How To Build A Responsible Portfolio

Vodafone Group plc (LON: VOD), HSBC Holdings plc (LON: HSBA), BP plc (LON:BP), Royal Dutch Shell Plc (LON: RDSB) and GlaxoSmithKline plc (LON: GSK) are sustainable companies.

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As Foolish investors saving for the future, we like to make intelligent investments. However, there’s no point saving for the future if our planet is going to be ruined by the companies we invest in.  

We’re not alone. Indeed, over the past few years investors have become increasingly concerned about how ‘sustainable’ their investments are. To help, the Ethical Investment Research Service, or EIRIS for short, has put together a Global Sustainability Rating list.

The ratings list is compiled using fully transparent and consistent data, certified according to external industry quality standards.

The criteria 

Stockpicker-kid-150x150EIRIS compiles its ratings by using a four pillars model. The model takes into account several factors based around corporate sustainability, including environmental, social, governance and other ethical concerns.

What’s more, EIRIS ratings combine the broadest range of environmental, social and governance data, to assess how each company is responding to the various sustainability challenges it faces. 

Of course, EIRIS takes a dim view of companies that sell products which may have health implications, such as alcohol and tobacco. In addition, the organisation takes a cautious view of companies that manufacture products whose inherent nature may be a cause for concern — cluster munitions, for example.

Just to give some idea of how detailed these assessment criteria are, the EIRIS global research platform just introduced an EIRIS Conflict Risk Network. This network provides reliable information on corporations operating within conflict zones.

These ratings are designed to provide a complete picture of corporate sustainability. And to make it all understandable and accessible for every investor, EIRIS compiles the ratings into a simple, clear A-E scale. A is the most sustainable, E the least sustainable. 

The winners 

There are very few companies that are able to meet EIRIS’s strict sustainability criteria. Nevertheless, one of the companies with the highest rating is GlaxoSmithKline (LSE: GSK), the highest of any FTSE 100 company.

EIRIS global research has awarded Glaxo an ‘A’ rating. The high rating means that Glaxo is one of the UK’s most sustainable companies. Indeed, the company’s global contribution to health care, charitable contributions and environmental considerations are all desirable traits for any company taking sustainability seriously.

Vodafone (LSE: VOD), HSBC (LSE: HSBA), BP (LSE: BP) and Royal Dutch Shell (LSE: RDSB) are all rated ‘B’ by the agency, which could come as a surprise to some, especially considering BP’s history. 

However, do a little digging and it becomes clear why Shell and BP have such a high rating. For example, BP is one of the world’s largest renewable energy companies with 16 wind farms across the US and world-leading bio-fuel production facilities within the UK and Brazil.

Moreover, during 2005 BP committed to invest $8bn in sustainable energy projects over the next ten years, at 31 December 2013 BP had invested $8.3bn, beating the company’s own target. 

Meanwhile, Shell is constructing the world’s first carbon capture and storage project. Known as ‘Quest’, it puts Shell at the forefront of carbon reduction efforts, and the project will reduce the company’s carbon footprint by 1m tonnes per year. Quest is likely to be the first of many carbon capture projects funded by Shell. 

HSBC is relatively new entrant to the ‘B club’ for sustainability standards. Nevertheless, the bank is working hard to meet its corporate responsibility to understand and manage the impact it has on society, as well as the environment. The global banking behemoth put a forestry policy in place back in 2004, publishes an annual sustainability report, and invested $117m in community programmes last year.

Where to invest?

With the highest sustainability rating in the FTSE 100, Glaxo seems like the best investment for those looking to invest sustainably.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert owns shares in GlaxoSmithKline. The Motley Fool has recommended shares in GlaxoSmithKline.

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