Making money and making a difference don’t have to be mutually exclusive. Sustainable investing is an increasingly popular way to not only generate financial returns but also support companies and projects that positively impact the environment and society. In this blog post, we will explain what sustainable investing is and how you can use it to achieve both financial goals and objectives that promote social and environmental good.
What is sustainable investing?
Sustainable investing, also known as socially responsible investing (SRI) or impact investing, is an investment strategy that seeks to generate a positive impact on society and the environment, in addition to earning a financial return.
Traditionally, investment strategies have been focused solely on maximising returns, often at the expense of the planet and the well-being of society. However, sustainable investing seeks to align your investments with your personal values, and the needs of the world around you.
Rather than investing in companies that are known for polluting the environment, engaging in unethical practices, or mistreating employees, sustainable investing prioritises companies that have strong environmental, social, and governance (ESG) records. This approach aims to achieve a balance between social responsibility and financial returns.
Why invest sustainably?
There are several compelling reasons why you should consider sustainable investing. For one, it’s an opportunity to align your financial goals with your personal values. With sustainable investing, you can support companies that are making a positive impact on the world, whether it’s through renewable energy, environmental conservation, or social justice initiatives.
Additionally, sustainable investing can be financially rewarding. According to a recent study by Morgan Stanley, companies that ranked high on ESG factors tended to outperform their peers. This suggests that incorporating ESG considerations into investment decisions can help reduce risk and increase returns over the long-term.
Another reason to invest sustainably is the growing demand for responsible investments. As more people become aware of the impact of their investments on society and the environment, they are seeking out investment options that reflect their values. This trend is expected to continue, making sustainable investments an attractive opportunity for both investors and companies.
Environmental, Social and Governance (ESG) Factors
One of the key elements of sustainable investing is the consideration of ESG factors. This refers to the evaluation of a company’s environmental, social and governance practices to determine its overall sustainability and potential for long-term success.
Environmental factors take into account a company’s impact on the environment, including its use of natural resources, emissions and waste management practices. Social factors evaluate a company’s relationships with its employees, customers and communities, as well as its impact on society at large. Governance factors look at a company’s leadership, management structure and transparency.
Investors who prioritise ESG factors in their decision-making can help to promote more responsible business practices, drive positive social and environmental outcomes, and potentially avoid companies with poor sustainability track records.
Increasingly, companies are recognizing the importance of ESG considerations, with many adopting sustainability strategies and reporting on their ESG practices. In fact, a 2020 report from the Global Sustainable Investment Alliance found that sustainable investments accounted for nearly one-third of global assets under management.
Investors who prioritise sustainable investments and ESG considerations can not only align their investments with their values, but also potentially benefit from the long-term growth and stability of companies with strong sustainability practices.
Examples of sustainable investment options
Investing in companies that prioritise sustainable practices is a powerful way to support environmentally and socially responsible initiatives.
Here are some examples of sustainable investment options to consider:
- Green Energy: Companies that develop renewable energy sources such as wind, solar and geothermal power can be a great option for those looking to invest sustainably.
- Water Conservation: Water scarcity is a pressing issue in many parts of the world. Companies that are committed to conserving and protecting this vital resource are a great way to support sustainability.
- Socially Responsible Funds: Many investment funds are designed to invest only in companies that meet certain ethical and social criteria. These funds can provide an easy way to start investing in a socially responsible manner.
- Impact Investing: Impact investing focuses on supporting businesses and organisations that aim to address specific social or environmental issues. For example, investing in a microfinance organisation that provides loans to small business owners in developing countries can be a great way to support sustainable economic development.
- Sustainable Agriculture: Companies that prioritise sustainable agriculture practices, such as organic farming, can help to promote biodiversity and reduce harmful impacts on the environment.
Investing in sustainable companies not only helps to promote environmental and social good, but it can also be a smart financial move. As the world increasingly focuses on sustainability, these companies are likely to perform well in the long run.
How to get started with sustainable investing
Now that you understand the importance of sustainable investing, you may be wondering how to get started. Here are some steps you can take to start investing your money in a way that aligns with your values and promotes positive change.
- Identify your values: The first step to sustainable investing is to identify your values and what matters to you. This can include environmental issues, social justice, corporate responsibility, or a combination of these factors. Once you have a clear understanding of your values, you can begin to search for investment opportunities that align with them.
- Research sustainable investments: There are many sustainable investment options available, including socially responsible mutual funds and exchange-traded funds (ETFs). Research these options to find ones that align with your values and financial goals.
- Look for ESG ratings: Environmental, Social, and Governance (ESG) ratings are a way to evaluate the sustainability and ethical practices of a company. Look for companies with high ESG ratings to ensure your investments are aligned with your values.
- Consult with a financial advisor: A financial advisor can help you navigate the complex world of sustainable investing and offer personalised advice based on your individual goals and risk tolerance.
- Consider impact investing: Impact investing is a way to invest in companies that are making a positive social or environmental impact while also earning a financial return. This can be a powerful way to promote positive change and earn a profit at the same time.