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 potential positive 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 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? At Morgan Stanley we take a customized approach with clients to find the right fit for their portfolio and goals.
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, we can help you devise a plan to align your entire portfolio with environmental goals.
3. How will you implement these changes? It is often best to make changes to your existing portfolio over a period of time alongside an experienced Financial Advisor so together you can account for taxes, market fluctuations and your other investment goals. In general, decarbonization of your portfolio is a long-term investment philosophy, not something you can do in one quarter.
At Morgan Stanley, we take a client-driven approach to investing. The Investing with Impact platform, which launched in 2012, has more than $66 billion in client assets under management, and allows clients of all types, including individual investors with a few thousand dollars to invest as well as large institutional investors can leverage more than 230+ investment opportunities across asset classes or a suite of 12 portfolio solutions.
Once you establish the elements of a green portfolio that closely align with your impact and financial goals, you can work with your Financial Advisor to incorporate Climate Action into your portfolio. One approach is through our Impact Portfolio options starting at $10,000. This option seeks to generate broad-based positive environmental and social impact with an emphasis on Climate Action. You can also invest in a basket of stocks that address global sustainability themes, including climate change, in addition to health and wellbeing, waste management, water scarcity and safety and security. Finally, you can work with your Financial Advisor to construct a custom portfolio that leverages third-party funds to help achieve your unique climate goals.
The final step is measuring your progress. At Morgan Stanley, we leverage our patented1 impact reporting application – Morgan Stanley Impact Quotient® (Morgan Stanley IQ). With this application, clients can identify their climate goals and report on the portfolio’s alignment to these goals. If misalignment is identified, your Financial Advisor can use Morgan Stanley IQ® to adjust portfolio holdings to help improve alignment.
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.
For example, an investment in affordable housing that is being renovated with solar panels can help the environment and achieve goals around social justice.
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. Connect with a Morgan Stanley Financial Advisor to start building a portfolio that’s fit for you and your unique goals.