Ever wanted to know what is sustainable investing and how it differs from your run-of-the-mill common-or-garden investing, investing? Step into my office.
“Greed is, for want of a better word good.” I hear where you’re coming from Gordon, really I do, but that’s not always strictly true.
“Power and the money, money and the power. Minute after minute, hour after hour.” I appreciate that it’s tough living in the gangster’s paradise Coolio, but sometimes we need to give something back.
Affecting positive change
Sustainable investing is where you invest in financial instruments as you normally would, but you are doing it to affect positive change.
You would still buy ‘equities’ (known as ‘stocks’ and ‘shares’ to you and me) but instead of buying the shares of a fossil fuel polluting energy company, you might want to buy the shares of a company building renewable energy facilities.
You would still invest in fixed income bonds from an issuer with good returns, but instead of buying the shares of a social media tech company with a billionaire owner that beasts its employees, you may wish to invest in a tech company who’s gender pay gap or diversity policies you prefer.
Aims of sustainable investing
When an investor builds an investment portfolio they are deciding which companies to invest in.
They may have one of three aims. They might be risk-based investors, value-based investors or impact investors.
Risk-based investors
These are investors who, let’s be honest, aren’t really bothered about achieving sustainable aims. They just want to make sure they don’t lose any money.
They might choose to reduce their risk by investing in companies that have prioritised sustainability so they don’t lose money as we move towards, for example, a low carbon economy. So they’re piling their money into renewable energy because they’d decided the price of oil is going to fall.
Value-based investors
These are investors who want to achieve a bit more environmental and social good.
They hold strong values, such as the need to fight climate change, and will now only invest in companies who are fighting equally hard for this. Their investments have to align with their values.
Impact investors
These are the investors who are allocating money to a company to achieve a specific impact. They will help fund a company that is about to embark on a renewable energy project.
They want their investment to achieve a specific impact.
What is sustainable investing?
As there are a lot of reputational benefits to being seen as a sustainable company, everyone is now claiming there are sustainable.
If you are sustainable then you can attract the lucrative sustainable investor.
Those who are claiming there are sustainable when in fact they are not are ‘greenwashing’. They are claiming they are green when really they’re very much brown.
It up to investors, and you, to decide who really is sustainable…