Hot topic alert, namely: sustainable investing. That SRI is the future I think we can agree on that. And so you would rather support companies that help our world and not “tear it down. So companies that are sustainable businesses.
What is sustainable business again?
Sustainable business is characterized by a balance in attention to factors such as environment (planet), socio-ethical (e.g., human rights) and profit. By this we mean that a company consciously focuses its activities on adding value to people, planet and profit, and continuously seeks a careful balance in this. It is also important to be actively and transparently accountable and have an open dialogue about it. Very briefly; not just taking but giving back to the world so.
How does SRI fit into this picture?
When you invest in a company, you give a piece of trust to this company with your money. You’re basically saying, ‘I think you guys are doing a good job so I support you.’ What you don’t want then is for this company to use your investment to do (undertake) things that are not very good for the future of people, the environment and our planet. You don’t want them to engage in activities that somehow deplete the earth to the point that generations after you have a problem.
And that’s where sustainable investing around the corner. With your investment, you are not putting your trust in companies that are “depleting” our earth and society, but rather helping and supporting them. By investing your pennies in a company that designs their operations to be good for people and the planet, you are investing sustainably.
Cool, I want this too! Tell me how.
Companies that are “sustainable” have a sustainability label, awarded by NATO. You get this label when you meet the ESG model which stands for Environment, Social & Governance. In other words: environment, society and governance. If you score well on this model, you will receive a sustainability label.
So if you want to invest sustainably in these types of companies, this label is “the place to be” to see if the company in question deserves your hard-earned investment pennies. If you have found a number of companies that meet these requirements, then you know that your investment will be sustainable.
It’s not all gold that glitters.
It’s important to note that with this ESG model, you don’t have to score outstanding in all areas. For example, you can score well on social and governance but lousy on environment. You will still receive a sustainability label as a company. And that, of course, distorts reality. Because a company that does a lot with oil, for example, can undertake lots of activities that fall socially & managerially well but we all know that pulling oil out of the ground is not the most sustainable activity.
Corporate social responsibility (CSR)
There is also another label in the SRI front, CSR. Or; Corporate, Sustainability and Responsibility (CSR). As a company in conducting your business, taking responsibility for society, that’s what it comes down to. Companies that conduct their business activities according to a CSR guideline can be said to be sustainable businesses. ‘Dix points’ as far as we are concerned!
So don’t stare blindly at just an ESG label. Delve into the activities of the company you have on your sustainability radar and see to what extent they are engaged in corporate social responsibility. Be critical and invest your money only when you are fully convinced that the investment you are making is also a sustainable one.
Which companies or trackers are sustainable?
If you want to invest sustainably, picking individual companies that meet the labels is a tough job. Easier is to invest in a tracker (ETF) that tracks a sustainable index. For example “UBS ETF MSCI World Socially Responsible UCITS ETF” or “Xtrackers ESG MSCI World UCITS ETF.”
Want a complete list of sustainable trackers? And are you uber keen to know what these abbreviations in these names mean and how to decide if an ETF is the right one in your portfolio? In the Beginning with Investing course, you will find all the information about this. The course is part of the ELFIN membership.
A better world begins with yourself. Sustainable investing too.
