A Written Sustainable Investment Policy: Exclusions, Label Requirements and a Look-Through Checklist

What you will learn

• The six sections of a short sustainable investment policy and why each needs a number, not an adjective.
• How to set exclusion thresholds and a portfolio-level tolerance that you can actually measure.
• How to write label requirements that survive the EU rule changes under way as of 2026.
• How to run a ten-point look-through checklist on a fund and record the result.

Explanation

A general investment policy is covered in the course "ETFs, Funds & Long-Term Investing". A sustainable investment policy adds one page answering a single question: what will I refuse to own, what must a product prove, and how will I check? Without written numbers, every fund with a pleasant name passes.

Section 1 – Purpose and honesty statement. One or two sentences on why you screen (values, risk management or both) and what you do not expect, for example: "I do not expect screening to raise my returns or to change company behaviour by itself" (lessons 10 and 11).

Section 2 – Exclusions with thresholds. Use revenue-based thresholds like those in index rules (lesson 3), because they are measurable. A typical set: controversial weapons 0 %; tobacco production 0 %, distribution above 5 % of revenue; thermal coal mining or coal power above 5 %; oil sands above 5 %; confirmed severe violations of the UN Global Compact principles. Choose your own numbers, but write them. Add a portfolio tolerance: the maximum share of your total portfolio that may sit in excluded activities through funds, for example 2 %. Broad funds almost always contain small residual exposures; a zero tolerance would force you into very concentrated products.

Section 3 – Label requirements. As of 2026, EU labels are in transition: SFDR Articles 8 and 9 (lesson 5) still apply, the ESMA fund-naming guidelines have applied to all funds since May 2025, and in November 2025 the European Commission proposed replacing Articles 8 and 9 with new product categories, a proposal still in the legislative process when this lesson was written. Write requirements that survive any outcome, for example: "equity funds must publish full holdings monthly, apply at least the Paris-aligned benchmark exclusions, and publish a voting record; green bond funds must hold at least 90 % ICMA-aligned or EuGB bonds (lesson 9)". Add: "check the current EU rules at each yearly review".

Section 4 – Look-through checklist. Ten yes/no items for every candidate fund (table). Set a pass mark, for example at least 8 of 10 with no failure on items 1–3.

Section 5 – Allocation and products. Target weights and the product types that fill them. Cap genuine impact or illiquid products (lesson 8), for example at 5 %, and only with money you can lose entirely.

Section 6 – Review. Once a year: re-run the checklist, recalculate the tolerance, record changes to EU rules. Change the policy only in writing at the review, not after a news story.

Worked example

Hypothetical example: portfolio of EUR 50,000; policy tolerance for excluded activities: 2 % of the portfolio. Allocation: 60 % global ESG equity ETF (Fund A), 20 % green bond ETF (Fund B), 20 % conventional euro government bond ETF (Fund C, no corporate exposure).

Step 1 – fund-level exposures. Look-through shows Fund A has 3.0 % of weight in excluded activities (mainly a utility with coal power above the threshold); Fund B has 1.0 % (a bond from an issuer with oil-sands revenue above 5 %); Fund C has 0 %.

Step 2 – euro amounts. Fund A: EUR 50,000 × 0.60 × 0.030 = EUR 900. Fund B: EUR 50,000 × 0.20 × 0.010 = EUR 100. Fund C: EUR 0. Total = EUR 1,000.

Step 3 – compare with tolerance. 2 % × EUR 50,000 = EUR 1,000: exactly at the limit. "At most 2 %" passes, but with zero headroom; new savings into Fund A would breach it. Record a watch item.

Step 4 – checklist for Fund A. Fund A scores yes on items 1–8 and 10 and no on item 9 (tracking error not disclosed): 9 of 10 with items 1–3 passed. Pass.

Step 5 – action. Options at the next review: (a) replace Fund A with a stricter index, accepting higher tracking error; (b) lower the allocation to Fund A; (c) raise the tolerance in writing, with the reason. Each is legitimate; ignoring the breach is not.

Assumptions: exposures invented; fees, spreads and taxes ignored; real activity data has gaps and lags.

Common mistake

Practice activity

On paper: write your own one-page policy using the six sections. Then test it: a EUR 30,000 portfolio holds 70 % in Fund X (excluded-activity exposure 2.5 %) and 30 % in Fund Y (exposure 4.0 %); tolerance 2.5 % of the portfolio. (a) Euro exposure of each fund and in total? (b) Does the portfolio pass? (c) Maximum weight of Fund Y that still passes, with Fund X taking the rest?

Key takeaways

• A sustainable policy needs numbers: revenue thresholds, a portfolio tolerance, a checklist pass mark and a review date.
• Write label requirements around disclosures you can verify, because EU label rules are changing as of 2026.
• The ten-point look-through checklist turns lessons 7–11 into a repeatable test.
• Breaches are decided in writing at the review, with one of three actions: replace, reduce or re-justify.

Next step

You have completed this course; continue with "Alternative Investments: Private Markets, Hedge Funds and Collectibles", where private-market funds, including many genuine impact vehicles, are examined in detail.