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A guide to sustainable investing

*This article is not financial advice. Please do your own research before investing and remember your capital is at risk when investing*

In the ever-evolving world of finance, sustainable investing is emerging as a new arena for your money. It has the potential for financial growth and means you can align your investments with your ethical, social, and environmental values. Sustainable investing can be a good solution if you are looking to make a positive impact on the world and your wallet. Let’s explore the concept of sustainable investing!

Sustainable investing, also known as socially responsible investing or ESG (Environmental, Social, and Governance) investing, has gained significant momentum in recent years. In the UK and globally, investors are increasingly prioritising companies that adhere to ethical and sustainable practices.

Let’s say you want your investments to reflect your values. The first way to start is by researching companies committed to sustainability and ethical practices. Even if you don’t end up investing in those companies, it's great to know the companies you admire or purchase from follow ethical practices.

There are two key types of sustainable investing to know about:

1. Ethical investing

Ethical investing is when you apply a set of your personal values or beliefs to determine what you will or will not invest in. For example, if you are extremely passionate about human rights and slave labour, and decide to invest ethically, you will be less inclined to invest in fast fashion companies that pay women and children pennies to sew clothes in awful working conditions.

2. Impact investing

Impact investing looks at the social and/or environmental impact that companies are creating. Impactful investing may see you pump money into companies trying to solve social and environmental challenges. Impact investing is based on concrete evidence of what companies are doing to make a difference and make a financial return, rather than personal beliefs.

Let’s look at Maria’s investing strategy. Maria, a business owner in London, recognised the impact of organisations using clean energy. So, she chose to invest in renewable energy companies whose ESG scores indicated a strong commitment to reducing carbon emissions. As the clean energy industry grew, Maria's investments not only performed well but also contributed to a more sustainable future.

So, how do you get started in sustainable investing?

Like most things at Fempire Finance, we start small. Taking the steps to research more about impact investing and then getting started at a pace that works for you, is often the best way to learn. Our quick guide to impact investing follows these five steps:

1 . Understand what impact you want to make.

What issues do you care about? Now more than ever, there are so many companies out there doing good things. But, it’s important to be specific. Do you want to free the dolphins? Promote green energy in your area? Stop modern slavery taking place in the U.K.? Find the companies that are actively fighting for your cause and invest in the ones that are promoting sustainable business practices that align with you.

2. Learn more about impact investing.

Knowledge is power when it comes to investing. Check out these links for some of the best resources on impact investing.

  • IRIS: Have you always wondered what is acceptable with impact investing? IRIS+ is the GIIN's catalogue of generally accepted performance metrics.

  • Training Program: Looking to get more clued up on impact investing? The GIIN offers specialised impact investment training to investors.

  • GIIN Membership: Gain access to a leading network of like-minded investors and organisations interested in deepening their engagement with the impact investing market.

  • Research: The Research Center collates all the latest information about market activities and trends, performance, practice, and more.

3. Will you go at it alone or get help with impact investing?

Depending on your investment experience, risk levels and confidence, you can choose your own investments yourself or use a service that chooses and manages your investments. Many of the investment platforms have portfolios that can help you on your journey of impact investing. Check them out here: robo-advisors with socially responsible portfolios

4. Choose what you will invest in.

There are so many options available for impact investing. Here are some of the options:

  • Mutual funds that score highly when looking at the environment, social and governance factors.

When considering mutual funds, you’ll want to pay close attention to the companies within the fund - do your research and check if they are as ‘ethically clean’ as they say they are. It’s also important to check out the fund’s expense ratio, as this will determine how much of your investment will go to the running costs of the fund and thus, how much money you will make. Expense ratios are the annual fees a mutual fund takes. For example, if you invest £1000 in a mutual fund with a 1% annual expense ratio, you’ll pay £10 a year. Ensure the fund expense ratio still makes the investment worthwhile.

  • Individual stocks in a particular company.

If you have a strong belief and passion for a company that you believe is doing good for the world and doing well financially, then support it. It’s a lot easier to check the social consciousness of individual companies compared to mutual funds. Check a company's sustainability report to see how they measure their impact and what they’ve actually done. To invest in individual stocks, platforms like Freetrade and Trading212 are available. Check out our comparison of the major investing platforms in our ebook ‘Get FETCH in a fortnight’. Wherever you choose to make your investment, make sure that it fits into the 4 criteria set out in the Core Characteristics of Impact Investing.

5. Increase your impact

If you decide to purchase individual stocks, you may have the option to vote on the policies of the company and change business practices for the better, this is through something called ‘shareholder voting rights’. As a shareholder, you can use your voice through your 'proxy' ballot which usually takes place just before a company’s annual general meeting. Do you currently invest in individual company shares but haven’t had the opportunity to vote? Check if you are eligible by contacting the company’s investor relations department or through a financial advisor.

If you do not invest in individual stocks, you can make a huge difference by lobbying a.k.a doing as much as you can to let the company know that you want them to take social and environmental concerns seriously. How can you do this? Sign petitions, demand time with the senior leadership of companies, request their impact reports, encourage them to do more and even refuse to shop with them - your small actions can go a long way.

As the world continues to focus on sustainability and responsible business practices, sustainable investing is poised to play an increasingly vital role in shaping a better future for all. Sustainable investing is not just a financial strategy; it's a powerful way to make a positive impact on the world while securing your financial future.

Fempire Finance

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