As a society, we care a lot about our impact on the world. Many people who can afford to will spend their money on products from companies who also care about their impact on the world. They will purchase from companies that reduce their environmental impact, are committed to diversity, and/or generously support charities. On the other side of the coin, companies who engage in business practices that harm the environment or exploit their employees or marginalised groups are often boycotted. Sustainable investing, sometimes also called socially responsible investing (SRI), is another way for people to put their money where their values lie, not just as consumers but as investors as well.
What Is Sustainable Investing?
Sustainable investing is the practice of investing only in companies that meet your moral standards as well as the financial criteria you set. Some investors do 100% sustainable investing, and some will mix in sustainable investing with index funds or other companies to create a balanced portfolio. The choice is largely up to the investor.
Different people will look for different things when picking investments for sustainable investing. Some will concentrate on environmental initiatives and the company’s carbon footprint; others will look into a company’s charitable activities and diversity policies. In sustainable investing circles, a company’s ESG integration is examined closely. ESG stands for environment, social, and governance. In a nutshell, this means that the sustainable investor will look at how the company protects the environment, their stance and work on social issues, and how their company is structured and the company policies.
Benefits of Sustainable Investing
An obvious benefit of sustainable investing is the investor’s ability to “put their money where their mouth is,” so to speak. The investor actively funds companies who mirror their values and act in a sustainable and socially responsible way.
However, a larger benefit is that by using ESG criteria to evaluate potential investments, an investor can feel more secure about their investment. Because society as a whole is more socially conscious, company stocks have taken a dip when scandals have been uncovered or poor employment practices exposed. Claims of discrimination, sexual harassment, or even a tactless tweet from a senior executive could cause damage to a company’s reputation and, therefore, its stock price. By practising sustainable investing, you are investing in companies that are less likely to experience such a scandal.
How Does Sustainable Investing Work?
Sustainable investing is relatively easy to do. You don’t need to sign up to a specific investing platform; you can continue to use your current one. All you need to do is research the companies a little more to ensure they meet your moral criteria as well as your financial criteria. The criteria you set is completely up to you.
The only time you might have difficulty practising sustainable investing is with retirement accounts. Many retirement products are shares in a preselected portfolio, and you have little say over what investments are made. Recently some retirement accounts have been created to meet the market demand for sustainable investing. It is important to research these and look at the criteria they have for picking investments.