ESG Investing
5 mins
June 3, 2024

Sustainable Investing for Social Investors

Sustainable investing for social investors

At the start of your investing journey, it can be tricky to figure out where to begin. After all, there are so many different types of investments available, each with their own advantages and risks. The very prospect of investing can seem unattainable - but today, it’s easier than ever to get started.

What is sustainable investing?

One option that is gaining popularity among investors is ethical or sustainable investing. At a time when social, environmental, and economic issues are becoming increasingly urgent, sustainable investing has emerged as an important way for people to make positive contributions to the world. This type of investing focuses on sustainable practices that benefit both investors and communities, promoting social and ecological progress through investments in companies that align with social values. It involves taking into account social and environmental factors when making investment decisions, and looking for companies that align with your values and beliefs - so you aren’t just looking to grow your money, but also to make a positive impact in the world while you do so.

Some key considerations when getting started with sustainable investing, as with any form of investing, include researching different investment options, determining your risk tolerance, and developing a long-term investment strategy. We have plenty of resources available on our Learning Hub to help you get started in answering some of those questions. 

So - you know your risk tolerance, and you have a long term investment strategy, now you want to get stuck into figuring out what to actually invest in. With some careful planning and research, you can feel confident about putting your money towards companies that align with your values and support sustainable practices in the world. 

How to identify sustainable investment opportunities? 

Whether you are a beginner investor just starting to explore sustainable investing, or an experienced investor looking for new investment opportunities or to re-prioritise your portfolio to better align with your beliefs, there are many resources available that can help you get started. Sustainable investing can involve higher levels of risk than more conventional forms of investing, as it explores newer technology and companies that may not be as established as their older competitors, so it's important to be comfortable with potential volatility. With NuWealth, you can identify the risk-level of different investment options by how many chillies they have attached to them.

An important consideration when investing sustainably is the social and environmental impact of the underlying assets. Some common approaches include social screening or shareholder activism, which involves choosing investment options based on social or environmental criteria like diversity policies, labour standards, and use of natural resources. 

Negative screening involves excluding companies or industries that violate certain ethical principles, such as those related to human rights, working conditions, arms or tobacco production, or the environment. These funds tend to carry lower returns than more conventional investments as they exclude some otherwise promising companies. For example, a fund may exclude oil and gas producers since these companies often have poor environmental track records. This strategy can help investors avoid supporting unethical activities without foregoing potential gains from these excluded businesses over the long term.

Other types of ethical investment options include impact investing and socially responsible investing (SRI). Impact investing involves putting money into businesses or projects with the primary intention of creating positive social change, while SRI focuses on avoiding investments in industries like tobacco, armaments, or fossil fuels. While these avenues can be very effective at generating positive change, they tend to carry higher fees than more traditional options as they require additional research and analysis on behalf of investors.

So, which ethical investment option is right for you? That depends on your personal values and financial goals. If you're interested in making a positive impact with your investments but don't want to pay a premium for doing so, then impact investing may be the best fit for you. Or, if you would rather prioritise avoiding certain harmful industries over actively seeking out beneficial ones, SRI may be the right choice. Ultimately, it's up to each individual investor to decide which path best aligns with their values and priorities when it comes to ethically investing their money.

The most important thing to keep in mind when getting started with sustainable investing is that there is no one-size-fits-all approach. By taking the time to research different investment options and strategies, you can find an approach that most closely aligns with your social and financial goals. And regardless of which strategy feels right to you - there are many ways in which sustainable investing can make the world a better place. By supporting companies with social or environmental priorities, you can encourage more sustainable business practices and help drive social change. By helping to build a stronger community of social enterprises, these investments can provide access to new opportunities and resources for those who need it most. Ultimately, by prioritising social values over profit alone, sustainable investing has the potential to create a more just, equitable society for everyone.

There are plenty of resources online that you can access for free with a few clicks of a button. Today more than ever, information on investing is accessible and open to all who want to spend the time to learn. Don’t be afraid to diversify your knowledge hubs - Google, YouTube, and Wikipedia, all have a wealth of information available, but remember to exercise caution and use your due diligence when picking your sources. Of course, you can also check out our own Learning Hub to learn more, no matter your investing experience level.

Let’s take a closer look at some terminology to make things a little clearer:

Social investing involves placing your money in companies that have social impact goals, such as supporting social programs like affordable housing or education. This type of investing can be a great way to help promote social change and make the world a better place.

Ethical investing takes this idea one step further, focusing on companies that align with your personal values around things like sustainability and environmental protection. By choosing to invest in companies that are committed to social responsibility and responsible business practices, you can help encourage positive change throughout the economy.

Sustainable investing is primarily focused on environmental goals, looking to increase the use of green energy, decrease the use of fossil fuels and plastic, and overall, benefit the natural environment around us. 

While these terms can be used to describe specific goals, they are also often used interchangeably, and can all fall under the branch of impact/social/ethical/sustainable investing, as they’re all aiming towards the similar goal of improving society or tackling a problem, beyond just trying to make a profit.

So - where to actually start looking for these kinds of investments? 

ESG Exchange-traded funds (ETFs)

There are many different ways to pursue social investing, such as through impact investing funds or socially responsible funds or ESG ETFs. ESG investing is a form of sustainable investing that considers environmental, social and governance factors to judge an investment's financial returns and its overall impact. These funds typically screen their investments based on certain criteria related to social and environmental factors, ensuring that your money is being put toward businesses that align with your values. 

Just in case you haven’t come across the term before, a “fund” is a basket of stocks that are packaged and sold together as one investment, usually within a particular theme. For example, you could get “UK stocks” as a Fund, or “Food companies”, or “Green energy”. At NuWealth, we call these baskets of stocks “Themes”, and they are easily searchable via our app. We make them super easy for beginners to navigate by giving them a clear title and image, so you know exactly what you’re investing in. 

At NuWealth, we have a bunch of sustainable Themes to choose from, including “The Future of Food” that tackles the sustainability of feeding a growing population, “The Electric Car Revolution” which promotes Electric Vehicles in the hopes of battling carbon emissions, “The Green Machine” which focuses on companies producing tech for renewable energy, “Women in Power”, a collection of companies led by women, “The Goodies”, our dedicated environmental, social, and governance fund - and more!

Individual stocks

In addition to funds, you could also invest in individual stocks - these could include companies that have strong labour standards or zero-emissions policies, for example, or even companies that directly manufacture tech that goes towards creating renewable energy, or producing sustainable plant-based meat alternatives. Green bonds also promote environmentally friendly projects by providing loans to support such initiatives. 

While each type of ethical investment option comes with its own set of risks and benefits, it's important to consider your personal goals and risk tolerance before investing - not just the social impact you’re aiming for. For example, green bonds are generally considered to be less risky than other socially responsible investment options, but they typically carry lower returns than more conventional investments. Additionally, some ethical investment funds may exclude certain types of companies altogether, which could mean missing out on potential gains from these companies over the long term.

Ultimately, it's important to do your research and consult with a financial advisor or investment professional before making any decisions about sustainable investments. By choosing an option that aligns with your personal values while also meeting your financial goals, you can help promote positive societal change while earning strong returns in the process.

Whatever sustainable investment approach you choose, it's important to remember that no matter how much research or due diligence you put into choosing an investment vehicle that aligns with your values, there's always a chance that it will perform poorly. This is why diversification of your investments is so critical - the more you diversify, the less risk you face in any particular investment.

Diversifying your portfolio

Diversification means investing in multiple different investment or asset types. Don’t just put all your eggs in one basket so to speak - you want a combination of funds/ETFs, stocks, bonds, and maybe even some commodities such as gold or silver. That way, if one investment performs badly, your overall return is still buffered by your other investments. It may also be wise to invest in companies based in different countries - for example, while the UK might have a down year, and many of your UK stocks might be affected, stocks from Germany might do really well. Diversifying into multiple geographies can help protect you against localised economic downturn, and lower your overall risk. Nevertheless, losses are still always a possibility, and you should always budget carefully, and never invest more than you can afford to lose.

Regardless of which tools or strategies you decide to use to get started with sustainable investing, one thing is clear: as a beginner investor who cares about society, the environment, or making the world a better place, there are plenty of options available to help you align your investments with your values. So take some time to research and explore these options, and start building a portfolio that reflects the kind of world you want to live in. After all, investing can be a powerful way to make a positive impact in the world – and that's something we can all get behind.

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