The Core Environmental Portfolio is the main component of the allocation for all investors in our environmental strategies. It is a broadly diversified portfolio that provides access to a wide variety of companies across economic sectors, company types and geographies. It generally represents 90-100% of a client's total allocation.
The Core Environmental Portfolio is constructed using an approach known as "negative screening".
We begin with the full universe of available exchange-traded funds and screen out funds that are either too expensive or too small to fit our criteria.
From there, we evaluate the remaining fund options based on their exposure to our primary environmental metrics, Carbon Intensity and Fossil Fuel Reserves. We screen out funds that compare unfavorably to peer funds and to the overall stock market on either of those metrics.
Finally, from the surviving group of funds, we select a subset that strikes a balance between three factors: investment criteria, environmental criteria, and cost.
In seeking that balance, we evaluate potential trade-offs among three factors. For example, at any given time, it would likely be possible to adjust the portfolio to achieve a modest further reduction in carbon intensity. However, if doing so causes the portfolio to take on additional investment risk (e.g. through a large concentration in a particular industry) or increases costs materially, the adjustment may not be worthwhile. Likewise, it would be possible to realize a small further reduction in cost, but this may come at the expense of noticeable deterioration in our environmental metrics.
Because there is not a static answer as to what the optimal trade-off is, we continuously evaluate all three criteria and look for ways to incrementally improve in one area without making sacrifices in the other two.
The Core Environmental Portfolio is designed to provide our clients with a strong investment foundation at a low cost while substantially limiting exposure to industries and companies that own fossil fuel reserves or are heavy carbon emitters.