Aug 21, 2020

Our Insights

Sustainable investing is growing at a rapid rate, as more people look to invest according to their values.

To perform well and align your values with your financial objectives, it’s important for investors to know how to go about creating a sound investment strategy that delivers both a sustainable impact and comparable higher expected returns.

Creating a sustainable investment strategy requires a different approach to your typical investment plan. Here's some key considerations.

Know your values

Step one to developing a sustainable investment strategy is to be clear on your values, your passions and what you stand for. These beliefs can cover all areas, whether it’s environment, government or society and culture.

These values are crucial and will guide your whole strategy and every investment decision you make.

The big difference between standard investing and sustainable investing is the interests shared between you and your selected companies, organisations or funds. So, defining these values will not only make your investments more fulfilling, but you’ll be able to consistently select the best investments for you.

But don’t just get clear on what you believe in – it’s equally important to know what you stand against, too. Avoid supporting companies that contradict your personal, religious or moral beliefs. For example, while a company could provide huge returns, if their corporate incentives don’t align with their success or you fear corruption or bribery is involved, then it’s not the investment for you. Similarly, if you’re seeking socially responsible companies, there’s no point investing in businesses that profit from activities you oppose.

Develop your strategy

In the early days, it was believed that sustainable investing came at the cost of reducing your expected returns. However, there are plenty of successful investors today who have proven that sustainable values and high returns are both achievable - through the COVID-19 pandemic, sustainable investments have been resilient and even outperformed other markets.

As with any investment plan, you also need to set your specific financial goals, but then also consider your sustainability goals too. You should then work to a framework that emphasises the sources of higher expected returns as well as your sustainability views.

From here, there are a number of ways you can incorporate environmental, social and governance (ESG) issues and sustainability factors into your investment plan.

A popular approach is ESG integration, where sustainable ESG factors are systematically included into the financial analysis of an investment.

Positive and negative screening processes are also commonly used, and aim to include or exclude companies, sectors or projects based on their performance comparative to others in the industry. 

However, if you decide to use positive or negative screening, it’s recommended that you don’t use these exclusively. Instead, use certain metrics to generate the sustainability score of a company and then place it on a spectrum alongside similar companies in the industry. This way, you’re open to more investment opportunities and diversity, because negative screenings in particular can unfairly exclude some companies based on a ‘minor infraction’ or the industry they fall under.

Whichever approach you decide, you’ll have a clearer idea of which companies are upholding the best sustainable practices and align to your personal values.

Of course, your strategy should also include other tried and true investment principles, such as investing regularly, playing the long-term game, diversifying and investing in what you know.

Get Advice

CWM specialises in sustainable investment and our team can set you up with the right strategy, and also help you evaluate and make decisions that will help you do well and do good.

Talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your free initial appointment.

Written by Kerryn Shaw at Calder Wealth Management.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.