Sustainable Portfolio Management

Definition

Sustainable Portfolio Management denotes a set of principles, tools, processes and management roles that pursue the management of a portfolio (collection) of financial positions (assets) while at the same time recognizing and integrating some or all of the Sustainable Development Goals. It is an emerging field in the context of Sustainable Finance.

As with more general Portfolio Management, practices and tools for sustainable portfolio management vary depending on:

• the nature of the portfolio and its constintuent instruments (e.g. credit portfolios, securities, derivatives etc.)
• the business model of the Portfolio Manager (trading, buy-and-hold)
• the business values, objectives and constraints (e.g., financial return, Sustainable Development Goals)

Elements of Sustainable Portfolio Management

Some common elements of portfolio management practices are:

• Organizational Aspects
• Data Infrastructure
• Analytics / Measurement Tools and Models
• Policies and Other Management Tools

In more detail:

Organizational Aspects

• Identifying the roles and high level objectives of portfolio managers and the interaction with other stakeholders
• Defining the scope of activities (including which portfolios, asset classes) and which sustainability dimensions

Data Infrastructure

• Position / Financial Data
• Environmental Data
• Historical Data

Analytics / Measurement Tools and Models

• Risk Analytics
• Scenario Analysis, Stress Testing
• Risk-based Measures and Portfolio Valuation
• Model Validation

Policies and other Management Tools

• Portfolio Strategy
  • Portfolio Steering Targets
  • Portfolio Limits
• Concentration Risk Measurement
• Stress Testing Exercises
• Capital Allocation
• Portfolio Optimization

Issue and Challenges

• Sustainable Portfolio Management is an emerging and rapidly evolving field and suffers from many of the data quality, definitional ambiguities, poorly articulated objectives etc. of much of current sustainable finance

See Also

• Paris Agreement Capital Transition Assessment