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How to Build a Sustainable Portfolio


A sustainable portfolio is a collection of investments designed to achieve long-term financial goals while considering environmental, social and governance (ESG) factors. Unlike traditional portfolios, sustainable portfolios prioritize companies that are committed to positive environmental practices, social responsibility, and strong governance policies. This approach not only aims for financial returns, but can also align investments with personal values and global sustainability goals.

Have questions about how to build a sustainable portfolio for yourself? Consider reaching out to a financial advisor to align your investments with your financial goals.

Benefits of Building a Sustainable Portfolio 

Investing sustainably isn’t just about ethics, it also has the potential to provide competitive financial returns when compared with a standard portfolio.

A sustainable portfolio can offer several benefits. Investing in these companies can mitigate the risks associated with companies that may face regulatory penalties or reputational damage due to poor ESG practices, which can translate into better performance over the long term.

Additionally, because sustainable investing supports broader societal goals, forward-thinking companies may attract more investments from socially conscious investors and institutions, which can potentially lead to higher demand and increased asset values.

How to Build a Sustainable Portfolio

To build a sustainable portfolio you will need to select investments that align with sustainable practices and long-term value creation. Seeking guidance from a financial advisor can help you tailor this type of portfolio to your individual goals and values. Here are three common steps to keep in mind:

Define Values and Set Goals

First, define your values and set your investment goals. Consider what issues are most important to you, whether it’s reducing carbon emissions, human rights, or promoting diversity in leadership. Environmental criteria might include a company’s carbon footprint or renewable energy use, social criteria could focus on labor practices and community engagement, and governance criteria might assess board diversity and business ethics.

Knowing what you value most and want to focus on before jumping in can help guide your investment decisions and align your portfolio with your personal values. Understanding your financial objectives, such as risk tolerance and your time horizon, is also important in building a sustainable portfolio that’s both balanced and effective.

Research and Select Suitable Sustainable Investments

Before building a sustainable portfolio, it's a good idea to first define your values and set your investment goals.

Second, you’ll want to research potential investments so you can select the ones that best align with your values and goals. Numerous resources, such as ESG rating agencies, provide insights into how companies perform across these categories. This research can help you evaluate potential investments and confirm whether they meet your sustainability standards.

You’ll also have a variety of options to choose from in regards to sustainable investment vehicles. This includes mutual funds, exchange-traded funds (ETFs), and individual stocks. Sustainable mutual funds and ETFs pool resources to invest in companies that meet certain ESG criteria, offering a more diversified approach. For those interested in taking a hands-on approach with direct investment, selecting individual stocks of companies with strong ESG performance allows for greater control. Green bonds, which fund environmental projects, are another viable option for those focused on environmental impact.

Manage Risk

Diversification is a key principle in any investment strategy, and it applies equally to a sustainable portfolio. Spreading investments across various sectors and asset classes helps to manage risk. This means not only investing in green technology companies, but also considering other sectors like consumer goods, finance, and healthcare, provided those companies meet your ESG investing criteria. Diversification mitigates the risk associated with any single investment and enhances the potential for steady returns.

It’s also important to regularly monitor the performance of your investments and stay informed about changes in companies’ ESG practices. This way you can ensure that your portfolio remains aligned with your values and financial goals.

Periodic rebalancing is also necessary to maintain your desired asset allocation, particularly if certain investments outperform others or if your financial goals evolve over time.

Bottom Line 

A couple building a sustainable portfolio.

It’s possible to build a sustainable portfolio that not only meets your financial goals, but also contributes to a more sustainable future. Be sure to conduct your research, consider your investment options and always keep your risk tolerance in mind. If putting together your own sustainable portfolio seems too challenging, you can always consider consulting with a financial advisor who specializes in sustainable investments to help tailor your portfolio to your specific goals, recommend suitable investment products, and keep you informed about the latest trends and opportunities in sustainable investing.

Tips for Building a Sustainable Portfolio

  • Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • There are different ways to pursue ESG investing. You could purchase individual stocks, for example, or invest in ESG mutual or exchange-traded funds. If you’re considering ESG mutual or exchange-traded funds, take time to look under the hood at the underlying investments. This way you can make sure the holdings create enough diversity to avoid over exposing yourself to company or sector.

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