Blog Investing What is sustainable investing and why should you care?

What is sustainable investing and why should you care?

date April 13, 2021 time 7 min read 197 views

Open the pages of any magazine, newspaper or website and you’re bound to find the word ‘sustainable’ somewhere in the text. But what does the word actually mean? Particularly in the context of ‘sustainable investing’? 

In this episode of Alternative Investing, we discuss what sustainable investing is, why you should care, and the measures you can take to invest sustainably. 

Please use the Spotify link below, or if you haven’t got time, check out the transcript.

You can also listen on Apple Podcast, Deezer, Spreaker and Podcast Addict

Remember: All investing involves risk. The content of the podcast is for informational purposes only and is not investment advice. Please always use caution and diversify.

CHRIS:

Hello and welcome to the 10th episode of Alternative Investing with MyConstant. I’m Chris Roper, Head of Communications at MyConstant, and with me today is…

TREVOR:

I’m Trevor Kraus, Content Manager at MyConstant. 

CHRIS:

As everyone knows, Peter has moved on to pastures new. And today we’re going to talk about what I think is an increasingly important investment topic, and that is — sustainable investing. So why don’t we start by defining what it is. Trevor, how would you define sustainable investing?

TREVOR: 

I would say that it’s taking a look at companies and looking at how they’re impacting the environment. How they’re impacting society at large. And making a choice whether to invest or do business with them. 

CHRIS:

I think there are many terms for this sustainable investing. Ethical or socially conscious investing. ESG is an abbreviations that’s used often. It stands for environmental, social, and governance. So those are the three areas which sustainable investing covers.

You might think of investing in businesses that have low carbon emissions. Or maybe they have excellent employee conditions. Maybe they protect data and privacy, care about health and safety. The list goes on. 

So, now you know what sustainable investing is. Who is doing it? Let’s have a little chat about that Trevor. Who invests like this? 

TREVOR:

What kind of people do you mean? 

CHRIS:

Yea. I found a survey from RBC Global Asset Management and it said that the countries that are investing the most in sustainable companies are Europe: 94%. Canada: 89% and 72% of investors in Asia take sustainable investing into account when making investment decisions. Guess who the laggard is — who came in last?

TREVOR:

China or the United States.

CHRIS:

You’re right. In the US, only 65% consider sustainability in decision making. Does that surprise you Trevor?

TREVOR:

No, it doesn’t. We’ve seen for a long time that European countries — Scandinavia for example — put a higher value on the environment and having gender representation in their companies. So it’s not all that surprising to me.

CHRIS:

It didn’t surprise me either. It does seem to be in the news a lot for environmental issues. I thought this was interesting because I’ve been reading about US superfund sites, there are 1,300 in the US. Areas where the government has set up a fund to reverse the effects of environmental contamination. As I said there are 1,300 sites like this.

It does seem there are many companies that aren’t doing what they should be doing and of course there are other companies that are trailing in labor, corporate governance and so on.

Trevor, why should you invest sustainably? We know there’s an ethical imperative in some respects, but what else?

TREVOR: 

Investing sustainably is good for the world around us. To make sure that companies are treating people fairly and compensated for the work they do. Have clean water to drink and we don’t have to compromise the environment for products and humanity.  

CHRIS:

Like the drinking water in Flint, Michigan. Did they ever fix the problem there?

TREVOR:

I’m not sure — it was big news 5 or 6 years ago. But as with many stories in the media, it’s splashed in the news and then it teeters off. 

CHRIS:

Sustainable investing helps protect your freedoms the environment, human rights, ecological diversity. We’re losing species at crazy high rates. And this type of investing helps protect you against climate change as well. 

You can work with companies that fight climate change or limit their carbon footprint. And that helps protect against the negative effects of climate change.

That aside can you, as an investor, get good returns?

TREVOR:

Yes you can. In fact, sustainable investing has been surging, just last year it made up 33% of assets under management. 

CHRIS:

Yes, that’s impressive. I came across a study from Morgan Stanley and they found that ‘no financial trade off in the terms of sustainable funds compared to traditional funds.’  They also found strong statistical evidence that sustainable funds are more stable. So they’re not as volatile as traditional ETFs.

Why not invest sustainably? But it’s not something people think a lot of. But it’s not something I actively considered before. 

TREVOR:

You’re right. There’s a buzz phrase in the US and probably in the UK too and it’s called ‘slacktivism.’ They say they’re going to be socially conscious or invest sustainably that have good ethical practices and they don’t actually put their money where their mouth is. 

CHRIS:

Having said that, I have taken more of a focus on renewables on my portfolio. Again, that’s a small part of what you can do with sustainable investing that we’ll cover in a short while. 

If you’re wondering how you can figure out which companies are sustainable and which ones are not, well, you’re in luck, MSCI — they’re an ESG ratings company — they give companies ratings from triple A to triple C. 

TREVOR:

Do you have to pay for this service? 

CHRIS:

No. You can go in a type in the ticker or the name of the company and get their rating. They look at environment, governance, innovation, labor practices, and customer privacy. But I thought it might be quite fun if I give you some company names and we’ll see if you can guess what their rating is. 

Let’s start with an easy one: Orsetd.

TREVOR:

I don’t even know what Orsted is. 

CHRIS:

Orsted is a global leader in wind generations. A utilities company. 

Trevor:

Double A.

CHRIS:

Actually it’s triple A. They get high marks. 

What about Facebook?

TREVOR:

I think a long time ago Facebook would have been highly rated, but now they’ve had scandal after scandal, so I’m going to say a B. 

CHRIS:

You’re absolutely right. They were actually downgraded. But their corporate behavior, antitrust, and privacy made them score lower.  

Let’s try another one. What about Tesla?

TREVOR:

I think they’d be a double B. 

CHRIS:

Actually, they have an A rating. They’re lagging behind in labor management. 

TREVOR: 

I read a story about that recently. 

CHRIS:

Let’s do another one. How about Google?

TREVOR:

Triple C.

CHRIS:

Actually, they scored a triple B. They scored high in the environmental sector but didn’t do well with corporate behavior governance. 

If you get a moment, go online and check your favorite stock and see what comes up.

Now it’s not just companies like MSCI that do ratings, I don’t know if you’ve heard of State Street Global Advisors Trevor. Basically, it’s the company that created the first ETF and it’s the largest fund managers in the world and they’re really behind the ESG movement and they use their own internal rating system called the R factor.

State Street manages over 3 trillion dollars worth of assets so they know their stuff and they have quite a lot of financial influence, but they’ve done a lot to promote gender diversity and climate change.  

Their internal rating system helps them decide what companies they’ll invest their clients funds in. But also, they can use board voting rites and influence to enact change on the poorer performing companies.

At the end of the day, if we don’t take these factors into consideration it will affect our world long term. 

TREVOR:

People’s safety. 

CHRIS:

That’s right. People’s working rights. So if we don’t take action, then the world won’t be a great place to live. It’s great that you can invest and do so while still making the world a better place. 

Does this mean you never invest in companies that do bad things?

TREVOR:

It’s difficult to know.  Because maybe you don’t want to invest in a company like Philip Morris because they sell cigarettes, but you don’t know companies that work directly or indirectly with them. 

CHRIS:

Some people’s approach is to screen and cut and cut out things that are not good for society. So yea, if you have a company that’s involved in tobacco, firearms, oil, coal etc. Some of these you might decide aren’t going to help society or the environment. 

However, the world isn’t that simple. Nowadays the companies you invest in are so big that there’s often overlap. 

Sometimes that screen and cut strategy doesn’t always work. Instead, invest in an ETF where the work is already done for you. 

TREVOR:

I think it’s good too that people have a realistic mindset to pick a few things that you don’t want to invest in or support. 

CHRIS:

It’s great to invest in companies with great ratings too. 

Now, for an important question, because I know many of our investors are interested in cryptocurrencies, how does sustainable investing effect cryptocurrencies knowing what we know about Bitcoin. And how it’s a massive drain on electricity. 

Is there a way you can invest sustainably with a cryptocurrency?

TREVOR:

I mean, we know to mine Bitcoin it takes lots of energy, but if you have companies that are using their Bitcoin earnings ethically, in order to offset environmental impact they have with something else, that could be positive. 

CHRIS:

We know it uses a lot of electricity but we often don’t know where it comes from. If all the mining is being done in Iceland for example where geothermal energy is being used, you know the energy is renewable. 

But if it’s being mined in China or the US, where the contries are dominated by coal power plants, the carbon emission will be high.

That said, Bitcoin has a lot of other advantages, such as social benefits. If you’re living in a country where you’re experiencing hyperinflation, then Bitcoin is a good place to store value. In Venezuela for example, where there’s been severe hyperinflation, Bitcoin has been a lifeline.

Bitcoin is a proof-of-work cryptocurrency. There’s a network of computers and they all compete to solve a puzzle and earn them a right to add transactions to the Bitcoin blockchain. So it’s a very secure cryptocurrency. 

But I think it’s important to look at all the different factors and not just focus on one thing. If it’s possible take all of these considerations into account before investing in a company.

It’s a complex area and it’s not easy, but sustainable investing has proven that it’s capable of delivering returns that non-sustainable investing is capable of. 

Anything else you want to discuss Trevor?

TREVOR:

No, I think that covered everything Chris. 

CHRIS:

Well thanks very much for downloading or streaming this episode. I appreciate it. We’re still early days with this podcast but were doing our best to give you useful information to introduce you to alternative investing ideas. 

Happy investing and take care. 

TREVOR:

Bye guys. 

Share this article

Trevor Kraus

Trevor Kraus

Gift card
1 1 vote
Article Rating
guest
0 Comments
Inline Feedbacks
View all comments

Related Articles