When looking to invest, it’s a given that you’ll be looking for the best possible financial return, however, you may be guided by principles and values that’ll impact the route you want your investment to take.
Sustainable investment is about trying to make a profit, but it’s also about supporting companies that align with your values. Perhaps you have strong views about a company’s policy on conservation and the environment. Or maybe you want to distance yourself from certain industries: oil, gambling or tobacco, for instance.
You need to interrogate your values carefully if you’re looking to invest sustainably, considering the environmental, social and governance (ESG) aspects of a company to make a better decision on where to put your money.
To learn more about ESG, download our eBook on sustainable investing.
If you’ve decided to go down the sustainable investment route to build your wealth, there are different techniques an independent financial adviser can use to help you along the sustainable path you choose.
Screening investment funds based on your values
When you’re clear on your motivations for investment, an independent adviser will screen the universe of available funds to ascertain the best-matched to invest in, based on your sustainable investment desires.
A fund is one of the most popular and easy ways to invest. They are an investment where many investors pool their monies and invest in different types of assets, including bonds, shares and property. Funds are run by a manager, who will invest on your behalf in line with the fund’s investment objective. Funds allow individuals access to professionally managed investment portfolios. Finding a sustainable fund (and there are a lot out there) that meets your own personal objectives and circumstances is the job of a financial adviser.
This is a technique used by advisers to essentially rule out areas of investment that will not match your profile. If you’ve stipulated what you do not want to support, like a possibly contentious industry mentioned before (gambling, oil, tobacco etc.), an adviser will aim to remove these companies from the possible investment options available to you.
There is, of course, risk associated with removing a large number of industries, sectors from your investment profile. Although your values will be upheld, a less diverse range of options carries a possible financial risk too (less investment options could see your money concentrated in one area — you might be putting all your eggs in one unprofitable basket).
In contrast to removing companies as possible investment targets, positive screening will include those businesses that you may want to align yourself with specifically, perhaps sharing a moral or ethical standpoint. For instance, if you have identified your emphasis on environmentally friendly practices, positive screening will highlight those businesses that are committed to low carbon emissions, for example. Note that negative screening can also be used in this instance, excluding
Screening is a highly effective method to help determine the best path for your money when considering sustainable investments. It’s not black and white, though. It can be a very tricky process to navigate. To give yourself the best chance of profitable, value-led investment, it’s necessary to work with an adviser who specialises in sustainable investment.
Investment based on profit alone
If you largely care about making a profit, sustainability-focused funds may still be able to help you achieve your financial goals.
They have the potential to deliver long-term returns. For example, funds that feature companies delivering emerging tech might be in a strong position to generate a profit. The UK government, for instance, recently announced £143 million in cleantech funding, driving growth in this sector and helping such companies increase their capital and market share.
Sustainable businesses are also benefitting from:
- a stronger competitive advantage
- increased customer loyalty
- reduced operational costs
- access to new growth opportunities
Changing consumer behaviours, energy waste reduction and better governance are just some of the reasons why established sustainable businesses are reaping these benefits. This points toward a bright future for such organisations, which gives us hope that sustainable investment funds may perform increasingly well in the future.
Investing in sustainable funds alongside non-sustainable funds can also be an effective way to hedge against other areas in the market that may not be doing well, helping you manage investment risk.
Of course, as with any type of investing, it’s important to remember that the value of an investment and the income from it could go down as well as up. The return at the end of the investment period isn’t guaranteed and you may get back less than your original investment.
Make smarter investments with expert support
The sustainable investment universe is vast and complex. Independent financial advisers make it easy to understand and navigate. They’ll ask you the right questions to truly understand your investment motivations and carry out extensive, expert research and screening to ensure you can make confident, informed investment decisions.
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than your original investment.