by Willem Sels, Global Chief Investment Officer, HSBC Global Private Banking and Wealth
May 5, 2022
Sustainable investing is a broad topic, with many different approaches, objectives and lingo. But what is right for me and how should I set my investment strategy? To help you, we have developed 6 basic principles. They’re not exhaustive, but we believe they’re a good place to start.
- Know what you want to achieve: because ‘why’ you want to invest sustainably will guide the ‘how’. Some investors are values-driven, which may lead you to exclude certain sectors and activities, while others will look at sustainability to discover new opportunities and risks and generate better risk-adjusted returns, or make a direct impact.
- Adopt a medium to long term approach: because the net zero transition needs long term capital, corporate engagement takes time to yield results, and some new technologies will take time to become profitable. In our view, the short-term performance of investments is principally linked to financial factors, not sustainability factors.
- Consider sustainability across all asset classes: because all asset classes need to contribute to the funding of the climate transition and are affected by the changing investment environment. Diversification also helps broaden the opportunity set.
- Incorporate sustainability in both the core portfolio and satellites: because thematic investments can be directly linked to your area of interest, but all companies in the core portfolio are affected by sustainability, and they will influence your portfolio’s overall ESG score.
- Make sure your investments do what it says on the tin (avoid greenwashing): as definitions and practices are still evolving, the role of a strong fund selector or advisor is key to ensure the investment matches the strategy and objectives you have set.
- Evolve with the market: because a growing, more transparent and competitive market will provide more opportunity and liquidity to investors. With time, we see no reason why investors would not incorporate a sustainability approach across the entirety of their portfolio.