Australia is a trailblazer in the world of sustainable investing. Only recently, one survey found two-thirds of Australians said they’d consider investing in ethical companies or funds.
Based on environmental, social and governance (ESG) considerations, this area of financial planning is becoming ever popular.
So, how does sustainable investing work? Read on as we drill down into its importance and show you how you can join a growing club of like-minded sustainable investors.
What Is Sustainable Investing?
Sustainable investing is all about balance. It looks at long-term value based on financial factors and appropriate non-financial factors. We refer to the latter as ESG factors. These relate to the three principal ways a company runs its business. They are:
- (E) Environmental: e.g. a company’s carbon footprint and energy efficiency
- (S) Social: e.g. social policy and employee welfare
- (G) Governance: e.g. compliance with the highest managerial standards
The goal is, of course, to generate long-term financial returns. But it’s also about contributing to positive environmental and social outcomes at the same time. The hope is for greater transparency, more stakeholder engagement and active ownership.
Socially Responsible Investing and Impact Investing
Socially Responsible Investing (SRI) and Impact Investing are arguably subsections or cousins within a sustainable investment umbrella group.
SRI involves weeding out companies that don’t align with certain ethical values. It differs from Impact investing. This aims to create a measurable environmental or social impact as well as financial returns.
There are other niche sustainable investing types that we’ll discuss later in this article.
Although it dates back centuries, modern sustainable investing grew in popularity in the 1960s. At the time, social and environmental awareness was growing fast. ESG factors then became even more prominent during the early 2000s. Investors started seeing the positive impact they could have on financial performance and long-term value creation.
An Overview of ESG Factors and Their Core Principles
Big international organisations have taken the lead in the promotion of sustainable investing. They include:
- The United Nations
- The European Union
- The US Securities and Exchange Commission
Together, they’ve brought in a variety of financial planning initiatives. These have boosted the amalgamation of ESG factors into investment processes. These factors are vital for sustainable investing. That’s because they can help pinpoint possible risks and opportunities that traditional financial analysis might fail to identify.
Taking ESG factors into account can bring about:
- Improved risk management
- More informed investment decisions
- Better long-term financial performance
There is no longer a need to feel that the destiny of investments based on sustainability will inevitably be worse than those that are not. In fact, the opposite can be true.
Strategic Investing with a Conscience
The core principles of ESG may align with your own financial planning goals and aspirations. These could include:
- Caring for the environment
- Concern over climate change
- Reducing pollution
You may also share a strong desire for diversity and equality in the workplace. And you may have concerns about big bonuses for company bosses and the rights of shareholders.
In a sense, sustainable investing can, therefore, quite literally mean “putting your money where your mouth is.” It’s socially responsible investing with an environmental and social conscience. This combination also includes consideration for equality and justice.
The Importance of Sustainable Investing
More and more people now understand the relevance of sustainable investing. A greater awareness of the big global challenges has driven this. It’s led to a whole raft of new, nuanced investment types.
Sustainable investing has, for example, become far more about positive screening. That means identifying companies that are in a good position to reap the rewards of emerging sustainability trends. They’ll then also have a positive impact on society and there can be other targeted types of sustainable investing too.
Other Sustainable Investment Approaches
Best-in-class selection, for example, shifts the focus to investments in companies with better ESG performance within their unique industries. Thematic investing concentrates on certain sectors tied up with sustainability. These include sustainable agriculture, renewable energy and clean technology.
These approaches actually help mitigate risk. They allow investors to access growth opportunities stemming from global sustainability challenges. Rather than dampening financial performance, sustainable investing can enhance returns by addressing some of the most pressing global challenges.
How to Get Started With Sustainable Investing
PAC Financial has a dedicated team of advisors and specialists. They have vast experience in ethical and sustainable investment strategies. They’re there to offer guidance tailored to your bespoke needs. Book a free consultation today with a Launceston Financial Planner or one of our Financial Planners in Brisbane and Geelong.
The best way to begin your sustainable investing journey is to set out your own:
- Personal values
- Ethical principles
- Financial goals
PAC Financial can help you do this with a self-assessment plan. Its purpose is to help you work out what matters most to you. A Launceston Financial Planner or a planner in any of our other offices can then help you align your investments with your core values.
Building a Sustainable Investment Portfolio
PAC Financial will work with you to develop a sustainable investment strategy. Together, we’ll create a diverse and balanced sustainable investment portfolio. We can provide insights into asset allocation, investment options, and risk management techniques.
We take a two-pronged approach. This ensures your portfolio reflects your values. At the same time, it works hard to meet your individual financial objectives.
Sustainable Planning the PAC Financial Way
If you want to invest in a way that matches your core principles, we want to hear from you. A member of our financial planning team will work with you to create a portfolio focused on sustainable investing.
Talk to a Launceston Financial Planner or one of our Financial Planners in Queensland or Victoria. We’ll ensure your investments are the perfect match for your credentials.