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17 Feb 20
Sustainable and Ethical Investments: An Introduction
What are Sustainable and Ethical Investments?
As we move into the next decade, climate change is becoming an important issue for many people. High profile, celebrity activists such as Jane Fonda and Greta Thunberg have been successful in bringing environmental issues to the forefront of investor’s minds. As a result, ethical and sustainable investments are growing in popularity. These are types of investments where your environmental, social or corporate governance concerns are catered for. It can also be referred to as positive investing, impact investing, ESG investing or, ethical or green investing.
In this blog, we take a closer look at these types of investments. We also look at why they are important and what are the benefits of investing in such a way. At True Bearing Chartered Financial Planners our IFA’s are trained to understand sustainable and ethical investing and can guide you through the process.
The UN Goals for Sustainable Development
These have been laid out by the United Nations as 17 Sustainable Development Goals to transform the world. They go hand in hand with the principles of sustainable and ethical investments. These goals include; Sustainable Cities and Communities, Responsible Consumption and Production, and Climate Action. The aim of the goals is to improve health and education, reduce inequality, and economic growth. The objective is to achieve these while addressing climate change and working to preserve the world’s oceans and forests.
The concept of sustainability focuses on meeting the needs of the present without compromising the ability of future generations to do the same. Sustainable investing directs investment capital to companies that seek to combat climate change and environmental destruction. It also promotes corporate responsibility. The focus is on solutions based investments in companies who will still be around in 50 years.
Ethical investment combines sound financial investments with ethical considerations. This type of investment generally avoids those that may harm people and the environment (such as tobacco companies, weapons manufacturers and fossil fuels). Instead, it seeks out investments that support people and the environment. Examples of ethical investments include healthcare, education and renewable energy. This type of investment may also exclude certain companies due to the religious beliefs of the investor themselves.
The Benefits of Ethical and Sustainable Investments
Sustainable and ethical investments are very important. It is all about incorporating environmental, social and governance (ESG) factors into investment decisions. There are many benefits to this type of investment. Investing in a sustainable and ethical manner enables the investor to feel like they are doing good and at the same time, making money. The returns on this type of investment can be strong*, showing that they are now a serious investment option.
Approaches to Sustainable and Ethical Investments
There are two approaches to this type of investment. The first is one of incorporation by automatically including sustainable and ethical investments into investment decisions. It can also involve applying filters to lists of potential investments based on an investors preferences, values or ethics. The other approach is one of active ownership or stewardship. This involves the investor being active where possible in discussing sustainable and ethical issues with businesses. This is in order to improve the companies’ awareness, handling and disclosure of these issues.
However, investors should be aware of the potential pitfalls of this type of investment. ‘Greenwashing’ is the term used to describe when a company provides a misleading impression of how their products are more environmentally sound. This can make some investment prospects look better than they are in reality. It is why it can be important to use the services of a qualified Independent Financial Adviser in order to ensure that your money is being invested in the best possible way.