There’s no doubt that 2020 was one of the toughest on record and, for many of us, the toughest of our lives. But we can also learn from the experiences of 2020 to build a better and brighter future for us all.
One of the big learnings from last has to be how interconnected we all are. But at the same time, it reminds us of the glaring inequalities we face. In the same vein, 2020 highlighted that there are global challenges that we face and must solve together, as a united world. Challenges like climate change.
To do that we need to utilize all levers of change – this is where the money comes in. Money – or rather, how we use money – is a hugely powerful way to bring about change. Enter sustainable investing.
What is Sustainable Investing?
Investing is allocating money to something in the expectation of some benefit in the future. In finance, the benefit from an investment is called a return, historically financial returns. You invest money in the hope that you will reap higher financial returns in the future.
However, this has all started to change. Over the last decade or so, more and more people have begun to look beyond financial returns – more and more people are looking to non-financial returns such as positive impacts on society and the environment.
You may have heard of various terms, such as sustainable and responsible investment, impact investing or ESG (environmental, social and governance). These all have a commonality – the goal of achieving positive change in an area in which the investor is passionate about. And invariably, this will have a social and/or environmental dimension.
Sustainable Investing – The Specifics
To be clear, sustainable investing is not philanthropy or charity. Sustainable investors are still looking for a financial return but they seek other impacts. For the environment, an investor may look at what impact a company has on the resources that sustain it. They may look at the company’s contribution to climate change – say, Greenhouse Gas Emissions (GHG.) Or the investor may seek out companies looking to solve climate change – such as clean energy or climate tech companies.
On the social aspect, investors are increasingly thinking about how companies translate their role in society – for example, how a company treats its suppliers or the local communities it operates in. A sustainable investor would be concerned about labour standards and illegal child labour. A sustainable investor would also care about issues like diversity and gender equality within the companies that they invest in.
Why Does This Matter Now?
The harsh reality is that the world faces some pretty big challenges. Our air is polluted, so is our water, our natural resources are rapidly depleting, biodiversity is under threat. At the same time, about one in five people in the developing world live below the extreme poverty line. And yet our throwaway consumer culture means that every year if we put all that waste on trucks, they could go around the world 24 times.
We need to do something about it, and we need to take action soon. And this is where money comes in. Simply put, money is a construct. Humans came up with it. Money is used as a way to organise our economies and our societies. Money is not an end in itself – rather, it’s actually a means to create the world that we want to live in.
So How Do You Get Started?
Sustainable investing is growing – which means that it is becoming easier for us. First of all, prioritize what you care about. Ask yourself – what kind of issues are important to me? Then translate your priorities into sustainable investment beliefs. These are the guiding principles that spell out who you are and what you want to achieve with your investments.
Next, do some goal setting. What do you want your investments to accomplish? The more specific you are, the easier it will be to identify how and where you want to invest. Then it is time to get more educated and more empowered. There is a wealth of information and analysis out there so use it to your advantage. Even if you commit just one hour a week. Once you are ready, start action planning – what are the actions that need to take you for A to B.
Time To Take Action
Being a sustainable investor is about making well-informed, well-considered decisions. Perhaps speak with your pension plan provider about alternative fund options or new funds that may become available in the future that are more closely aligned with your values. Follow up with a financial advisor or your bank on investment products that might be of interest.
It can be daunting to become an active sustainable investor, but don’t be put off. Even small amounts put aside each month can be directed towards something that drives positive impact. It is also worth speaking and sharing with your friends and family – you may be surprised how much others want to get involved in the sustainable investing trend too.
Jessica is the author of Financial Feminism – A Woman’s Guide to Investing for a Sustainable Future.