How to construct better climate change portfolios

New financial industry report lists some key tactics

How to construct better climate change portfolios

All Street SEVVA’s recent report, The Voice of the Financial Industry, is calling on advisors to be more proactive with their clients to deal with climate change through their portfolios. 

“The global problems we need to address require a deep shift in the way we think about the solution,” Emanuela Vartolomei, All Street’s founder and CEO in London, England, told Wealth Professional. “You need to go to the individual level to promote change within the system.”

She noted that there’s a lot of confusion about the main components of environmental, social, and governance (ESG) investing and how that translates into the sustainability assessments that advisors and their clients do, so it needs more clarity. After discussing it with many United Kingdom advisors, she encouraged advisors to adjust how they’re doing this investing.

She said advisors need to become more knowledgeable about climate change and how ESG can impact it to guide their clients in how to invest following sustainability criteria.

“Advisors need to know these answers. They need think about sustainability and how to manage it,” said Vartolomei. “It’s very important for them to be part of the process. Retail investors own a lot of money and, when they can influence the way it flows in the capital market, then change might happen.

“Every person who is part of the financial service industry needs to know what topics are being debated, where there are no clear answers, what topics have common agreement, and what the up and coming areas are,” she said, noting those are constantly shifting.

Advisors should also realize there’s a movement toward inclusion, rather than exclusion, in portfolios. So, rather than applying a negative screen to a company, such as oil or coal, to exclude it, they should focus on engaging companies to encourage them to move toward sustainability, so there is more chance of meeting the climate change targets.

Vartolomei urged advisors to read the report to learn more about the emerging trends because of the “scale of the effort and complexity that needs to be achieved”.

“The space is moving very quickly,” she said, noting regulatory frameworks are, too. “The pie is getting bigger in terms of what you need to know about ESG and sustainability assessment.”