Sustainable investment has certainly become more popular over the last 5 years, what does this mean for investors.
Sustainable, responsible and impact investing (SRI) is an investment discipline that considers environmental, social and corporate governance criteria to generate long-term competitive financial returns and positive societal impact, 1.
Essentially companies are filtered through these three areas to ensure they are acceptable for investment:
Environmental criteria looks at a company’s energy efficiency, use of scare resources, pollution caused and whether they conserve natural resources (e.g. water availability).
Social criteria looks at a company’s supplier relationships, health and safety records, working conditions for employees and impact on the community (e.g. allowing employees to volunteer in the community).
Governance criteria looks at a company’s leadership, audits, whether shareholders have rights, conflicts of interest, whether they use political avenues to throw their weight around or whether they engage in illegal behaviours.
There are many motivations to invest sustainably, including the ability to invest in companies that contribute to advancements in social, environmental practices in the world. For example, companies that support a sustainable future, such as energy efficiency, recycling facilities, public transport and renewable energy. This provides a feel good factor for the investor, in that they are assisting help the future.
Examples of companies that these screens will remove from the portfolio; any companies which have investments in fossil fuels or uranium fuels, produce tobacco, firearms, bombs or other war type products. The screens also eliminate alcohol and gambling businesses or those that have been flagged as having human rights, labour, environmental or governance controversies. The ability to not assist these type of businesses to function strikes a chord with a lot of consumers.
To access sustainable investments it usually has to be through a managed fund. The reason for this is the investments have to be screened and continue to be managed to maintain their strategy. These managed investments may be accessed through superannuation as well as personal funds.
Many people often believe that if you are investing green you won’t earn as great a return as you possibly could.
You can pollute less or prioritize workers rights and do just as well financially as those who don’t.
The issue in comparing returns of sustainable and other investments is comparing apples and oranges. No investment is truly the same.
According to a study by Morgan Stanley in 2015 2 sustainable investing has usually met and often exceeded the performance of comparable non sustainable investments.
If you wish to obtain further information on the options available to you or have any questions regarding this please give the staff at Ritchie Advice a call, we would be more than happy to help.
This advice may not be suitable to you because it contains general advice which does not take into consideration any of your personal circumstances. All strategies and information provided in this article is general advice only.
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