Sustainable investing is making an impact with your money. Who doesn’t want that? But what exactly is SRI? Very interesting question, and also a tricky one because SRI is still hugely in its infancy. Especially for you, who also want to know more about SRI, this article!
What is sustainable investing?
Of course, sustainable is a broad and rather subjective concept. It could be so much. Supporting a company through crowdfunding that creates jobs in Third World countries. Or a company that produces wind turbines. Moreover, it is difficult to measure how sustainable companies are, or when sustainable is actually sustainable enough. A good indicator is the ESG policy. This stands for Environment, Social and Governance. So how does a company score in these areas and how does it treat planet, people and animals, and how is the company managed. The somewhat more measurable aspects of sustainability such as carbon emissions are easier to assess than how a company treats its employees. It may also be the case that a company scores high on one aspect – such as environment – but less on another – such as social.
I think it’s wise to ask yourself why you want to invest sustainably. Why is this important to you? Maybe you want to do something good for our planet. Then, in addition to investing, making your home more sustainable is also a great way to do your part. So many wishes, so many ways.
However, sustainable investing is different from green investing. Very briefly, often SRI is currently still a matter of “checking boxes” on the ESG points. For example, a company like Facebook and Exxon are common in sustainable funds, but you are less likely to find them in, say, green funds. Green funds invest in companies active in building wind farms or alternative energy, for example. The disadvantage of land funds may be that the return is somewhat lower on average. However, you do get tax benefits if you invest in green funds.
Advantage of sustainable or green investing
Well it so happens that our government wants to reward people who invest in “green” products. If you invest (part of your) freely disposable assets sustainably, you qualify for exemption from capital gains tax. If you have more than €30,000 in savings, it is interesting to look into this. Of course, there are ifs and buts to this, so we’d like to refer you to this page that discusses this in more detail. A little further on in this article, we list some green funds you can invest in.
Green Funds
Green funds are special funds where you can put your money and the party – usually big banks such as ING, Rabo, ABN, ASN and Triodos – invests your money in sustainable projects. These are almost always projects that contribute to solutions for conservation and improvement of climate, environment and nature. Consider projects involving sustainable construction or renewable energy development. The problem right now with green funds is that they do not admit new investors. Because any money that becomes available in a green fund must be invested sustainably, and that requires permits, and that is not a matter of an hour’s work.
Sustainable individual companies
You can also buy shares of individual companies that are pushing hard for sustainability and score well on ESG policies. For this you will have to do a good fundamental analysis and follow the news closely to know what are the developments of companies.
For example, you have publicly traded companies that are leading with solutions implementation for a clean energy future. In terms of Dutch companies, you have AkzoNobel, Arcadis, Signify, Philips and KPN scoring well. But investing in individual stocks is riskier than investing in ETFs.
Sustainable ETFs
This is a tricky one altogether, because ETFs, or index funds, track an index in which several – often many – companies are represented. The more companies in an index, the better the spread and the lower the risk of losing money. But: the higher the risk that among these are companies that may not meet what you consider sustainable. There are index funds that claim to be sustainable, but this is often difficult to verify. In addition, you have more ETFs that are, or claim to be, sustainable, and based on criteria you should be able to assume that they are, but it is never 100% foolproof. Consider:
UBS ETF MSCI World Socially Responsible UCITS ETF
iShares MSCI World SRI UCITS ETF
Xtrackers ESG MSCI World UCITS ETF
Amundi Index MSCI World SRI – UCITS ETF
Crowdfunding
One way to invest sustainably is through crowdfunding projects that support sustainable initiatives. Through Lendahand you can support projects for small amounts and earn money from it. So win win situation.
Conclusion
Sustainability is a label given to companies that meet a list drawn up by NATO. And Exxon, for example, is labeled “sustainable,” while their core business is “oil,” not so sustainable for the planet. But sub activities they have in the social sphere are considered so sustainable by NATO that they have been given the label.
We believe that SRI is still in its infancy and that over time more and more labels and transparency will emerge to make this easier. For now, you can do your part by investing in ESG ETFs, choosing a green fund or supporting sustainable initiatives through crowdfunding, for example.
And you, do you invest sustainably or green? What is your take on this?
