Sustainable investing does not have to be complicated: funds, equities, and robo-advisors make it simple.
Investing in a greener world and a more egalitarian society seems terrific on paper, but what does it actually mean? Adding sustainable assets to your portfolio used to be complicated: fees were high, funds were few, and 401(k)s did not provide them. Fees have now been reduced, and there are more cost-effective options available.
Sustainable investing definition
Sustainable investing generally means investing in companies that have positive and tangible effects on society and the environment while reducing the impact of climate change. These investments are also referred to as socially responsible investing, impact investing or ESG investing. While many sustainable investments are specifically named, many others will fit under this category, but without the label. Some examples of the more commonly used sustainable investments are:
- Clean energy
- Renewable energy
- Solar
- Wind
- Hydro-power
- Biomass (materials made from living things)
- Geothermal (energy from the earth)
- Natural gas
- Sustainable food production
- Sustainable forestry
- Sustainable water management
Best Sustainable Investments
Given how slowly the wheels of law and bureaucracy spin, it may be some time before sustainable investments are commonly offered through corporate retirement plans. If you want to get started with sustainable investment right away, here are some options.
ESG Funds
ESG funds invest in companies that exhibit good corporate citizenship by addressing specific social or environmental issues meaningful and sustainable. Many funds use the MSCI ESG criteria as a guide to identifying companies that are doing the most to improve their social and environmental performance.
ESG funds tend to be more expensive than traditional mutual funds, but that may be a good trade-off for investors who want to feel good about where their money is going.
Robo Advisors
If a hands-off investment approach is more your style, there are a growing number of robo-advisor options that offer a healthy dose of sustainable investing options. They’ll include an array of sustainable mutual funds in your portfolio if you want to add a bit of green to your portfolio.
Sustainable Stocks
Individual stocks are often riskier than mutual funds because they lack the diversification of holding many firms, but they do provide you complete discretion over the companies you invest in. If you’re interested in green energy, you might look for renewable energy stocks or invest in firms with a diverse board of directors.
When contemplating adding a company to your portfolio, you need to evaluate more than simply its performance. Consider what the firm does or produces and how it may affect the environment and local populations. Look up their ESG score and employee ratings on a third-party site like Glassdoor.
Conclusion
Sustainable investing is no longer an afterthought for investors, and as the industry grows, it will become easier to get involved. Firms are responding by offering more sustainable investing options, and more robo-advisor and mutual fund firms have added them to their portfolios.
If you are looking for the best sustainable investment tips on the Gold Coast, look no further than our expertise here at New Wave Financial Planning. We are a financial advisory firm specialising in budgeting and cash flow, superannuation advice, building wealth, amongst other things. Call us today and let us discuss all your financial options.
