Investing can be a great way to build wealth. However, as conversations surrounding climate change increase, many worry that investing your money helps support a carbon driven economy. It doesn’t have to be this way. You can invest sustainably.
Read on to find out how to invest sustainably.
Sustainability is a huge topic. From achieving net-zero to improving biodiversity and reducing single-use plastics, there are many different aspects to sustainability.
Realistically, it will be very difficult for your investments to tackle them all.
As a starting point, it can be a good idea to pick one or two aspects to focus on.
Once you’ve decided what you want to focus on, it’s time to do your research.
There is a lot of ‘greenwashing’ within the investment industry, so it’s important not just to jump at the first green label you see. If you do this, your investments may not meet your values as well as they could.
There are a lot of ESG (environmental, social and governance) ratings out there. Many charge substantial fees to access them, but other tools – like this one from Refinitiv – are available for free.
US stock exchanges offer ESG ratings for the companies listed on the S&P 500.
These can be excellent starting points for your research.
Don’t forget that you can also search companies and funds online to see if they’ve been making headlines for good (or bad) reasons!
If you pick individual stocks to invest in, you’ll have to research each company you’re considering buying shares in.
Hopefully, you’ll be used to doing this before deciding to invest in a company anyway. Now, you just have to add another layer to your research – a company’s sustainability credentials.
There are a number of places you can go to find out this information to make sure you invest sustainably.
The previously mentioned ratings can be a good starting point. You can also search a company’s own website to see if it has made any climate-related pledges and if it is making progress on these.
You can also search for companies operating in a specific sector, for example, renewable energy companies or electric vehicle manufacturers. Investing in these companies can help them grow and make a real impact on how their sectors operate.
Depending on how committed you are to sustainable investing, you may also want to consider which platform you’re using to buy stocks and shares. Some may well be more sustainable than others.
Some argue that it’s easier to invest sustainably when buying funds as opposed to individual stocks and shares.
This is because the fund you choose to invest in will hold shares in many companies. You don’t necessarily need to research every company in depth. Instead, you can just make sure the overall fund has similar objectives to you.
It’s not hard to find sustainable funds to invest in.
Most investment platforms will offer a range of sustainable funds. This will likely be labelled as ESG.
The hard part is to make sure the fund is genuinely focused on investing sustainably and on the aspects you are most interested in. Some invest with the aim of reducing plastic, others on cleaning up the oceans, while some look to reduce carbon emissions.
Another thing to be aware of is that not all ESG funds are focused on sustainability. Some will be focused on tackling social issues – like diversity.
For many people, this is as important as sustainability, but as previously mentioned, you have to decide which issues you want to tackle with your investments.
As always, when investing in funds, you should make sure it fits your risk appetite and be aware of the potential returns you could gain.
You don’t have to sacrifice financial returns to invest sustainably!
Every month, we'll send you The Plug - a curation of the best personal finance content in the UK. We share real-life stories, how-to guides, top personal finance news, popular community questions, and tips to help you stay on top of your money.