Global climate agreements like the Paris Agreement and the Kyoto Protocol have influenced investment trends. Today, economic decisions have become increasingly mixed up with social and environmental issues, and sustainable investing means you can invest in ways that reflect your values and beliefs. For example, PensionBee offers the Climate Portfolio which invests in funds that aim to reduce the impact of climate change and increase access to sustainable investment opportunities.
Principles of Sustainable Investing
Long-Term Value Creation
Sustainable investing emphasizes the importance of long-term value creation over short-term gains. It aligns with the belief that investments should not only focus on immediate financial returns, but also consider the long-term impact on families, communities, and the environment. If prioritizing long-term growth and stability is important to you, sustainable investing gives you a way to support businesses that prioritize those values.
Active Ownership
Active ownership is a way to uphold ethical standards and promote better accountability with corporations by engaging with them more regularly to influence practices and policies. By advocating for more responsible business practices, as an investor, you can help to ensure that companies align with your values and create an environment where ethical considerations are prioritized alongside profitability.
Transparency and Accountability
Investment practices and corporate governance should be transparent and can act as a way to build trust with stakeholders by uplifting the virtues of honesty and integrity. This ensures that investments reflect a commitment to both ethical conduct and responsible stewardship.
Stakeholder Engagement
Engaging with stakeholders such as employees, customers, and surrounding communities is an essential component of sustainable and ethical investing as it recognizes the responsibility businesses have to these concerned parties. The more conversation and collaboration there is, the more investors and shareholders can work to encourage companies to adopt practices that benefit society as a whole and reinforce the idea that successful investing should contribute to the common good.
Risk Management
Environmental, social, and governance (ESG) requirements are government standards that require companies to report on their actions. ESG standards are used to screen investments based on policies and to encourage companies to act responsibly. Incorporating some ESG factors or initiatives can serve as a viable risk management strategy that can benefit the overall investment process. Recognizing potential environmental and social risks demonstrates wise stewardship and encourages investors to consider the implications of their investment choices and to act responsibly when managing their resources.
Types of Sustainable Investment Strategies
Negative Screening
Negative screening involves excluding companies or even industries from your investment considerations based on ESG criteria so that you can align your investment portfolio with your values and avoid undesirable investments. Using negative screening, you can filter out the companies that don't match your moral standards or those that engage in activities and practices that are harmful to society or the environment.
Positive Screening
Positive screening is a strategy focused on identifying and selecting companies that meet your specific criteria—those that have demonstrated strong performance in areas that may be important to you, such as energy (clean energy, renewable energy efficiency, low emissions, etc.), or other prominent global issues. This strategy is a great way to build your portfolio in a way that reflects your values and supports companies that make meaningful contributions to the world. PensionBee is proud to offer the Climate Portfolio which aims to reduce the impact of climate change and increase access to sustainable investment opportunities.
Impact Investing
Impact investing is a strategy that aims to generate positive social and environmental outcomes alongside financial returns. This means focusing your investment approach on organizations that are actively working to address pressing challenges such as energy affordability, housing affordability, or the protection of free speech. Impact investors should actively seek measurable results to ensure that their investments continue to align with their values and beliefs and actually contribute to real change for communities and the environment.
Future Trends in Sustainable Investing
It's likely that we'll see significant growth and transformation in the world of sustainable investing as more investors review their investment management strategies and make changes to better align their portfolios with their values. In theory, this would lead to an increase in assets under management for these types of funds which will hopefully exact change in numerous areas of our surrounding world. Technological advancements including improvements in data collection, reporting standards, and transparency will only urge this along, enabling investors to make more informed decisions and gauge financial performance faster and with greater accuracy.
How to Get Started with Sustainable Investing
There are a few key steps that you as an individual investor can take to align your financial goals with your values and make wise investment decisions. First, clarify your motivations for investing in a sustainable manner - do you want to support ethical practices, address growing societal concerns, or focus on environmental responsibility?
Next, research your options for investing in sustainable funds, including mutual funds and exchange-traded funds (ETFs), or other asset classes. PensionBee offers customers an easy Sustainable Investing option called the Climate Portfolio.
