How to Assess the Sustainability of Your Investments

While most of us can easily find the market value or performance track record of a stock or bond we are invested in, understanding the sustainability characteristics of your investments is less standardized and often confusing.

Investors can use a range of different sustainable investing strategies across asset classes in their portfolio. As more investors start to incorporate these environmental, social and governance (ESG) and impact products, it’s important to be able to assess how these investments align with your values and achieve your unique impact goals.

We recommend you consider the following questions when selecting and interpreting the sustainability metrics related to your investment portfolio:

What am I measuring?

• Clarifying your unique sustainable investing goals will be key to helping you navigate the multitude of data points related to the investments in your portfolio. For example:
  
  o   Are you interested in avoiding or overweighting investments in certain industries?
  o   Are you interested in promoting diversity? 
  o   Are you interested in investing in companies providing environmental solutions?
  
  
• Just because you can measure it, doesn’t mean it always matters. This may mean considering different metrics for investments in different sectors (e.g., an information technology company vs. an energy company) or investments in different asset classes (e.g., public equity vs. private equity). 

How am I measuring it?

• Avoid blended scores or ratings. Many investors first exposure to sustainability metrics is a score or rating that assesses a combination of environmental, social and governance (ESG) factors. Although concise on paper, these scores require lengthy explanation, can be quite opaque, and importantly, can vary significantly depending on who is providing the score.
  
  
• We recommend focusing on specific data points that are important to you and meaningful to your portfolio, such as revenues from potentially objectionable business activity or carbon emissions.

What is the relevant time horizon to evaluate?

• In the same way you would consider short-term and long-term goals when evaluating the financial performance of your portfolio, apply that logic to assessing sustainability metrics.
  
  
• When available, we recommend evaluating both historical and forward-looking data points related to environmental and social risks and opportunities across your portfolio.

If you are interested in learning more about how to navigate the sustainability characteristics of your investment portfolio, please reach out to your Goldman Sachs private wealth advisor.