• Wealth Management

Getting Started Building a Green Portfolio

You can seek to generate positive financial returns while benefiting the environment, but shifting your entire portfolio may take patience.

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. But there are a range of approaches you can take to seek to generate positive potential financial returns while benefiting the environment.

To get started, investors need to make a few decisions.

  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 a trusted 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 typically take a very client-driven approach. We have more than 120 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 $25 billion in client assets under management. In 2013, when Morgan Stanley launched the Institute for Sustainable Investing, the firm set a goal of getting to $10 billion by November of 2018. I’m proud to say that, thanks in good part to our ability to tailor solutions to client objectives, we’ve achieved more than two times our initial goal for assets under management in that time.

A Custom Approach

Depending on the client, we can create custom portfolios using a range of investment products, including third-party separately-managed accounts, exchange-traded funds and mutual funds. We can screen your existing portfolio to help you avoid objectionable sectors or geographies or highlight which of your existing holdings have the strongest environmental profiles.

We typically utilize research from third-party firms combined with our own in-house expertise to identify the best companies, funds, and partners to work to achieve your climate goals.

We want to make sure that clients are committing money to investments with positive environmental impact, not just companies and funds that are marketing themselves that way. But we recognize that not all companies are perfect and many may be in the process of improving their track record on environmental issues. That’s why our analysts spend a lot of time on due diligence.

For clients with fewer assets to devote to this theme, we offer a Climate Action theme portfolio on our automated investment platform, Morgan Stanley Access Investing (which has a $5,000 minimum). Through a Financial Advisor, you can also purchase a basket of stocks that address global sustainability themes, including climate change, health and wellbeing, waste management, water scarcity and safety and security.

Diversification Matters

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.  A financial advisor can help you find the right fit for your own unique goals. 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.