As investors diversify and fill out their investment portfolios, it may be prudent to consider the benefits of including some socially responsible exchange traded funds.
“We believe all investors should consider incorporating climate-change awareness into their investment portfolios,” BlackRock strategists, led by Richard Turnill, said in a research note.
BlackRock argued that adding climate-awareness investments does not have to significantly change an investor’s portfolio return pattern or compromise on traditional goals of maximizing investment returns.
For instance, investors can target so-called green companies or those that are the most environmentally conscientious while underweighting heavy polluters, without negatively impacting an investment portfolio’s overall returns.
“Smallish portfolio tweaks can make a big difference in reducing climate change risks,” BlackRock strategists said. “It is possible, for example, to cut a portfolio’s carbon emissions by around 70% while keeping the tracking error (the deviation of returns from the benchmark over time) within 0.3% annually.”[related_stories]
The shifts in climate-related regulations, extreme weather events, technological disruption and changing social attitudes can cause financial impacts that would affect all portfolios. For instance, the U.S. and China recently announced the ratification of the Paris agreement on climate change, an international pact on carbon emission reductions, which could fuel technological innovation and disrupt existing business models that may cause heavy pollution.
While this type of investment strategy may not seem like something a day-trader would enjoy as these developments happen over a long time, impact of climate-related regulations and technologies may affect every type of investor.