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As daily conversations in Australia increasingly focus on the environment and global warming, more investors are looking at how they can make a difference by choosing sustainable investing as part of their portfolio mix. But what exactly is sustainable investing?
Sustainable investing, often referred to as ethical investing, can vary depending on personal values and attitudes. It typically covers a range of issues known as ESG standards, which stand for Environment, Social, and Governance criteria. These criteria help investors evaluate the ethical impact and sustainability practices of companies.
Defining Ethical Investments
Most people would agree that cigarette makers or arms manufacturers are not ethical investments due to the devastating consequences of their products. However, determining whether a company like Fortescue Metals is an ethical investment can be more complex. As one of Australia’s largest iron ore producers, it might initially seem to fail the test for most investors. However, the company’s commitment to using hydrogen to power all its ships, trucks, and trains and achieving zero greenhouse emissions by 2040 might make it a viable option for sustainable investing.
In fact, many companies listed on the Australian Stock Exchange (ASX) are attempting to embrace ESG standards to some degree. This includes efforts like recycling more, reducing emissions, or, in the case of Australia’s big banks, considering environmental issues when evaluating new projects. Sustainable investing is gaining momentum, with few companies wanting to be seen as outdated or ignorant of their responsibilities to adopt better, more sustainable operations.
Making Informed Decisions in Sustainable Investing
While all investment decisions require some degree of homework to ensure they are right for your circumstances, you need to do even more if you are committed to sustainable investing. Start by deciding which ethical issues are most important to you and which you are less concerned about. Then, consider how much of your portfolio you will commit to sustainable investments, keeping in mind that these investments may produce lower returns and/or greater risks.
Be aware that some companies may engage in ‘greenwashing,’ making their operations appear more sustainable than they really are. Look for real achievements in areas that match your important sustainable issues. Decide what type of investments best suit your style. There are many individual companies listed on the ASX that may fit your criteria, and an increasing number of managed funds also focus on sustainable investing.
The Benefits of Sustainable Investing
There can be enormous personal satisfaction in knowing that your investment decisions, no matter how small, are contributing to encouraging all businesses to embrace more sustainable initiatives. As technologies improve and progress is made in this area, investment returns are being pushed higher, while risks are diminishing, giving you the best of all worlds as an investor.
Sustainable investing is not just about making a positive impact on the environment and society; it’s also about making smart financial decisions that align with your values. By staying informed and doing your homework, you can ensure that your investments are both ethical and profitable.
In conclusion, sustainable investing is a growing trend that allows investors to make a positive impact while potentially earning returns. By understanding the principles of sustainable investing and carefully selecting investments that align with your values, you can contribute to a more sustainable future while achieving your financial goals. If you have any doubts, seek professional advice from a qualified financial planner to ensure your investments align with your ethical standards and financial objectives.
There’s a fantastic guide from Canstar on ethical investing in Australia and how to get started.
