If you’re trying to get ahead with your money, getting your investments right is one of the keys to success.
Many of the people I chat to about their money want to get ahead, but also want to do their part for the environment and our world more broadly. Enter ‘sustainable investing’.
What Does Sustainable Investing Really Mean?
Sustainable investing is defined by Investopedia as investing in “companies that seek to combat climate change, environmental destruction, while promoting corporate responsibility”. This normally happens through a managed fund or exchange traded fund (ETF).
So, in short, sustainable investing means avoiding companies with dodgy corporate practices, those that damage the environment, and those that make money from things like firearms and tobacco.
Apart from being good for the planet, there is a bunch of research that shows sustainable investing can give you better returns than non-sustainable investing.
Sounds pretty solid, right?
But here’s the tricky part of sustainable investing. There are a few companies that are easy to identify as clearly not ‘sustainable’, like tobacco companies and firearms manufacturers. But, for most companies, this sort of screening isn’t so easy.
For example, some big companies might have good corporate governance and not damage the environment, but then use their size to push their suppliers around.
Another common example is mining companies which aren’t automatically excluded from sustainable investments. This happens because their operations are fully consistent with the laws, and because they have an environmental policy to plant a few trees every time they mine a tonne of resources from the earth…
Maybe I’m being a little facetious with the last one, but you get the point. It’s difficult and often unclear to know which companies are considered sustainable and which aren’t.
So How Can You Invest Sustainably?
Before you jump into investing itself, map out your overall money strategy so you can see where and how this sort of investing can fit. This will also allow you to manage your risk and help you get the right results when you invest.
Once you’ve decided sustainable investments are right for you, the next step is to define what your version of sustainable is. You should do some critical thinking on your own about what you’re prepared to invest in, and what you’re not. Write it down. This becomes your guide.
Next, take the time to understand the companies you’re thinking about investing in. Have a read of their website and the documents they release to their shareholders each year. These can be a little dry, but if you’re really committed to investing sustainably it’s necessary.
Once you’ve found the companies that align with your sustainable definition, and after you’ve mapped your investment strategy as part of your broader money plan, you’re ready to rock.
Investing is one of the most effective ways to build your assets and income, so you don’t have to work forever… if you’re smart about how you do it.
There are a bunch of options out there when it comes to investing, and sustainable investing is one option that can help you get ahead with your money and do your bit for the planet at the same time.
But it can be a confusing space. If you want to invest, map out your strategy, get clear on what sustainable means to you, and do your research. If you do, you’ll be well placed to avoid trouble when you invest and get the results you want.
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Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional (perhaps one with a glorious beard).