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. There are a range of approaches you can take to seek positive potential financial returns while benefiting the environment.
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 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. We are happy 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.
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. 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.
We typically utilize research from third-party firms combined with our own in-house partners to identify the most favorable companies, funds, and partners to work to achieve your climate goals.
If you have fewer assets to devote to this theme, we also offer a 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 an analytically 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 this 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 topics.
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 or open an Access Investing account today to start building a portfolio that’s fit for you and your unique goals.