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With the increased focus on environmental awareness, people are taking more interest than ever in how their actions affect our planet and are looking for more ways in which to influence change.

Recently we’ve seen a growing trend towards sustainable investing.

Sustainable investing involves investing in companies that consider positive environmental, social, and corporate governance practices—known as ESG factors—while still working towards the financial stability of yourself and your family.

When it comes to sustainable investing, your values and financial goals don’t have to be mutually exclusive. It’s possible to balance meeting your financial goals through financially sustainable investments that consider these ESG factors.

Balancing your values with your financial goals

Sustainable investing is a balancing act. Focusing on ESG factors by employing a purely values-based security selection approach, without looking at your own portfolio’s financial sustainability, can result in a portfolio that lacks diversity or excludes industries. This compromises the preservation of your capital and creates potential to put your family’s financial goals at risk. There’s no need to compromise your future financial stability for your values. Sustainable investing can be achieved while adopting a market-aware approach which provides additional diversification to ensure financial sustainability.

Roadblocks to sustainable investing

If you feel that you’re not doing enough with the influence your wealth can have on affecting positive change, you’re not alone.

In 2018 UBS undertook their Investor Watch survey, interviewing over 5,000 people in 10 countries. Out of those surveyed, 65% said they understood and believed in the importance of creating a better planet—yet just 39% said that their portfolio featured any sustainable investments.

While people do want to make a difference, the thought process breaks down at some point, with a number of common issues being raised. The following may sound familiar.

  • Typically, there’s a lack of knowledge when it comes to comparing investment approaches.
  • People aren’t sure how to assess the impact of their choice.
  • And, importantly, there’s the nagging doubt that this manner of investing will negatively impact the performance of their investments. (Reference UBS Return on Values)

When done correctly, sustainable investing doesn’t mean compromising your financial sustainability.

Planning for success

There are two critical steps we take when building your sustainable investment solution.

First, we work with you to develop an investment methodology that emphasises sources of higher expected returns, while minimising turnover and trading costs. This methodology sets you up for a strong, sustainable investment future, maximising your core wealth objectives and your financial sustainability.

We then overlay a framework which rewards companies within industries that exhibit positive environmental, social, and corporate governance considerations. Assessing these organisations within each industry is important, and having a graduated favour towards higher-scoring ESG companies ensures that your portfolio still has representation in each industry, so you don’t compromise financial sustainability.

Across all industries there are organisations that are acting more ethically conscious than their counterparts. The key is rewarding companies within industries that employ positive ESG practices, while avoiding the exclusion of entire sectors, which can reduce your diversification.

Sustainable investing means intelligent investing

Take the energy sector, for example. Some may see this as an industry that by its nature doesn’t promote environmentally conscious activities. However, by employing a methodology that researches each company, and advising on those companies within the sector that are making the change towards more environmentally-sound practices, you can choose to reward these companies by investing in them.

We call this the ‘best in class’ approach. It’s not about perfection in a portfolio—it’s about progress. You’re making the best choice with what you have available, so it’s important to evaluate a company from all angles. Your sustainable preferences shouldn’t focus solely on one element of the ESG puzzle.

Sustainability also covers social issues. Say you invest in a company who promotes their lowered emissions. If a company promotes the work they’ve done to lower their emissions, but still actively supports suppliers that are known for their poor work practices or undesirable factory farming techniques, can it still be considered a sustainable company? Do you feel comfortable investing in them?

It’s important to take a holistic view when making your investment decisions.

The real power of sustainable investing

As an investor, you’re still able to pursue a sound investment framework while working within your own sustainability goals. By doing your research and choosing to invest more of your capital in companies that are trying to making a difference, regardless of their industry, and underweighting or excluding those companies that go against your values, you can still maintain broad diversification.

This method emphasises organisations that are endeavouring to be environmentally and socially responsible, and actively demonstrates that this manner of business is attractive to investors. It shows to the organisation that they’re on the right track.

The flow on from this is that companies trying to improve their practices will flourish. They’ll see the value they receive from working this way. Other companies will see the value too, and they’ll start to work in similar ways.

You’re essentially voting with your wallet.

Investing in this manner you’re able to influence change, while still achieving your financial goals.

Joe Stephan

Director, Stephan Independent Advisory

Joe Stephan graduated in 2002 with a Bachelor of Business (Fin Plan) under the tutelage of his father (Program Leader of Financial Planning at RMIT University).

You will hear Joe bandy about the idea of “pure financial advice”, which is given objectively and focused around the needs of individual and not the internal needs of the business providing advice.

Joe is realising his vision every day through his Independent Advice Firm which he owns and operates with his brother James. Joe also spends a portion of his time teaching tomorrow’s Financial Planners at various Melbourne Universities including RMIT & LA Trobe.

  • Enjoy the fruits of working life Joe & James were able to provide me with the impetus to take the next step into retirement which could have been delayed without quality financial advice. Dr. Kevin Adams Self Funded Retiree
  • Professional practice to be admired Joe & James' professional practice is to be admired. They are always there for his clients when needed. They freely pass on their expert knowledge without hard product selling techniques. Dr. Elspeth Mckay Associate Professor
  • Personal advice for complex lives Stephan Independent Advisory took the time to understand our situation & tailor their advice & solutions to our specific needs which, being a business owner, can be quite complex. Paul Marsh - Principal P2 Group - Business Owner
  • Family centered advice We have moved our investments from being a private client with a major bank to Stephan Independent Advisory in 2018. Since this move, we have been surprised at the depth of understanding encountered from Joe and James about our future plans and their ability to comprehend exactly what we wish to achieve. Mr Graham and Mrs Judith McKnight Self Funded Retirees
  • Values aligning with our own Clear, timely and direct responses in all areas of communications are outstanding. Meetings are planned and run efficiently to deliver on all our expectations. The firm’s values align to our own so that trust is readily established. Mr John and Dr Kim Watty Self Funded Retirees

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