What is sustainable investing?

Sustainable investing prioritises funding companies that consider their long-term impact on people and the environment. These companies might operate within the clean energy or social sectors, for example, and make decisions that prioritise future gains over short-term profits.

Types of sustainable investing

More companies are moving towards sustainability, although each is transitioning at its own pace. Here are three types of sustainable business practises:

  • Transitioning
    over the long-term towards sustainability. Developing plans to phase out fossil fuel usage, or introduce more renewable business practises.

  • Aligned
    to sustainability commitments, like The Paris Agreement. Creating policies that support climate action and each year getting nearer to net zero.

  • Impact
    made by only acting sustainably. Building a business model that isn’t dependent on damaging the environment to be profitable.

From increasing consumer interest in environmental issues there are more sustainable investment funds to choose from - including sustainably invested pensions.

Consumer demand led to PensionBee’s Fossil Fuel Free Plan: only investing in companies that are aligned with the Paris Agreement goals, it excludes the fossil fuel and tobacco sectors.

Measuring sustainability

While the market for sustainable investment products has grown substantially, each can differ in their investment selection criteria and ambitions.

All sustainable investments aim to make positive investor returns while benefiting people and the planet. There are three approaches to measure this:

Socially responsible investing (SRI)

  • Social outcomes

Sustainable investing

  • Social outcomes
  • Environmental outcomes

Environmental, social & governance investing (ESG)

  • Social outcomes
  • Environmental outcomes
  • Governance principles

Examples of sustainable investing

Companies can positively impact society and the environment in two key ways; the way they conduct their existing business, and the product or service they provide. Investors may choose to put money into companies that meet one or both of these requirements.

The way companies conduct their business

Companies of all sectors may choose to run their business in the following ways, for example:

Social practices

  • Providing high employee welfare standards
  • Providing high consumer protection standards
  • Having adequate board/senior-executive race and gender diversity
  • Working with ethical supply chain partners (eg. factories that provide fair working conditions)

Environmental practices

  • Reducing or eliminating greenhouse gas emissions
  • Disposing of waste in non-environmentally damaging ways
  • Producing recyclable products
  • Incorporating circular water systems in production processes
  • Replacing petrol/diesel vehicle fleets with electric ones

The product or service they provide

Some companies may be considered sustainable investments due to the nature of the service or product they provide, for example:

Social sectors

  • Low-cost computer suppliers to developing countries
  • Educational institutions
  • Accessible finance providers
  • Healthcare services

Environmental sectors

  • Wind and solar farm developers
  • Sustainable packaging manufacturers
  • Organic food producers

Sustainable investment pensions

As social and environmental causes have become a growing concern for people across the world in recent years, pension providers have started to offer plans that cater for their needs. So it’s now possible to save for your retirement while contributing towards positive social and environmental change.

PensionBee offers our customers a sustainable pension plan that fits this requirement:

  • Fossil Fuel Free Plan: Excludes the fossil fuel and tobacco sectors while only investing your money in companies aligned with the Paris Agreement goals.

For more information, read: ESG investing and its impact on pensions.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 05-01-2022

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