You can seek to generate positive financial returns while benefiting the environment. Here are some different ways to approach that transition.
Just as reducing your own carbon footprint may not be as easy or straightforward as you would like, building a green portfolio can take time and patience. There are a range of approaches you can take to generate positive potential financial returns while benefiting the environment.
The market for investments that help transition to a low carbon economy continues to gain momentum. This is helped in part by the continuing increase of renewables as a percentage of the global energy mix. In fact, our own research team estimates that 40% of the global energy mix will be made up of renewable and alternative energy by 2030. Given this background, it’s still important that to consider the different ways to build a green portfolio. To get started, here are a few decisions you need to make.
1. What is your focus? Do you want to eliminate fossil fuels from your portfolio completely, invest in companies in any industry that have embraced positive environmental practices, or invest directly in firms that seek to find solutions or mitigate the effects of climate change—or all of the above?
2. Do you want to start with just a portion of your portfolio or convert the whole thing? For example, you could start by replacing a traditional fixed income mutual fund with a fossil fuel-free bond fund or a labelled “green bond” fund investing in renewable energy projects. If you’re ready to go all-in, you can align your entire portfolio with environmental goals using a solution like the Climate Action theme on Morgan Stanley Access Investing.
3. How will you implement these changes? It is often best to make changes to your existing portfolio over a period of time. In general, decarbonization of your portfolio is a long-term investment philosophy, not something you can do in one quarter.
At Morgan Stanley, we typically take a very client-driven approach. We have more than 190 investment opportunities available on our Investing with Impact Platform that can serve clients, including individual investors with just a few thousand dollars to invest as well as large institutional investors. The platform, which launched in 2012, has more than $65 billion in client assets under management.
We also offer the Climate Action theme portfolio on our automated investment platform, Morgan Stanley Access Investing (which has a $5,000 minimum). Through our Access Investing platform, you can align your investments with your values, opt for a research-driven strategy that seeks to maximize returns, or focus on minimizing fees.
It’s a core investing principle at Morgan Stanley that portfolios should be diversified. One way to achieve that is to broaden your focus beyond just climate issues to encompass sustainable goals, which include environmental, social and corporate governance (ESG) criteria, which we believe are interrelated issues.
Creating a green portfolio is not simple, but it can be rewarding. The most important step is the first one—deciding to take action. Climate change is a complex, global problem, but its effects can be mitigated and solutions achieved. An investment portfolio, no matter the size, can have a positive impact.