Sep 26, 2019  | Tags: sustainable investing, sustainability

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Every day, more new investors are diving into the dynamic market of sustainable investing. People are realising how important it is to not only grow their wealth, but do it in a way that has a positive impact on the world around them.

Here’s what you need to know to get started.

The not-so-clear definition of sustainable investing

There's a new generation of investors who are not happy with the traditional concept of investing. They don’t want to provide funding to a company that makes bad decisions with long-term consequences just for the sake of short-term financial gain.

The idea of investing sustainably, in a nutshell, means investing in companies that place more value on long-term benefits over short-term profit growth. 

But there’s a lot of room for variation in the definition of sustainable investing beyond that concept. Sustainable investing means different things to different people, depending on who you ask.

So if you want to invest sustainably, then you first need to determine what “sustainable” means to you and then look for companies to invest in that align with your values and personal definition of sustainability.

Here are a few types of sustainable investments for you to consider getting started with.

Types of Sustainable Investments

Ethical investing.

This is when you choose to not invest in a company not because it isn’t financially successful, but because you don’t agree with the product or service they produce. Alternatively, you may not have an issue with what a particular company makes, but you might not support them because of their stand on certain ethical issues that clash with your individual beliefs or because of unethical ways they run their company. The opposite is also true; you may seek out companies to invest in that support the ethics that matter to you.

Socially-responsible investing.

This is when you don't invest in companies that don’t look out for the interests of human beings. For example, you might avoid investing in brands that outsource their labour to underpaid and overworked labourers abroad. On the other hand, you’ll favour investing in a company that’s committed to its social responsibility.

Sustainable investing.

This definition is probably the one that comes to mind when you think about sustainability. It’s when you choose to invest in a company that successfully manages its environmental and corporate governance factors. For example, they take good care of their employees, they minimise packaging waste and they are conscious of where they source their materials from.

ESG investing.

ESG (environmental, social and governance risk management) companies are those that take a sustainable approach in general with the goal of keeping their brand relevant for decades to come. They want to take care of the environment and society that they are a part of and try to stay current with global trends and views. These companies often attract investors who are looking for a secure long-term investment, even if they aren’t personally passionate about other sustainability factors.

How to start sustainable investing

Whether you want to invest sustainably to make a difference in the world or simply because you believe sustainable investing is a smart long-term financial move, now is a great time to get started.

You have three main investing avenues to choose from:

- Hand-picking individual companies to directly invest in
- Investing in a managed specialist fund that focuses on sustainable investment options
- Diversifying your super by investing some of it in sustainable investments

Tips for investing sustainably

Balance your finances and ethics.

It’s fine if you’re ethically 100% behind a certain cause, but that doesn’t mean your money should be. It’s better to invest in a variety of different avenues to avoid being hard-hit by market fluctuations. Don’t put all of your money into just one sustainable investment option unless you’re willing and able to risk losing it all. Make sure sustainable investing is a smart move for you financially before jumping in.

Do your research.

Not all companies that market themselves as “sustainable” or “eco-friendly” are being transparent about their actual business practices. It’s ultimately your responsibility to do your due diligence and know exactly what kind of company you’re supporting with your investment.

Be patient.

Avoid getting caught up in the optimism of sustainable investing. It often takes a long time for companies to see the benefits of their sustainability initiatives so this can mean that you’ll have to wait a long time to see a return on your investment.

Frequently check your fund performance.

Investing in sustainable companies is usually a long-haul endeavour. But you still need to be aware of how your investment is doing. You shouldn’t just buy a share or two and then forget about them. Check your fund regularly to see how it’s performing. This will help you stay in-tune with the sustainability initiatives of the company you’re investing in and grow along with them. Alternatively, if you detect a deviation from your ethical values or sense that your fund isn’t performing too well, you can recover your investment and direct it into a more profitable cause.

Get professional advice before investing.

Most importantly, get personalised investment advice from an expert financial advisor before getting into sustainable investing. This way, you can find out whether sustainable investing is the right choice for you financially and get help with choosing the right companies to invest in.

To talk about your options for sustainable investing, talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your free initial appointment. 

Written by Ben Calder at Calder Wealth Management.