Sustainable investing for retail investors

Green finance

As people become more aware of environmental and social responsibility, sustainable investing is starting to be in the spot light. What can retail investors do to incorporate sustainable elements in their portfolios?

A relatively easy way for retail investors to make sustainable investing is to invest in relevant funds including ETFs. Green funds and ESG funds authorised by the Securities and Futures Commission are available on its website. If you want to be more proactive with your green investments, you can stock pick yourself, or even build an investment portfolio with sustainability in mind.

List of ESG funds on the SFC website

Sustainable investing is a reflection of your values and preferences that goes beyond risk-return, with an approach or strategy differing from traditional ones. Here are some common sustainable investing strategies that you may be interested in.

Among sustainable investing strategies, while negative screening and thematic investing are relatively straightforward and easily executed, they do not take into account the risk-return and limit the number of investment options. Negative screening has been described by some as ethical investing.

When adopting the best in class approach, data is required to identify the sustainability or ESG leaders in each sector. Currently, some market data providers, such as the Hang Seng Indexes Company Limited, offer sustainability or ESG performance ratings of listed companies. As for ESG integration, it requires a combination of financial and non-financial data and information. Although it can provide a comprehensive evaluation of the risk-return of a company or investment product, it is relatively complicated to implement, especially for retail investors.

Unlike conventional stock selection, to understand the sustainable performance of a company, we need to look into its non-financial information and data. The ESG report (or a sustainability report) of a company is an important source of information giving investors a glimpse of its sustainability performance.


8 July 2021