Eco-investing is a growing term used to signify someone investing with a conscious thought towards the environment. This type of green investing is fast growing, as with many eco-conscious people who have an interest in sustainability, the environment and hopefully creating a strong financial future through investing. Now, before I go on, to make things clear I am not a financial advisor and not very well versed in the subject of investing at all. Therefore, you should not think of any of this as financial advice. However, I am investing to hopefully make a return, whilst making a conscious effort to not negatively impact the world just to line my own pockets. Always remember you could lose all the money you invest, so you should only do so if you have money to spare and are willing to take that risk. Additionally, if you want advice on your own finances and investment goals I would advise you to speak to a finance advisor. This blog post is to give you an insight to eco-investing, some things you might want to consider when investing and what I am doing to invest sustainably.
What is eco-investing?
Eco-investing, sustainable investing or green investing is a way of investing in companies that provide environmentally friendly products and/or practices. It is also a form of socially responsible investing. Developing a conscious awareness for the environment should reach to all aspects of your life. This should reach to any endeavours you have, including investing. Therefore, looking at investing in companies that help mitigate any negative impact they have or even help the environment is crucial in this goal. Yet, as seen with many of the rich, famous and conglomerates they will do anything to further grow their own wealth with no care for the environment or even society as whole. Eco-investing is a way to potentially grow your wealth but with a conscience, helping our future to be green and sustainable.
Should you invest?
You are likely already investing through your pension plan, where eco-investing can also apply. However, if you are asking if you should invest outside your pension then this is a personal choice you need to make yourself. This is because it depends on your personal circumstance, as well as your goals and ambitions. Investing can be incredibly risky but also rewarding and only you can decide whether it is right for you. I never invest money I don’t have and understand I might lose all the money I have invested but I am also happy to take that risk in the hopes that it will increase. Most of the research I have found shows how if you invest for the long term, you will typically end up in the positive and if you do it for long enough it can drastically increase your wealth. As I have mentioned, you should do some research, be aware of the risks and your opportunity cost and if you believe it is right for you, give it a shot. I also advise if you are not sure or want specific investing advice relevant to you to seek a financial advisor.
Why does investing concern the environment?
Essentially, where you put your money dictates what companies do. This goes for where you store your money, what you buy, as well as where you invest. The more that people buy eco-friendly, sustainable items, products or investments and demand companies to supply them the more eco-friendly versions we will get and it is growing fast. This makes the world a better place. We do not just want our products to be eco-friendly, we want the companies making them to also be green. When you invest your money goes to helping a company grow and develop and continue to provide their product or service. Therefore, your money is going towards that company's impacts, ethics and practices (good and bad). Unfortunately, there are too many companies doing terrible things to nature, society, the environment and our planet just to make money. However, there are also companies that do care and are leading the way for a greener future. This is why you can invest to hopefully make money but also back these great companies.
What am I doing?
Well I hope to invest in several ways that of course meet my ethics of being green and environmental, which I will be sure to continue to track and blog on here. However, due to my limited time to properly search individual stocks and shares I wouldn’t know where to begin, at least yet. As I mentioned above, I am thinking of the long term. For me this is 20-30+ years and I understand that one of the easiest ways to do this is with index funds. This should help outperform inflation and can often outperform the top investment banker. Therefore, this is going to be my strategy, to simply invest into index funds, which meet my personal ethics and which I hope creates the foundations of my investment portfolio.
What I needed first was an investment platform that allows you to buy stock, funds and indexes. I have chosen Vanguard, as I have heard it mentioned by many to be a good platform with relatively low fees. Through this, I have then looked for two key phrases, this is Social responsible Investing (SRI’s) and Environmental, Social Governance (ESG’s). This is what I am going to invest in ESG and SRI funds. To be exact I have invested in several funds that track these, one ESG Index fund, one ESG emerging markets index fund and one SRI Stock fund to name a few. I have gone into depth these terms below:
What is ESG?
Now, when thinking of sustainability and looking at a group of stocks or an index that allows your investments to be spread across multiple industries, locations but with ethics you might want to look for ESG funds. ESG stands for Environment, Social, Governance, which are three broad categories that are also linked with “socially responsible investors” (more below). It is a general term used by investors that looks at evaluating corporate behaviour to determine if a company meets social and environmental criterias, better than other typical stocks. ESG is a growing term and is quickly growing interest, especially in the younger generation of investors. Some of the things ESG funds focus on when evaluating a company's sustainability is the following;
Environmentally a number of categories might be reviewed such as the company's carbon footprint, water disposal, climate change policies, energy consumption and recycling efforts, etc.
Socially a company will be reviewed in regards to how it addresses issues with its employees, suppliers and customers etc. This will be looking at compensation, benefits, training, consumer protection, ethical supply chain and safety precautions to list a few.
Governance wise it will look at the ethics of the business, the management and business independence. This will look at the history of the company's legal issues, shareholder voting rights, addressing conflict of interest, and other ethical business practices.
What is SRI?
SRI stands for Socially Responsible Investing and is another term to note ‘green’, ethical and sustainable developments. Like ESGs it looks to create a financial return but also environmental and social good, creating a positive change. This again has a rigorous investment standard to identify those companies that can meet this criteria but still give a competitive return. The goal is about making a positive social impact, so again better than your generic stocks that could drastically harm our planet and in the long run does not benefit society.
I have chosen to passively invest into index funds as they are a collective of stocks/companies that overall reduce your risk by spreading your investment. There are also many to choose from including ones that are ESGs and SRIs. To do this I have used Vanguard as it appears to be a well known investment platform and they offer a number of funds that meet my criteria. I am then going to invest in several of them using pound cost averaging (dollar cost averaging, etc.) This is when you invest regularly (drip feeding) into your investment. I am using this strategy as I do not have a large sum of money and it allows me to slowly build up my portfolio over time. Also, as it is nearly impossible to accurately time the market it allows me to continue to buy across multiple years giving me an average purchasing price. As the market typically heads upwards this will hopefully show a positive that outperforms inflation. My strategy is long term to either boost my pension, allow me to retire early, and possibly even create generational wealth for my family, so we are talking 20-40 years. It is a patience game but one that I believe will work out.
Well, I hope to do some more posts about eco-friendly, sustainable and green finances, so you can make your own decision about what to do with your money. I also intend to continue updating on my financial achievements and goals to hold myself accountable and hopefully prove it can be a viable option to grow your wealth, while caring for the planet. I want to look into more areas of my finances including the banks I use, the pensions I have and potential other investments I might undertake. My goal in all of this is to highlight the potential way to grow your wealth, while not backing companies that destroy the planet. This post is to show one of the ways I have begun investing consciously based on my own research. However, I would love to hear the companies or industries you have backed or believe are worthy of investing taking ethics, sustainability and society into account.