Investment has historically been about return (making money) and risk (reducing the chance of not meeting your goals). Typically, the most efficient – or desirable – portfolio of investments has been the one that maximises return for a given level of risk or minimises risk for a given level of return. Defining return is simple; how much has the value of your investments changed over a given period. But defining risk has always been more complicated, and risk means different things to different people. For convenience, the investment world has defined risk using statistical tools, which have been sufficient – albeit not ideal – for the ‘old’ model of investment.
What do I mean by old? I mean the idea that investment should be just about return and risk. There’s a third dimension: investing for a better world. Investing to make a difference. Sustainable investing. Introducing sustainability as an objective creates a dual objective: the original return/risk objective, and the sustainability objective.
Although the concept is simple, the reality is somewhat more complicated. Altering your investment portfolio so as to pursue the new objective of sustainability could – and probably will – change the return or risk profile of the portfolio. It could increase or decrease return, and likewise with risk. So it needs to be thought through carefully, starting with the first question: what does sustainability mean to you?
This blog has a whole series of posts on sustainability. Look for the tagline “sustainability series” on each post in the series, or search in the search bar.
We refer to lots of linked posts in this post. We hope that by following the links you can answer any questions you might have, but if anything is unclear in this post, or you have any questions relating to anything investment-related, please submit comments or questions in the section below and we’ll do our best to answer them.
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To the pound 