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Sustainable Investing Guide: Suggestions for investing without compromise

Clim8 Team

23 April 2021 Investment AcademySustainable Investing

sustainable investing guide

Considering the extensive information and news flow published in 2020 about sustainable investing, you are probably wondering where to start. Sustainable investing can be an ‘alphabet soup’, with countless acronyms and jargon and you may also be wary of greenwashing. How can you put your money to work for the planet without compromising on returns? Vincent Gilles, our Chief Investment Officer offers his views on a sustainable investing guide to start you on your journey.

1. Eliminate the negative

Ask yourself the following questions: what do you not want to invest in? What does not align with your values? Build an exclusion list specifying those sectors in which you do not want to invest. Oil and gas, airlines, tobacco and arms are regular contenders on sustainable investors’ lists.

2. Find the positive

Think about your values. What do you care about and wish to impact – social equality, clean water, recycling? Define where you most want your investments to make an impact and make a list to help you narrow down your choices.

3. What’s in a name?

Sustainability-focused funds are fairly easy to identify these days. Names tend to fit the purpose. Look out for titles that include words such as ‘clean’, ‘green’ or ‘sustainable’ as around 80% of ‘sustainability’-focused fund names will contain at least one of these words. However, as we point out in the Greenwashing guide, a name is just a starting point. In our view, you should take it with a pinch of salt until you can back it up with solid evidence.

4. Delve into the history

Not all sustainable funds are brand new and fresh to the market. This is a good thing, as they will have a track record of their past performance. Many funds have been around for years and some were simply rebadged as ‘green’ funds. This doesn’t necessarily mean they are misleading or greenwashing as ‘negative impact’ assets may have been sold off and replaced with ‘greener’ ones. After all, we are focusing on transitioning our economy.

However, some digging may be required to verify what activity has happened. Ask the fund management team or asset provider if the information is not available on their website.

5. Keep your eyes peeled for greenwashing

With everyone trying to jump on the ESG bandwagon and insufficient regulations yet in place, greenwashing in our view can seem rife. Misleading claims may  encourage investors with good intentions to put their money into funds that do not actually benefit our planet. Don’t fall into this trap –  read our Greenwashing guide

6. Misleading metrics

It’s one thing saying a fund is aligned to some Paris Agreement metric but how does the fund manager report its impact and adherence to those goals? Ultimately, you want to know what impact your money is having. Unfortunately, many current metrics cannot yet be verified with universally proven methodologies. The good news is that change is coming as accuracy improves with coherent reporting frameworks. Until then though stick to known measurable targets such as, for example, levels of carbon emissions. Expect to see those appear clearly in an impact report on any report on any ESG provider’s website.

7. Return with impact

Investing sustainably does not necessarily mean accepting lower returns. This is, in our view, an age-old misconception. Look for information on a provider’s website that will show you both financial and impact performance over longer periods of time. Always bear in mind that past performance is not a reliable indicator of future results.

8. Aligned to global principles

For example, look out for evidence that the provider has signed up to the United Nations’ Principles of Responsible Investment (PRI); guidelines instructing providers on how they can effectively incorporate ESG thinking into their investment philosophy and processes. Providers signed up to this code of conduct are certifying  that their firm has made a public commitment to responsibly invest. 

With investing, your capital is at risk. This information is for illustrative purposes only and does not constitute investment advice. Past performance is not a reliable indicator of future results.

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