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The top-of-mind question for many global citizens is how to start investing sustainably. Janet Shum, Asia Pacific Sustainable Investing Specialist at Citi Private Bank, advises on the key considerations to help you navigate the space

Sustainable companies are higher quality long-term investments: this has been a long-held belief at Citi, and recent data affirms it. 

“The immediate benefits of sustainable investing are holistic risk management, a diverse source of investment opportunities, and the potential for outperformance due to competitive advantages. Beyond the financial benefits, you have values alignment and the opportunity to make a positive impact,” says Shum. “When you put all of this together it is a compelling picture of what you can achieve with your capital.”

Sustainability has been embedded in Citi’s value proposition for decades and it underpins Investing with Purpose, Citi Private Bank (CPB)’s sustainable investing platform with investments across every asset class. Shum manages the Investing with Purpose platform’s product development and evaluation, thought leadership, and client engagement in the Asia Pacific region.

Shum is part of the Sustainable Investing team, which partners across Citi to identify and onboard opportunities that have sustainability attributes for clients to incorporate into their portfolios. “We work to integrate client objectives into best thinking on portfolio management, research, and asset allocation,” she says. 

A growing number of clients have asked Shum about how to integrate sustainability into portfolios. Here she outlines her expert advice for heading down the right path on a sustainable investing journey.

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What is the first step to enter the sustainable investing space?

Establishing your goals at the outset will help to identify appropriate investments and set criteria to measure their progress over time. Start by setting overall investment objectives: identify return expectations and risk tolerance as well as your liquidity, currency and geographic preferences. Once these have been reflected in a personal investment policy, you should reflect on your sustainability objectives.

Here are some important questions to help align your portfolio with your sustainability objectives:

  1. What does sustainability mean to you?
  2. Would you like to avoid any particular sectors or companies?
  3. What outcomes are most important to you, and are they regional or global?
  4. Are there specific thematic exposures that you would like to explore, e.g., clean water, renewable energy, or gender?

What are the different ways to approach sustainable investing and what are some implementation options?

The term “sustainable investing” has evolved into a collective descriptor for a range of investment approaches. Each approach has its own financial and sustainability objectives and is available across various asset classes.

A single investment product can, and frequently does, combine more than one of the approaches—namely socially responsible investing (SRI); environmental, social and governance (ESG) integration; thematic and impact investing.

SRI includes values-based exclusions of companies or sectors. ESG integration is the use of ESG metrics to identify investments with appealing risk and return characteristics. Thematic investing provides exposure to investments aligned to sustainable themes such as climate change, biodiversity or social equality. Impact investing focuses on investments with intentional and measurable environmental and/or social impact.

There are opportunities to integrate the various approaches across asset classes to suit your preferences, values, and risk profile. At CPB, sustainable investing opportunities span discretionary managed or self-directed portfolios, and alternatives.

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How can I incorporate sustainable investments into my portfolio?

There is no one route to sustainable investing. Most investors start by evaluating the ESG risks and level of exposure to sustainable and controversial themes in an existing portfolio. 

Next, you can create a long-term plan comprising sustainable and/or traditional investments to pursue your goals. One point of consideration is to what degree to migrate your portfolio to reflect your sustainability objectives. Considerations here are investment areas outside of sustainable development that may be of particular interest; embedded gains in an existing portfolio that could lead to a taxable event; and other investment constraints that may not have a sustainable replacement.

In some cases, sustainable investments comprise a small part of an investor’s overall portfolio. But increasingly I see investors seeking to apply a sustainability lens to their full set of investments. Just be aware that it can take years to go through the migration process.

Exclusions of sectors or companies that may conflict with your values may overlay the entire investment portfolio. ESG integration strategies can help to ensure investments are made in companies that operate with high ESG standards, and thematic and impact investing can further align a portfolio to a specific set of outcomes. Keeping your sustainability and financial goals aligned requires ongoing due diligence and monitoring.

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How can I manage the tradeoffs of sustainable investments?

A recent analysis by CPB’s Office of the Chief Investment Strategist, using Morningstar data (Figure 1), shows that strong ESG attributes enhance a portfolio’s long-term risk-adjusted performance by reducing volatility and mitigating risk in down markets.

Different sustainable investments offer various levels of financial outcomes depending on their investment objectives and asset classes. For example, an exclusionary approach may have greater deviations from a traditional benchmark due to the constrained investments universe. On the other hand, a thematic investment seeking to capitalise on the transition to a low-carbon economy may present an opportunity for outsized returns.

In the next two Ask the Expert instalments, Shum will share how to evaluate sustainable investments and highlight some of the growth areas for sustainability.  

This Front & Female article is created in partnership with Citi Private Bank for our Women of Worth series celebrating and supporting independent women to pursue their worth. Join the Front & Female community by subscribing to our newsletter and following #frontandfemale

About Citi Private Bank: 

Citi Private Bank is dedicated to serving worldly and wealthy individuals and families, providing customised private banking across borders. With more than $600 billion in global assets under management, the franchise serves clients in over 100 countries. Citi Private Bank helps clients grow and preserve wealth, finance assets, make cash work harder, safeguard assets, preserve legacies, and serve family and family business needs. The firm offers clients products and services covering capital markets, managed investments, portfolio management, trust and estate planning, investment finance, banking and aircraft finance, as well as art and sports advisory and finance. Learn more

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