Your Sustainable Portfolio in 5 Simple Steps…

Putting sustainable and responsible investments (SRI) in my portfolio for the first time reminded me of taking batteries out of those super sealed packages.

At first you try to do it with just your fingers. When you realize that is hopeless, you look around and give it a try with whatever happens to be about, a spoon, nail clippers, hairbrush. Finally, you fetch the scissors as you should have in the first place. Armed with the proper tool, out they pop, no fuss, no muss.

SRI is just like that: hard to get started, a bit frustrating, but not terribly difficult once you have the right tool!

Choosing basic sustainability criteria to guide your portfolio is relatively easy. That’s because only you know the social, environmental, or economic sustainability issues important to you, and no one can tell you different!

That’s the good news. The bad?

Assessing sustainability investment performance requires homework.

You know as much as I do, that few companies meet our ‘ideal’ sustainability expectations. Walmart excels on the environment but faces serious questions on labor.  The GAP addresses human rights issues but promotes fast fashion which stimulates over consumption.

There are guidelines to help. Yet assessing securities for sustainability impacts remains an art as much as a science. And unlike corporate financial performance, there is less sustainability performance data available to the average investor then desirable.

Don’t despair!

In my book Invest Like You Give a Damn, I help investors sort out your SRI options. The concept I use is based on proven financial asset allocation strategies. With my method you end up with a SRI asset allocation that supports and complements your financial asset allocation.

To give you a flavor, here are the five steps I use:

Step One — Define Your SRI Passions
Make a list of social and environmental issues that you feel strongly about and that companies impact. The list should include issues that make you mad, happy, or both. Love the list your list or otherwise it will be harder to do the homework to come!

Step Two — Distributing SRI Impact Points by SRI Category
Now decide which sustainability issues are more important than others. Once it is done, you allocate SRI Impact points to each issue, just as you would capital to securities in a financial asset allocation excercise.

In my book, I show you how to use a 100-point system for your allocation. Carbon is big issue for me , so it gets 20 Impact Points. I also decided to allocate 15 Points to clean energy to help speed the end of fossil fuels. Because I want my daughter to have all the opportunities her brothers might enjoy, I allocated 20 points to gender issues. (Note this does not add up to 100 but you get the point!).

Step Three — Allocating SRI Impact Level
After you divvied up your Impact Points, you need to decide how much SRI Impact you want to achieve on each issue. Just as financial assets can be categorized by risk, the strength of a security or fund SRI Impact can be determined and used to categorize securities.

An investment in a community housing cooperative, for example, would have a higher impact on community development, than an investment in the municipal bonds of a city with good housing policy.  An investment in a company building community owned mini-grids has more impact than a mutual fund which simply avoids coal investments.  Again, these are subjective judgments, but remember Step One, you get to decide.

Once you have completed this step you will have the basis for selecting your investments.

Step Four — SRI Investment Selection by SRI Asset Allocation
When you have your desired SRI Impact Points allocated, you need to match allocations with investment vehicles. That is, go and find the SRI investment fund or security that fits your allocation strategy.

A good place to start is the US Social Investment Forum or the Responsible Investors Association in Canada. In both countries, you can also search Morningstar sustainability ratings by fund or security. It is a good service and the Morningstar’s basic subscription is free.

Step Five — Matching Sustainability Impact Allocation and Financial Asset Allocation
Once you have your SRI Allocation, you will need to ensure the SRI investments vehicles/ securities selected in Step Four can meet your financial allocation targets. (A simple method for that is also found in my book)

This can be a bit tricky and you may need a few iterations to get the mix right.

More Help….
If you want more information look for my short online and participatory SRI Asset Allocation course in February. Or write me for more information about how you can put SRI into your portfolio!  Of course, your should order my book….. so you too can Invest Like You Give a Damn!

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