This article is part of a series in association with sustainable investing app Clim8 Invest, looking at the growth of opportunities for people who want to help save the planet with their investments.
More people than ever are investing their money with a conscience. The world needs us to take action, after all, and money is a powerful way to do this.
Sustainable funds surpassed the $1 trillion (£0.7 trillion) mark this year for the first time on record, according to Morningstar, as investors increasingly look for a better home for their cash.
The good news is that whatever matters to you most – be it climate change, environmental pollution or the plastic problem – there will be an investment fund or portfolio available for you to back this cause with your savings.
Whatever spare money you have (and ‘spare’ is the key word when you are thinking about how much to invest) can be aligned with your values, and ideally make you a nice return at the same time.
Investing of any kind, if you’ve never done it before, can feel a bit like walking into a room where everyone is talking a different language to you. Trying to invest in line with environmental or social concerns – or both – ON TOP of being a newbie investor, can feel even more confusing and overwhelming. There’s so much more to get wrong! Right?
Styles of investing
You may feel confused because, well, it IS confusing. There are lots of different styles of investing that all broadly live under the umbrella of ‘sustainable’. Environmental, Social, and Governance (ESG), Socially Responsible Investing (SRI), Impact investing and other labels. But despite the similar labels, they have material differences that make some more worthy of the term than others.
There is a way to make it easier for you – a way to sift out the n’er-do-wells, the spinners and the greenwashers: the gold standard for investing in planetary betterment is increasingly considered to be the ‘positive impact’ approach, rather than simply “negative screening”.
If you look for the positive impact term when you invest, you have a better chance that your money will ONLY be invested in companies that are working to improve life in some way.
For maximum positive impact, you’d ideally need to look at the holdings (companies) within the fund and make your own call, based on research, about the level of genuine sustainability it presents.
If in doubt, start from the heart
If you care about everything and just want the world to be a better place, how do you even begin to choose what to put your money behind?
A good starting point is to ask yourself what issues mean the most to you. For example, do you want to put your money into companies that are developing clean energy, clean transport, alternatives to plastics, or sustainable food – or perhaps a combination of these?
Don’t worry about trying to predict financial performance
The rise of investment platforms and apps offering ready-made portfolios means that someone else can now do the risk and return work for you for a range of funds and stocks.
You can take heart that sustainable funds appear to perform better on average than the wider market.
Sustainable funds have delivered higher returns over the past decade – and throughout the coronavirus crisis – than their conventional peers, according to a major study by Morningstar.
This means you could effectively get paid for having principles, if your investments follow this trend.
Picking ready-made portfolios
The best way to avoid taking too much risk when you invest is to diversify. This means spreading your money across different sectors, asset classes and countries.
It can be hard to do this yourself if you are stock-picking individual companies to invest in, but with ready-made portfolios through investment platforms or apps like Clim8 Invest, this is done for you.
Duncan Grierson, CEO and founder of Clim8 Invest, said: “The underlying stocks in each of our portfolios are highly diversified both in terms of geography – they span continents including Europe, the US and Asia – and industry. For example, our portfolios typically include Danish wind turbine manufacturer Vestas and a global solar energy business NextEra Energy.”
You might think that to make a real difference, you need to invest a lot of money. This may have been the case as little as five to ten years ago, but now anyone can invest for Good with small amounts of money. However, check that the platform fees do not eat too much into your returns.
A word on risk
When you start out, you’re likely to be asked to choose how much risk – low, medium or high – you feel comfortable with. As a beginner it will probably feel natural to choose low risk, but you should take other factors into account before you do.
For example, if you’re young and are investing over a long time, a higher risk portfolio might suit you better. But if you’re 20 and want to invest to help you buy a house at age 35, then you shouldn’t be taking much risk, as it’s really important you don’t lose any of that money.
The level of risk you take should depend on how soon you need the money, what it will be used for, and your age.
Choose issues important to you
With new sustainable investing apps like Clim8 Invest, you can easily choose to invest in the issues that matter most to you.
Mr Grierson, said: “Where you invest your money has the power to shape the world we live in. By investing in leading sustainable industries such as clean energy, smart mobility and clean technology, you can help tackle the biggest issue of all – climate change.”
If you’re interested in making a positive impact on climate change with your savings, join the waiting list for Clim8 Invest – set to launch soon – here.
Risk warning: When you invest, your capital is at risk and you could lose all of your investment. The value of investments and any income from them can go down as well as up, and past performance is not necessarily an indicator of future performance. Before you invest, make sure you are comfortable with the level of risk you are taking on.