Sustainable investing: Adding values to your portfolio

Can investment portfolios reflect more than just returns? For many investors, social or environmental impact is just as important as monetary gain.

Why choose sustainable investing?

Sustainable investing is a strategy that integrates environmental and social concerns into the investment selection process. There are three primary motivations for pursuing sustainable investing:

• Values

• Impact

• Performance

Investors may be inspired by one or multiple motivations, but the primary motivation may influence the specific type of sustainable investment approach they choose to pursue.

Values-Focused Investing

For example, a values-focused investor may primarily be concerned about avoiding investments in company stocks that violate their conscience (such as weapons, tobacco, or oil companies). For this investor, an exclusionary approach might be most suitable—where specific companies are screened out of a portfolio based on their business involvement.

Impact-Focused Investing

An impact-focused investor may instead look to direct capital to underserved communities through a community development loan fund, helping individuals who lack access to traditional credit options start small businesses or obtain home loans. An impact investor might also be interested in supporting green bonds that direct capital to climate change related investments—such as electrifying an urban bus transit system.

Performance-Focused Investing

A performance-focused investor may look to proactively invest in sustainability themes, such as renewable energy or sustainable foods. For example, companies focused on producing sustainable and healthier foods may be better long-term investments because they will have potentially higher sales due to the increased consumer focus on healthier food options. Investors with this focus may also seek to invest in companies with good overall environmental, social, and governance (ESG) records because they believe these are better managed companies with lower risk. These investors would prefer not to own companies with major headline risks associated with corporate governance scandals or a history of producing unsafe products. For these investors, good management of ESG risks and opportunities is just good business—an approach that should be rewarded in time.

Growth and demand for sustainable investing

Over the last 20 years we have seen a major increase in demand for investment products that employ one or more of these sustainable investing approaches. It is now possible to create well diversified portfolios, with exposure to sustainable investments across all asset classes (cash, equities, fixed income, and alternatives). These portfolios can provide risk adjusted returns similar to traditional portfolios, but with the added benefit of an impact or sustainability objective.

Companies that embrace sustainability

Some public companies have not only welcomed the shift toward sustainability, but have also implemented strategies to attract this investor demographic:

• Next Era Energy—Next Era Energy is an electric utility company that is a national leader in the production and distribution of renewable energy, with 55% of its operating portfolio tied to renewables.

• Quanta Services—Quanta Services is one of the largest infrastructure construction companies, positioned to benefit as utilities push to improve electric transmission and distribution in the US, which is essential given the age of most transmission lines.

• Unilever—Unilever is a global consumer company that produces some of the biggest food and personal care brands, such as Dove soap and Hellman’s mayonnaise. The company has a focus on sustainable agriculture, with a goal of sourcing 95% volume of key crops to be verified as sustainably sourced by 2030.

Our team at Nixon Peabody Trust Company has decades of experience creating sustainability focused investment portfolios for clients. We can help you design a customized portfolio with exposure to the specific sustainability approach that matches your specific motivations and provides benefits beyond the bottom line.

Paul Hilton, CFA
Equity Research Director
+1 617.345.1066
philton@nixonpeabody.com