustainable-investing-strategies-asset-owners
Sustainable Funds Outperform Peers in 2020 During Coronavirus. https://www.morganstanley.com/ideas/esg-funds-outperform-peers-coronavirus
4 Practical Tips to Help You Get Started with Sustainable Investing. https://www.forbes.com/sites/investor/2018/05/10/four-practical-tips-to-help-you-get-started-with-sustainable-investing/
Author: Azelia Trifiana