Sustainable investments are becoming more popular every day with lots of money flowing into the space. Most people want to have a positive impact while making money from their investments.
What are the benefits of this approach? Read on to find out whether it’s worth getting involved with this way of investing.
What are sustainable investments?
Sustainable investments are actually quite hard to define. The general aim behind investing this way is to put more money into companies that are trying to make the world a better place.
This could be companies doing things like:
- Reducing their carbon footprint
- Treating their employees and suppliers well
- Sourcing materials in a fair way
- Helping to improve local communities
There are so many different things to consider. This is part of the reason there is some debate around sustainable and ESG investments. Everyone has different ideas about what they think needs to happen for businesses to have a positive and lasting impact.
For some, sustainable investing means supporting companies that have a positive impact. For others, it is simply avoiding businesses that clearly have a negative impact. Then there’s everything in between, so there are a lot of grey areas.
Why is sustainable investing important?
We are all investing for the future. Investors around the world are waking up to the fact that all of the money that is invested needs to go to the best places possible. However, navigating this landscape can sometimes be a tricky ride.
Thankfully, it is getting easier to make better choices and there is a growing number of sustainable investing options to suit every type of investor.
Are sustainable investments profitable?
Sustainable investing is proving to be increasingly profitable, and it is rapidly becoming a core element of investors’ portfolios.
Adrian Lowcock, head of personal investing at Willis Owen noted that sustainable investing actually outperformed the traditional approach over three and five years, based on the performance of some global equity funds.
He explains: “These funds are core holdings now, with over £61 billion in responsible funds in February this year, nearly double the £34.3 billion from a year earlier (February 2020). Whereas previously, ESG was a secondary consideration, a ‘nice to have’ tilt to portfolios, the world has been changing.
“A focus on companies that do less harm to the environment, be that through alternative energy, greener food production or waste reduction, are here to stay, and crucially, they are also rewarding investors.
“These trends are not one, three or even five-year ones. They are here to stay, and investors who are not considering them are going to miss out over the long-term.”
Are sustainable investments the best way to invest?
The most important thing to think about is what you want. If you can find a fund that performs well and aims to be sustainable, then that’s great. But it is important to do your own research and realise you don’t have to invest a certain way.
Past performance doesn’t dictate future results and there can be downsides.
Lowcock explains: “As with any investment, there will be periods of underperformance. For example, with vaccines being rolled out, investors have focused on the end of the pandemic and there has been a shift to value and recovery stocks, which includes oil and airline industries that typically don’t feature in ESG-focused funds.”
How can I invest sustainably?
If you think sustainable investments are for you, there are lots of options out there. Some investing solutions providers will even build and manage a portfolio for you.
It is becoming easier than ever to control where your money goes and most share dealing accounts will give you access to ethical options.
But you should read all of the details and understand what it is you are investing in. You still need to check the approach of funds and companies to make sure they suit your goals.