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How to Build a Green Portfolio


B: Jan Paul Ferrer


Just as reducing your own carbon footprint may not be as easy or straightforward as you would like, building a green portfolio can take time and patience. There are a range of approaches you can take to generate positive potential fi nancial returns while benefi ting the environment.

The market for investments that help transition to a low carbon economy continues to gain momentum. This is helped in part by the continuing increase of renewables as a percentage of the global energy mix. In fact, our own research team estimates that 40% of the global energy mix will be made up of renewable and alternative energy by 2030. Given this background, it’s still important that to consider the different ways to build a green portfolio. To get started, here are a few decisions you need to make.

1. What is your focus? Do you want to eliminate fossil fuels from your portfolio completely, invest in companies in any industry that have embraced positive environmental practices, or invest directly in fi rms that seek to fi nd solutions or mitigate the effects of climate change—or all of the above? At Morgan Stanley we take a customized approach with clients to fi nd the right fi t for their portfolio and goals.

2. Do you want to start with just a portion of your portfolio or convert the whole thing? For example, you could start by replacing a traditional fi xed income mutual fund with a fossil fuel-free bond fund or a labelled “green bond” fund investing in renewable energy projects. If you’re ready to go all-in, we can help you devise a plan to align your entire portfolio with environmental goals.

3. How will you implement these changes? It is often best to make changes to your existing portfolio over a period of time alongside a trusted Financial Advisor so together you can account for taxes, market fl uctuations and your other investment goals. In general, decarbonization of your portfolio is a long-term investment philosophy, not something you can do in one quarter.

At Morgan Stanley, we typically take a very client-driven approach. We have more than 130 investment opportunities available on our Investing with Impact Platform that can serve clients, including individual investors with just a few thousand dollars to invest as well as large institutional investors.

The platform, which launched in 2012, has more than $34 billion in client assets under management.

A Custom Approach

Depending on the client, you can work with our Financial Advisors to create custom portfolios using a range of investment products, including third-party separately-managed accounts, exchange-traded funds and mutual funds. We can screen your existing portfolio to help you avoid objectionable sectors or geographies or highlight which of your existing holdings have the strongest environmental profi les. You can also purchase a basket of stocks that address global sustainability themes, including climate change, health and wellbeing, waste management, water scarcity and safety and security.

We typically utilize research from third-party fi rms combined with our own in-house expertise to identify the best companies, funds, and partners to work to achieve your climate goals.

We want to make sure that you are committing money to investments with positive environmental impact, not just companies and funds that are marketing themselves that way. But we recognize that not all companies are perfect and many may be in the process of improving their track record on environmental issues. That’s why our analysts spend a lot of time on due diligence.

If you have fewer assets to devote to this theme, we also offer a Climate Action theme portfolio on our automated investment platform, Morgan Stanley Access Investing (which has a $5,000 minimum). Through our Access Investing platform, you can align your investments with your values, opt for a research-driven strategy that seeks to maximize returns, or focus on minimizing fees.

Diversifi cation Matters

It’s a core investing principle at Morgan Stanley that portfolios should be diversifi ed. One way to achieve that is to broaden your focus beyond just climate issues to encompass sustainable goals, which include environmental, social and corporate governance (ESG) criteria, which we believe are interrelated issues.

For example, an investment in affordable housing that is being renovated with solar panels can help the environment and achieve goals around social justice.

Creating a green portfolio is not simple, but it can be rewarding. The most important step is the fi rst one—deciding to take action. Climate change is a complex, global problem, but its effects can be mitigated and solutions achieved. An investment portfolio, no matter the size, can have a positive impact. Connect with a Morgan Stanley Financial Advisor to start building a portfolio that’s fi t for you and your unique goals.

Important Disclosures: Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.

Jan Paul C. Ferrer is a Financial Advisor in Chicago, IL at Morgan Stanley Smith Barney LLC (“Morgan Stanley”). He can be reached by email at janpaul.ferrer@ or by telephone at 312 312-419-3535

This material does not provide individually tailored investment advice. It has been prepared without regard to the individual fi nancial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be appropriate for all investors. Morgan Stanley Smith Barney LLC recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. This material is not an offer to buy or sell any security, or to participate in any trading strategy. Asset allocation and diversifi cation do not guarantee a profi t or protect against a loss. Past performance is no guarantee of future results.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affi liates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. Individuals are urged to consult their personal tax or legal advisors to understand the tax and legal consequences of any actions, including any implementation of any strategies or investments described herein.

Investing in the market entails the risk of market volatility. The value of all types of investments may increase or decrease over varying time periods. Fixed Income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall.

The returns on a portfolio consisting primarily of sustainable or impact investments may be lower or higher than a portfolio that is more diversifi ed or where decisions are based solely on investment considerations. Because sustainability and impact criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria. Please note that there is currently no standard defi nition of green bond. Without limiting any of the statements contained herein, Morgan Stanley makes no representation or warranty as to whether any particular bond constitutes a green bond or conforms to investor expectations or objectives for investing in green bonds. For information on characteristics of these bond, use of proceeds, a description of applicable project(s), and/or any other relevant information about the bond, please reference the offering documents for the bond. Morgan Stanley Access Investing ® is a registered service mark of Morgan Stanley Smith Barney LLC. Jan Paul C. Ferrer.may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where [he/she] is registered or excluded or exempted from registration, https://advisor.morganstanley. com/janpaul.ferrer

© 2020 Morgan Stanley Smith Barney LLC. Member SIPC. CRC 3040174 4/2020 VIA TIMES

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