Recent research from ASX finds that out of the 20 million adult population in Australia, 51% hold investments outside of their home and super. However, knowing which sources of information to trust and which investments to select can be a challenge for Australian investors. In this blog, we’ll explore some strategies on how you can build a balanced, purposeful and impactful portfolio to achieve your investment goals.
Achieving financial goals with impact investments
‘Impact investing’ is the practice of investing with the intention of generating positive social and environmental impacts alongside financial returns. Environmental, social, and governance investing (ESG) and socially responsible investing (SRI) and are two common approaches to impact investing.
ESG is an investment selection strategy informed by sustainability (including environmental, social, and governance factors). Similarly, SRI refers to the practice of investing in a socially responsible way. These strategies are based on an individual’s personal beliefs and depends on what a particular investor considers to be ‘ethical’. Investors may decide to entirely exclude some controversial industries, such as gambling, tobacco, and weapons manufacturing.
ESG and SRI investing involves making investments into companies that have good environmental or social value or through an environmentally or socially-conscious exchange-traded fund (ETF). These investment strategies enable you to generate financial returns with the rewarding feeling that you’re doing good in the world. However, like all financial strategies, these strategies can have disadvantages. For example, if your focus is entirely on ESG or SRI companies, you could be missing out on investment opportunities that offer better returns.
Realising success through purposeful portfolio management
Building a successful SRI or ESG impactful portfolio starts with what’s important to you. Since everyone’s values and beliefs are different, so are the investment opportunities they choose.
Before you make an investment, doing some research into the company itself and the activities it conducts will give you a better idea of whether it aligns with your ethical standards.
Negative screening is commonly used to exclude companies that engage in undesirable activities while positive screening identifies socially responsible companies. Investors often use positive and negative screening in conjunction to identify investment opportunities that align with their ethical standards.
To delve deeper into the world of impactful portfolios, we’ll discuss some of the key elements of successful impactful investing to help you maximise financial returns.
Key elements of impactful investing
Values at the forefront
Impactful investing is led primarily by the values of the investor. Often, impactful investors will choose something they are passionate about and invest in companies that are dedicated to making a change in that particular area. For example, an investor who is passionate about fighting climate change may decide to invest in companies that are dedicated to reducing carbon emissions and promoting sustainable practices.
Measurable impact plays an important role in demonstrating that the investment is effectively addressing the intended issue and making a real difference in the world. Impactful investors set specific, measurable, time-bound impact goals and measure the progress of these goals with impact metrics and indicators.
Focusing on the long-term
While regular investors may be more focused on quick, short-term gains, impactful investors tend to have a longer-term focus. They understand that achieving financial returns and creating a sustainable impact takes time. As such, they are usually willing to hold investments for extended periods to allow organisations to mature and scale their impact.
Balancing risk and ethics
In impactful investing, the approach to risk assessment and management becomes more complex. While financial risk remains a concern, impactful investors also consider investment risks that could have negative environmental or social impacts. Although balancing risk and ethics can be difficult, impactful investors are rewarded with the fact that their investments are both financially sound and ethically responsible.
Expert advice to guide your impactful investments
An experienced financial planner can guide your investment strategies and help you align your personal ethics with your investment decisions. Here at Financial Spectrum, our decades of experience allow us to help you make the most of your impactful portfolios.
For personalised advice about your impactful portfolio, book a no-obligation financial planning consultation with one of our experts today.