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How to invest in the things you believe in

You just need to figure out which approach best suits your financial and sustainability goals.
Image: Shutterstock

Covid-19 may have caused a short-term return to single-use plastic but according to our Schroders Sustainability experts, this is just a short-term blip and the world needs to urgently ramp up disclosure, ambition and action.

So, as part of my effort to live more sustainably, I’ve been looking into the various sustainable investing strategies out there.

Believe me, there are a lot of them and it’s not always easy to immediately distinguish the differences between them. Luckily for you, I’ve done the research. And it turns out that “sustainable investing” is really a broad umbrella term that covers a variety of approaches.

You just need to figure out which approach best suits your financial and sustainability goals. Now I can’t tell you which one to choose, but I can run you through some of the main strategies out there.

ESG (environmental, social and governance) integration:

ESG integration is a general approach to investing that incorporates environmental, social and governance (ESG) considerations alongside traditional financial analysis.

  • Broadly speaking, environmental factors include issues such as climate change, deforestation, biodiversity and waste management.
  • Social factors include issues such as labour standards, nutrition and health and safety.
  • Governance includes issues such as company strategy, remuneration policies and board independence or diversity.

ESG integration is about understanding the most significant ESG factors that an investment is exposed to, and making sure that you’re compensated for any associated risk.

Sustainable investing:

Although sustainable investing involves ESG integration, it takes things further by focusing on the most sustainable companies that lead their sector when it comes to ESG practices.

Both the ESG integration and sustainable investing approaches are about engaging with company management to make sure the firm is being run in the best possible way. This can mean challenging a company on its sustainability practices to encourage improvements where necessary.

Screened investing:

Screening is when you decide to invest, or not to invest, based on specific criteria.

Let’s say you only want to invest in companies that promote workplace diversity. Your criteria might be substantial representation of women and minorities in management-level positions, and/or the existence of diversity and inclusion policies.

You (or your fund manager) will use these factors to deliberately exclude investments that don’t meet these criteria (negative screening). Or they might purposefully include those that do (positive screening).

Ethical investing:

Ethical investing is an example of where screening is commonly used. Investors screen out investments that they deem unethical because they don’t fit in with their ethics or values (it’s also called values-based investing).

People commonly exclude so-called “sin stocks” such as alcohol, gambling, weapon manufacturing, tobacco or adult entertainment companies because they view these activities as immoral.

Impact investing:

Impact investing is about putting your money to work in a way that has a specific, measurable and positive benefit to society or the environment.

This isn’t to be confused with a charitable donation though. You also want to generate a return on your investment as well as promote social good.

Let’s say you’re passionate about education in rural communities. You can put your money into a fund that invests in companies or projects that are working towards delivering quality education in rural communities around the world. Or you can invest directly in these companies or projects yourself.

Impact investing is more common in private markets (i.e. not the stock market). Recipients tend to be small companies with clear social goals that otherwise may not have access to capital.

Thematic investing:

Yup, you guessed it. This is about investing according to your chosen investment theme. Maybe your theme is “health and wellness”. In this case you’ll only want to consider funds that invest in healthy food brands or those companies focused on developing new vaccines.

Or perhaps your theme is “green investing”. If so, you’ll only invest in companies and technologies that are considered good for the environment (alternative energy generators or energy-saving technology manufacturers, for example).

The above is hardly an exhaustive list of the sustainable strategies available out there. But it should serve as a good starting point to help you understand the differences between some of the common approaches.

Ebeth Van Heerden, advisory business development manager at Schroders.

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I missed the words ‘profit’ and ‘growth’. But then again I do not know much about investing and things like that.

Spot on – no mention of the merit of the investment, return on investment or any economic business model analysis. However, if the prospectus fits into your Utopian wish list, there are no shortage of snake oil salesmen out there that will sell you dozens. 1 in 100 will work.

To my knowledge sitting in a circle holding hands, singing Kumbaya does not yield profits, nor require business acumen.

All this does is separate companies into “ethical” and “non ethical” and the spectrum in between. Remember morality is relative- activists have issues with different things. Someone may have an issue with investment in armaments but not beer brewing. The vegan may divest from the meat packaging factory but be okay with the casino. One must remember that the underlying purpose of these campaigns is to deprive the least- loved sectors of the investment community of capital. Or at least, make capital expensive and the business unprofitable. Tracey was banging on last week about Standard Bank and fossil fuels using the disingenuous argument about directors conflicts of interests. Swap fossil fuels for solar panels and you would be hearing crickets from Tracey. The net result of these campaigns will be the more expensive capital cost for coal, oil, casinos, alcohol, armaments and tobacco which is what the loony left desires. What the bunny huggers (Lenin’s useful idiots) don’t realise is that pouring money into what they deem ethical simply drives down their own returns. The contrary investments in the untouchables have a better return.

The author of this article struggles to distinguish between a charitable donation and an investment. With one you want to get rid of your capital, with the other you want to earn an income and build capital. If we believe that we have to put food on the table, then we invest for profit only. The daily fight for survival forces us to focus on financial returns and the leave the social issues to those irrelevant leftists who do not own capital anyway.

Only extremely obese individuals can afford to invest in social projects.

This is a new marketing gimmick by the asset gathering community.

Any investment professional who has been through market cycles or comes from “money” knows what is right and wrong in the business place. Most investment professionals in SA are neither, and so follow the index or don’t ask the right questions, and so have been IRRESPONSIBLE investors until this latest fad.

One should never forget that investors in ESG are not only interested in the financial outcomes of investments – period and for whatever reason (mostly the Millennials).

My financial market days taught me the most important factor that can be applied to any type of investment – Yield is King! These ESG investors look at things like “extra-financial” variables or factors. I just cannot do that – buy low and sell high – that is what matters!

I believe in the narrative that ‘’buying the dip’’ will make you money – the market is driven by sentiment and this narrative saw the markets recover in 2008. V-shaped recovery has come to dominate the memories of most investors during most market crashes during the last two decades. Markets all over the world were saved by most central banks.

Right now I believe in going for Yield – the 10 year SA Long Bond yields between 10 and 11 %, compared to almost Zero elsewhere in the world! The US and UK 10 year Bonds trade between 1 and 2 % and 1 and 4 % respectively (when you deal offshore – you become the owner of 100 % exchange rate risk between investing and repatriating your funds – and on the Rand, anything can happen, and it usually does!

End of comments.

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