Your Digestible Guide to Green Investing.
Words: Ed Cooper
Make your money work for something bigger than just your bank balance by putting it where it can do the most good, as well as make the best returns.
One of the most impactful tools to create real change on the planet won’t be found in your bathroom cabinet or your fridge (well, it might be, if you’re a little absent-minded). Nor will it come from using your bike more or maintaining your recycling efforts. Rather, it can be found in your wallet. That’s because your money, and how you use it, holds the power to create actionable change on a global scale by accelerating and supporting green causes.
Depending on where you store your money, how you spend it and the way you invest it, you can make sure it’s only going towards causes and companies that are backing sustainability efforts and contributing to the fight against climate change.
This is the concept of ‘green investing’ — sustainable investing, to some — in which consumers are encouraged to avoid banking with institutions connected to gigantic, planet-damaging industries such as fossil fuels and climate change. In the UK, for example, £150bn was invested in fossil fuels between December 2015 when the Paris Agreement was agreed, with many of the culprits hiding in plain sight.
In theory, the idea of doing the opposite of this is simple. But actually starting green investing? Less so. Below, we break down the concept of green investing and how, using your individual spending power, you can start making change for the better; all without having to buy a copy of the Financial Times.
Unlike investing in industries such as fossil fuels, deforestation or fast fashion, green investing focuses on supporting companies that are aiming to improve the only planet we’ll call home. “Whether it’s termed green, ethical, ESG [Environmental, Social, and Governance] or sustainable investing, the aim is generally the same,” explains Ben Faulkner, communications director at EQ Investors. “It’s making money while making the world a better place, and it’s clear this is a fast-growing market.”
On a similar level, ‘impact investments’ hold the power to make change at a social and environmental level, alongside providing a financial return. “This approach focuses on creating material, measurable positive impacts on people and the planet,” says Faulkner. “The focus here is on maximising the absolute positive impact associated with investments. Investment strategies can do this by positively targeting sustainable themes like clean water, renewable energy, or accessible healthcare.”
What do I need to know?
There are plenty of misconceptions about green and ethical investing, so it pays — quite literally — to arm yourself with the right knowledge before you start shifting things around. “There is mounting evidence that sustainable investing does not sacrifice performance, in fact, incorporating ESG factors into investments can help boost financial performance,” says Faulkner. “Overall, businesses that demonstrate greater operational sustainability and sustainable products and services can perform better.”
Similarly, it’s theorised that by exposing yourself to societal shifts, you’ll open up more chances to become acquainted with growing sectors including sustainable tech and renewable energy.
If you’re looking to put your money where your social media hashtags are, you’ll first want to figure out which issues you want to back with your money. Human rights? Climate change? Deforestation? Ideally, your green portfolio will reflect your intentions. Ethical investment search engines, such as Fund EcoMarket, can help spotlight specific funds. A tip: keep your investments balanced and diverse, across different countries and markets, to ensure you’re not placing too much emphasis in one sector.
Banks including Starling, Tridos and Co-op Bank have committed to ethical banking and have been found to invest in eco-tourism, social housing and environmental technology.
Building up a portfolio of shares in companies that you agree with could be the most straightforward path to ethical investing. However, with companies charging transaction costs, this can become costly.
If you’re looking for a more scattergun approach, investments funds or trusts enable you to invest in hundreds (possibly thousands) of companies at once. Whether you opt for a managed fund or a passively-managed fund will determine the fees you pay.
Companies such as Nutmeg and Wealthify offer off-the-shelf ethical investment accounts, the space-age sounding ‘robo-advisors’, which can automatically pick funds that reflect your goals.
It might seem a long way, but opting for a green pension could be up to 21 times more powerful at cutting your carbon footprint than going vegetarian or switching energy provider, according to Make My Money Matter.
It’s easy to get hoodwinked by ‘greenwashing’, a trend that’s seen companies claim to be more ethical and environmentally friendly than they are. Use tools such as the ethical consumer website and isitgreen as a baseline for your research.
Make sure your advice is green as your investment
It’s all well and good putting your money in green companies, but you’re undoing the positive impact if your bank, broker or adviser is using their cut to invest in oil companies.
“Some investors may want to know how sustainable their adviser or investment manager is,” says Faulkner. “Advisers and investment managers can show their commitment by getting B Corp approved, which is an accreditation that measures a company’s social and environmental impact.” You can use this B Corp finder to identify any Certified B Corporation around the world.
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