In responsible investing, impact investing has shown remarkable growth over the last few years because such investments are regulated not only by governance, social, and environmental factors but also by beneficial impact and financial returns. The growth in impact investing shows that many investors are increasingly becoming more environmentally and socially conscious when they align their investment choices with their values.
This mindset is not only with the new investors but also among traditional investors, who call for transparency in the impacts of investments they have included in their portfolio. This article examines how investors can know if they are managing portfolios sustainably.
Use A Negative and Positive Impact Screening
When describing the investment as impacting society and the environment, you should be keen to point out the positive and negative social and environmental impacts. Furthermore, there is a growing concern about greenwashing companies; therefore, screening is necessary to understand the impact’s nature, positive or negative.
An investor can also understand the nature of the impacts of companies that they include in their portfolio by integrating ESG into their investment decision. Managing portfolios sustainably using impact screening means that you will remove companies with a negative impact. And only include those with positive social and environmental impacts.
Using Holistic/Net Impact in Managing Portfolios Sustainably
The approach, also referred to as the gray areas, is perhaps the most brilliant way investors can measure the impact of their portfolio. It is a more productive approach than positive and negative impact screening as it examines the overall impact of the portfolio. The beneficial and destructive nature of investments in your portfolio is captured in this approach, and a clear report of the overall impact is generated.
The holistic impact screening mechanism captures the gray areas in impact assessment where a single investment can positively and negatively affect the community. The net impact score gives the overall impact score of your portfolio so you can better understand the overall impact of your holdings.
Consult with Your Portfolio Manager or Financial Manager
If you have portfolio managers or financial managers, it’s good to engage with them to know whether you hold stock from companies or industries that negatively impact consumers’ health, the environment, or employees’ interest.
Using this approach, make sure that your portfolio managers do not include investments that deal with tobacco, fossil fuels, gambling, or any other investment with negative social and environmental impact. Instead, have holdings in investment areas that positively impact people’s lives, such as those that deal with renewable energy, innovation, education, and health care.
For investors to know whether they are managing portfolios sustainably, they need to use the negative and positive impact screening approach to include only investments that align with their values.
Investors can also employ a holistic or net impact approach which gives the individual investments positive and negative impacts as well as the overall impact of the portfolio. Investors can also consult with their portfolio managers to check the areas of investment that positively impact the lives of people and those that do not.