As more people become aware of the repercussions of climate change and try to make better decisions about the way they live and the things they purchase, a new kind of sustainable conscious investor is beginning to emerge.
Sustainable investing focuses on building a portfolio of shares centered around companies that are solving the challenges presented by climate change, or those committed to better ways of doing business.
What's driving the trend?
The trend towards ethical and sustainable investments is mainly being driven by private investors keen to make a difference. However, there are other factors influencing companies to pursue more sustainable and ethically sound ways of doing business:
Financial decision-makers: Big investors and board members are beginning to ask more of companies and are seeking more sustainable ways of doing business.
Governments and regulators: Worldwide policy shifts mean that companies are slowly being forced to improve their environmental credentials while also tackling their products' social and ethical impact.
Types of sustainable investing
Sustainable investing can fall under a very broad range of names and definitions, including:
Environmental, social, and governance (ESG) investing
Socially responsible investing (SRI)
While most of these strategies are broadly similar in ethos, there are a couple of differences in the way they work that could impact your choice of direction.
Ethical investing is all about seeking out companies that are actively trying to change the world for the better and avoiding those that have an obvious negative effect on the environment or humanity. In years gone by, that would mean avoiding tobacco companies or petrochemicals for example — though the latter has made significant progress in recent years to clean up its act.
Impact investing is similar to ethical investing but focuses more on seeking out companies whose positive impact on the world can be measured directly. That might involve specific recycling, reforestation or clean water savings and initiatives, or the presence of particular programs that greatly benefit local communities.
ESG stands for Environmental, Social, and Governance. This type of investing is about selecting companies that meet specific government legislation or social and environmental requirements. ESG investing has a broader remit than other methods and would, for example, include otherwise problematic companies that are making a positive shift towards sustainability.
How to examine companies and ESG funds yourself
If you'd like to find out if a specific company meets your own ethical or environmental standards, you can simply read through their literature. However, the fine print involved in such a project can become a little overwhelming, so you might want to head over to a site such as As You Sow, where you'll find much of the information you need in a more easily accessible format.
Smaller companies and startups will require a degree of due diligence. Concrete numbers and stated goals are always preferable to feel-good anecdotes and platitudes. If you fail to find anything meaningful on the company’s website or documentation, it might be worth researching the board members for useful media clips or press releases.
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