Our Thinking

Portfolios with Purpose

Jessica Matthews, Global Head of Sustainable Investing, J.P. Morgan Private Bank

Key takeaways

  • One strategy, two goals. Sustainable investing combines both financial and social/environmental objectives into a portfolio strategy.
  • A growing trend. Greater awareness of sustainability-related issues is expected to drive continued growth in investment activity.
  • Performance potential. Long-term returns for sustainable investing strategies have remained in line with the broad market index.
  • Multiple ways to accomplish your goals. Four sustainable investing approaches can be used alone or in combination to gain exposure to stocks, bonds and alternative assets.

“Sustainable investing seeks to balance your financial well-being with the greater good”

Make money? Or make a difference? With sustainable investing strategies, you have an opportunity to do both.

What is sustainable investing?
It’s an investment approach designed to more closely align portfolio holdings with your charitable, social and environmental priorities. Whether you’re looking to help protect the environment, promote public health or profit from changing behaviors, you can find sustainable investing strategies that reflect your personal values and goals.

Some socially conscious investors seek to avoid unwanted companies or risks. Others aim to target specific investments that support their favorite causes. The common thread is a desire to pursue positive investment returns while also making a positive impact on society.

Did you know? Sustainable investing now accounts for more than one of every four dollars under professional management in the U.S.1

An increasingly popular option
The dollars held in sustainable investing strategies have increased 34% in recent years, and this growth trend is expected to continue due to:
  • More interest in social and environmental issues from both investors and corporations
  • More investments being offered by mutual fund providers and other asset managers
  • More information to analyze and invest in companies based on sustainability-related factors
  • More influence among socially minded women and millennial investors

Global assets in sustainable investments 34% growth

graph detailing global assets in sustainable investment growth from 2014 to 2016



Source:
GSIA: 2016 Global Sustainable Investment Review.


Investment performance versus traditional strategies
Do you have to settle for lower returns to invest for the greater good? Not necessarily. By one measure, an index representing sustainable investments has actually earned slightly higher returns than the overall U.S. stock market since 1990 (see chart below). Companies in the index tend to be well-managed and are often better-positioned to capitalize on business opportunities resulting from evolving social trends.

On the other hand, sustainable investing can involve concentrating your portfolio in certain areas and evaluating companies based, in part, on non-financial criteria. As with any investment decision, it’s important to do your homework and work with experienced professionals.


Sustainable investments performed in line with U.S. stocks
Average annual returns, 5/1/90 – 4/30/18

graph showing how sustainable investments performed when compared against U.S. stocks; sustainable investments performed slightly better (10.44%) when compared to the stock market (10.01%)


Source: Morningstar. Sustainable investments measured by MSCI KLD 400 Social Index. U.S. stocks measured by S&P 500 TR Index. Outlooks and past performance are no guarantee of future results.

Four ways to invest sustainably
Depending on your needs, you can use any of these four approaches alone or in combination to invest in stocks, bonds and alternative assets like real estate or private equity:

  1. Exclusionary screening is the process of avoiding investments in single companies or entire industries that are in conflict with your values. Examples: You might exclude or remove from your portfolio any businesses involved with tobacco, fossil fuels, firearms or animal testing – to name just a few.
  2. Environmental, social and governance (ESG) integration means researching and selecting investments based on sustainability-related factors as well as more conventional financial analysis. Examples: ESG-focused investors may target companies with low greenhouse gas emissions (environmental), strong community relations (social) or diverse boards of directors (governance).
  3. Thematic investing allows you to focus on specific areas of interest to you. Examples: You could invest in bonds raising funds for low-income housing or in the stocks of companies developing renewable energy technologies.
  4. Impact investing deliberately sets out to achieve social or environmental outcomes along with investment returns, typically through private markets that tend to be less liquid than publicly traded exchanges. Examples: Your investment could provide funding to firms committed to sustainable agriculture, education or small business financing.

NEXT STEPS: put these ideas into action

Establish your goals and priorities. What issue areas or themes matter most to you? Do you want to make them a part of your investment strategy?
Research your options. Whether you invest on your own or with a J.P. Morgan Advisor, do your research to evaluate different sustainable investments and decide which might be right for you.