Are you concerned with how your money is invested? For some people, it’s not enough to simply watch their money grow, they want to know that the investments they’re buying into are doing good for the environment and society.
It’s called sustainable investing and it’s closely tied to the principles of ESG, which stands for ‘Environmental, Social and Governance’. Let’s take a closer look at what the three letters mean:
• Environment: Investors look for companies that might be involved with sustainable energy production, for example, or sustainable food production, or reducing waste. An example of a company that considers its environmental impact would be one that uses renewable energy sources that emit fewer greenhouse gasses, or one that adopts a no-deforestation policy.
• Social: This criterion is all about people. How will your investment choice improve the lives of others? An example is a food and beverage company that gets its supply by working with small farmers, thereby improving the livelihoods of those farming communities.
• Governance: Governance refers to how well a company is run. Does management only look out for themselves, or are they concerned will all their stakeholders? Do they have efficient policies to care for staff? A company with good governance discloses all its policies, has transparent accounting methods, and has clear guidelines for eradicating bribery and corruption.
Why invest sustainably?
It comes down to what you stand for. Of course, you want to make a profit with your investments, but are you happy to make a profit at the expense of society and the environment?
As the world moves towards a more environmentally-friendly state of mind, studies have shown that there's actually a strong link between doing good and making money. Companies that are solving some of the world's biggest problems are naturally most likely to grow.
How do I do it?
There are several ways. When you’re investing, or when you’re chatting to your financial advisor about your investment strategy, you can outright avoid any funds that hold ‘sin’ stocks like tobacco, casinos, alcohol and firearms.
Or you can apply the ESG principles, which gives you some more flexibility. You can still invest in a fund that holds mining stocks, for example, if the mining companies in question are rehabilitating the environment and doing good in the communities they operate in. The ESG scores for most companies can be found online, so you can check them out before making your sustainable investment decisions. Similarly, there are specific unit trust and mutual funds that focus on ESG. Chat to your financial advisor if you need some guidance.
Keep in mind that your money is not limited to what you see on your banking app – it’s part of a much bigger picture. By investing sustainably, you can make sure your money choices are aligned with your values.