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If you’ve done any kind of research into investing, you might have seen that there are tons of different options out there for what you can invest in. You can invest in companies, real estate or even materials such as gold. Something that’s often overlooked, however, is that money talks. If you want to help the world become more sustainable, you can put your money into places that share your goals. This can actually have huge impact. In this post, I’m going to talk about getting started with sustainable investing.
Types of sustainable investments
Just as with regular investments, there are a number of types of sustainable investments:
- ESG (Environmental, Social, Governance) Investing – This kind of investment is based on the idea that a company with a poor environmental record, human rights violations or a lack of transparency in its management is much riskier than other companies. As a result, an ESG investment only invests in companies which have an acceptable record in these three areas. The overall aim of the investment is still focused on good financial performance.
- SRI (Socially Responsible Investing) – This type goes further than ESG by also restricting the types of companies that will be invested in based on ethical principles. Additionally excluded companies are ones that might not have any ESG problems but some people might still not want to invest in them. Commonly excluded companies are weapons manufacturers and tobacco companies. The aim of this investment is to make a profit but to stay in balance with the investor’s principles.
- Impact Investing – In this type of investment, a positive impact on society is essential. Investments are only made in companies that have goals which will benefit the environment or society. Companies researching green energy or improved access to clean water are examples of this. Financial performance is less important in this case.
As you might be able to see, these are aimed at different audiences. You can decide how far you wish to go yourself. If a positive impact on society is essential to you then you should consider impact investing. If you’re much more interested in financial performance then SRI or ESG investing should be considered.
Choosing an investment
After you’ve chosen the type of sustainable investment best suits you, it’s time to pick something specific to invest in. I should give a quick disclaimer first: The following advice is for the average person who doesn’t want to spend all day looking into the stock market. The kind of person who wants to put their money in the right place and then go back to what they were doing. Because of this, the advice I give is aimed to make things easier for you by making it simple for you to choose and giving very little effort to maintain.
If you aren’t someone who wants to micromanage their investments, your best bet is an index fund. In simple terms, you invest in a basket of stocks where an investment institution manages the stocks for you. By doing this, you can invest in a large amount of different companies without having to handle all of the hard work. It’s actually one of the most common ways to invest these days. My suggestion would be to use JustETF.com which allows you to search through them for free.
Here are some things you can consider when searching:
- Countries – Ideally your investment would cover a wide variety of countries to reduce your risk. You can invest in funds which cover the whole world to keep this simple if you’d prefer.
- Sectors – Investing in a variety of sectors will also reduce your risk. A lot of sustainable funds these days have a high amount of tech stocks which could be risky.
- Costs & Returns: Different funds have different management costs and returns. Try to find funds with lower costs as well as funds which have a good balance between returns and risks. The website mentioned above makes this easy to check.
- Active vs Passive: Some funds are passively managed which means the fund is often cheaper but also engage less with the stocks that are chosen and managed. Some active sustainable investments actively engage with companies to ensure that they remain focused on their environmental commitments.
If you’ve read this far, then you might feel a little overwhelmed by the information and the options that you’ve heard about. I wanted to give a good overview of what you can do! If you don’t want to overthink it I will make it even easier for you. If you’re interested in getting started with sustainable investing, a good place to start is an SRI index fund which you can find by using a search tool such as JustETF. You can also check out The Do Gooder’s Guide to Investing which provides a lot of useful information on sustainable investment ideas. Happy investing! 🙂
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