In this lesson you will learn 💸
- What the idea behind the concept of sustainable investing means
- What one of the main challenges with sustainable investing is today
- Which questions to ask when beginning to invest sustainably
What is sustainable investing?
Call it what you like (and people call it so many different things): socially responsible investing, social investment, not to mention sustainable, socially conscious, green or ethical investing.
Big investment firms sometimes call it Environmental, Social and Governance (ESG) investment. These are all broadly the same thing:
Sustainable investing is an investment strategy that covers both financial returns and the improvement of the societal good
The biggest challenge is, that are many ways to define this 'societal good'. What is more, a variety of frameworks and methods exist to define when and how an investment product is sustainable (or not).
The most widely applied sustainable investment strategy globally, is the so called negative screening, which involves excluding sectors, companies, or practices from investment portfolios based on environmental, social or governance criteria.
As a sustainable investor you have plenty of choice, however it is very hard to depict what 'good' the financial product you are picking really does.
Does investing sustainably mean I make less returns?
According to a vast amount of research there isn't a trade-off between your values and the potential value of your investment returns.
Sustainable investment returns are comparable to what you can expect from conventional ones. Some studies even suggest that sustainable investments proved to be more robust in times of crisis.
However, one thing to note is: sustainable investment products might in some cases be slightly more expensive than traditional ones.
Your action 📝
Some of the questions you could ask yourself when beginning to invest sustainably:
- What is really important to me? What do I want to achieve with my money? Is there a specific cause that I would to support or do I just want to make sure that my money is not invested in a way that could be harmful to the planet?
- If you're looking to invest into a specific company: what do you know about the company? Have you done your independent research about them? Are you able to reveal a bad reputation or 'hidden' issues?
- If you're looking to invest using a financial product: can you find out how the product has been put together? Do the values of the product's selection process align with yours? E.g. were only certain industries or companies excluded?
- At the end of the day, sustainable investments are still an investment: what type of risk are you taking on? What kind of return can you hope for?