Crystal Wealth Newsroom
The 4 pillars of responsible investing
Many of our clients are becoming increasingly aware of the impact their investments can have, and companies have responded by becoming increasingly transparent on how they report ESG factors as the world moves to net-zero by 2050 – if not sooner.
Here at Crystal Wealth Partners, we believe responsible investing should not be an either/or but rather it should encompass a combination of negative screening, sustainability-themed investing, ESG integration and, where suitable, impact investing with each playing an important part in responsible portfolio construction.
We focus on four key pillars to help you cut through the noise and develop responsible portfolios that align with your individual purpose and values:
A deeper dive
It starts with a deeper conversation with you that goes beyond the traditional risk/return discussion to focus more deeply on your values and motivations. A responsible or ethical investment portfolio was previously seen as simply avoiding investing in companies that engage in environmentally and socially irresponsible practices or display poor corporate behaviour – but many of our clients want a more holistic, nuanced approach to investing sustainably over the long term.
What’s the purpose?
Is the goal to screen out investments in controversial areas such as gambling, tobacco or alcohol; maintain return expectations while actively considering environmental, social and governance risks and opportunities; or is it to make a tangible impact with your investments?
These decisions are not always straightforward and more than just a tick a box exercise.
Take electric vehicles as an example. You may say, ‘Yes, I firmly believe all cars should be electric and not petrol, so let’s invest in electric vehicles.’
But what if the materials are made using electricity from coal or the batteries are made by companies with poor governance records? Where do you draw the line? Each person will have a different take on what matters most.
Returns still matter
At the end of the day, if you’re seeking financial advice you are looking to reach a financial goal – whether that’s to buy a house, fund your kid’s education or retire more comfortably. Financial returns are important, even for the most ethical investor.
A common myth is that investing sustainably comes at the cost of financial returns, however, there is substantial academic evidence and research in Australia, and internationally, to support the argument that responsible investing performance is on par with, if not better than, the broader investment market.
Be actively active
This flows across two aspects of responsible investing. Individual preferences change over time, so adapting portfolios to manage these changes year-on-year is critical.
Also, to invest sustainably is to invest actively. Companies may meet certain sustainability criteria today but not tomorrow and vice versa. It is vital to track both individual companies and the broader investment universe and adapt the portfolio as business performance and priorities change.
Our responsible investment portfolios, for example, use a combination of negative screening, sustainability-themed investing, ESG integration (Environmental, Social, and Corporate Governance) and impact investing where appropriate, with oversight from an experienced investment committee to form a suite of dynamic and active portfolios that are continually reviewed against performance benchmarks and sustainability criteria.
There’s certainly been an increase in awareness and demand for sustainable investing. Most clients want their portfolio to both meet their financial goals and do good, who wouldn’t?
However, there remains a lot of noise and confusion about what it means and how it should be incorporated into investment portfolios. The key is understanding what is right for you. That only comes through a deep understanding of your motivations, purpose and expectations and then actively managing the portfolio as investment alignment and your preferences change over time.
Crystal Wealth Partners works closely with clients to help design and manage responsible investment portfolios. If you’d like to learn more, get in touch today.