How Stockspot built the Sustainable Portfolios

Our screening process to find the best ethical and socially responsible investments to make up a diversified portfolio.

We created the Stockspot Sustainable Portfolios because of a growing demand for a more ethically focused approach to investing from the wider community and our clients.

Principles and process for finding sustainable investments

The Stockspot Sustainable Portfolios are constructed using the same set of principles that we have been recommending to clients since we launched in 2013. Our investment philosophy is driven by asset allocation based on a Nobel Prize winning strategy by American economist Harry Markowitz. 

Having a diversified portfolio that includes different asset classes such as shares, bonds, and gold is fundamental to building robust portfolios. This framework allowed us to outperform 99% of similar funds in 2020.

Our Sustainable Portfolios have strict screening criteria to ensure your money is invested with companies who have demonstrated sustainable practices. It was a thorough, integrated process that ensures you’ll still get the same high-performance portfolios – but with a feel-good factor.

The exchange traded funds (ETFs) we use target environmental, social and governance (ESG) factors:

  • Environmental: climate change, carbon emission and footprint, waste and toxic emission, clean technology and renewable energy. 
  • Social: employee wellbeing, supply chain standards, product safety, privacy/data, good stakeholder management, and community impact.
  • Governance: board diversity (e.g. independence and gender diversity), executive pay remuneration, accounting and business practices, corruption, and transparency. 

We researched all investments and scored their ability to deliver on environmental, sustainable and social goals, as well their ability to deliver long-term value for clients.

The focus for the Sustainable Portfolios was on creating an environmentally friendly portfolio while also incorporating the United Nations Sustainable Development Goals (SDGs). With the pivotal point being decarbonisation, we removed companies with high fossil fuel reserves (a major source of global greenhouse gas emissions). This means that Stockspot Sustainable Portfolios have an 80-90% lower carbon footprint than the average share portfolio.

Negative and positive screening – avoiding the bad and including the good

Our Sustainable Portfolios have thorough negative screening, meaning we exclude companies that have predominant activities in non-sustainable practices such as:

  • fossil fuel production
  • gas pipelines
  • gambling
  • adult entertainment
  • weapons
  • alcohol
  • tobacco
  • animal testing
  • detention centres
  • nuclear energy
  • junk food
  • human rights controversies. 

The share ETFs included in the Sustainable Portfolios incorporate a revenue threshold to ensure a consistent, practical approach. These thresholds can differ depending on the revenue and production thresholds by the ETF providers and underlying index methodology. For example, companies that earn more than 0% of their revenue from direct fossil fuel initiatives are excluded, and companies earning more than 5% of their revenue from gambling activities are excluded. Learn more about each ETF’s index methodology here: FAIRETHIESGI.

Our Sustainable Portfolios use a positive screening and impact element, ensuring companies that are leading in sustainable activities (such as renewable energy, recycling, and energy efficient transport) and adapting a greener world are included. This ensures that low carbon emission companies (carbon leaders) are included in the Sustainable Portfolios.

ETF selection – low cost sustainable solutions

The Stockspot Sustainable Portfolios include exchange traded funds (ETFs) that prioritise responsible and ESG focused investments. These investments are fully transparent, have ample liquidity, are low cost, and have a high number of assets in the fund.

In every Stockspot portfolio we have five assets: Australian shares, global developed market shares, emerging market shares, bonds and gold.

When building the Sustainable Portfolios we wanted to ensure that every asset class had a sustainable focus. However, some asset classes (such as bonds and emerging markets) had limited products available that met our stringent sustainable criteria, so we opted to keep our original model portfolio ETF choice.

Emerging markets and sustainable ETFs

There is currently no sustainable ETF on the ASX that offers pure exposure to emerging markets. This is because emerging markets have less stringent regulation, which leads to less transparency and understanding of sustainable company practices. This makes it difficult for agencies and research houses to ascertain whether a company truly is sustainable or ethical.

To address this, we’ve opted to use a best of breed approach for the two leading sustainable ETFs on the ASX that invest in global companies. These ETFs both focus on ESG factors, with tilts towards certain countries (like the U.S. and Europe) and sectors (such as healthcare, technology and consumer). This ensures broader diversification across each Sustainable Portfolio. 

  • Marc Jocum

    Investment Manager

    Marc has previously worked for Morgan Stanley, AMP and KPMG. He holds a Bachelor of Business (Finance/Accounting) from the University of Technology Sydney (UTS), and has completed his Chartered Financial Analyst (CFA) Level 1.

Investment Manager

Marc has previously worked for Morgan Stanley, AMP and KPMG. He holds a Bachelor of Business (Finance/Accounting) from the University of Technology Sydney (UTS), and has completed his Chartered Financial Analyst (CFA) Level 1.

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