Is it possible to reduce the carbon footprint of your investment portfolio and invest in ethical companies, without compromising the returns you need to achieve your financial goals?
The answer is yes.
The first phase is to develop an investment philosophy that emphasizes the sources of higher expected returns whilst minimizing turnover and trading costs (which is what we do).
The second phase is to kick the worst polluters and offenders across all industries out of the portfolio altogether, while the rest are over weighted or under weighted based on how they rank among their peers. This methodology, as opposed to an in-or-out screening process preserves diversification while encouraging good behaviour.
There is no evidence that focusing on ethical and sustainable criteria improves expected returns, but the opposite is also true – there is no evidence that it will reduce returns either. The journey will be different; investors needs to be prepared for more volatility due to less diversification, however the expected return is still the same.
The sustainability strategies we use place greater emphasis on companies considered to be acting in more environmentally responsible ways while also emphasizing higher expected returns. This approach enables investors to pursue their environmental goals within a highly diversified and efficient investment strategy.