Getting started in investing is easier than ever now, and online trading platforms have dramatically decreased the barrier to entry. However, actually learning how to invest properly still takes time. There are many theories and strategies for investing, and in this article, we will examine one that is rapidly growing in popularity: sustainable investing.
This article will examine the basics of sustainable portfolio management and how it can help your bank account and the world as a whole. Continue reading the article below to learn more.
What is Sustainability?
Simply put, sustainability is the process of maintaining a balance over an extended period of time. When it comes to businesses and corporations, sustainability initiatives aim to manufacture their products and services without depleting the earth’s natural resources or causing harm to human life. Understanding this is key to sustainable portfolio management.
What is a Sustainable Portfolio?
A sustainable portfolio is an investment portfolio of companies that incorporate sustainable practices into their business models. It’s important to note that not every company that claims to be green or treats their employees well is, by definition, sustainable. Sustainable portfolio management involves sussing out the companies that are sustainable.
Sustainability means a company operates as a net positive to the world. So even if an oil company has adopted a green initiative, they are still adding more pollution to the world than they are removing, making them unsustainable.
An unsustainable company, by its very nature, has a limited shelf life, making them unsafe as a long-term investment. A coal mining company may be making a lot of money at the moment, and their employee satisfaction may be high, but the unsustainability of their product will mean the general public will eventually abandon their services. We can already see this with the widespread adoption of electric cars and solar panels.
Sustainability and the Environment
One of the most common indicators that a company is sustainable is its net impact on the environment. If a company produces a significant amount of greenhouse gasses, then to be sustainable, the company must offer an inordinate amount of positive impact to humankind. Positive human impact can come in the form of economic value, transportation services, medical advancements, etc.
Sustainability and Humankind
Not all sustainability metrics revolve around a company’s impact on the environment. A company’s sustainability can also be determined by its impact on human life. A tobacco company or vape manufacturer may be highly profitable at the moment, but the fact that their entire business model depends on selling toxic products makes them unsustainable, which can be seen by the record low number of teenage smokers. Sustainable portfolio management ensures your investments will be secure for the long term.
Why Practice Sustainable Portfolio Management
Any investor will tell you it is important to diversify your investments by creating a portfolio containing several investments. This protects you from downturns in the market and ensures long-lasting success. With a sustainable portfolio, you are making an effort to determine if every one of the companies you invest in can be categorized as a suitability success. This ensures your investment will have significant long-term value.