Investing sustainably

If you’ve started becoming increasingly worried about the number of industries that are wreaking havoc on the environment, file in and join the line. As greater numbers of people begin noticing the damage that some parts of the business market are doing to the world, one phrase keeps coming up: sustainable investing.

The issue has always been an underlying concern with many people but in the last few years it seems to have taken on greater significance, assisted, perhaps, by the success of films such as Al Gore’s An Inconvenient Truth and the recent debate in Australia on issues such as climate change. People, and particularly business people, are showing a growing appetite for cleaner, greener ways of doing things.

In fact, such is the focus on this issue that the sector is now worth an estimated $2 trillion worldwide, and growing at a phenomenal rate of  43 per cent. It’s also certain to stay in the spotlight in the next 12 months given the government’s plans to introduce a new carbon emission trading scheme.

While the full impact of this on the business world isn’t yet clear, what’s certain is that there’ll be opportunities – and risks – for every business. The scheme is designed to encourage businesses to act smartly to reduce their footprint. And it’s a wise move –  from many angles. You see many analysts are now arguing that it’s those businesses that save energy, don’t pollute the environment and focus on long-term sustainability that will produce better long-term business results – and win more customers.

As investors and consumers, each one of us has an opportunity to support businesses that are changing their ways, acting responsibly and taking advantage of the opportunities that the sustainability debate presents.  So, how do investors ensure they’re getting bang for their buck when it comes to investing responsible?

Make sure your super is sustainable

Many of us don’t even think of ourselves as investors, but with most people having at least some superannuation savings we are all investors to some degree. In fact, Australia’s super system now accounts for about $1.1 trillion,  that’s a lot of money looking for a home. To make your super sustainable, ensure it’s being invested in companies that are sustainable. This might mean that it’s eco-friendly, or simply that it has chosen to cut down on paper impact by reducing the size of its product statements and moving to online communication wherever possible.

Build a sustainable investment portfolio

For investors, applying sustainable principles when choosing stocks means that fund managers understand the issues affecting that company beyond financial performance. Fund managers focusing on sustainability will have considered the health and safety record of an organisation, their approach to codes of conduct, diversity, climate change management and community programs. They’ll also understand the leaders in a sector, and which companies and businesses will be best placed to deal with a brave new world in a carbon-constrained environment. (See the table below) Many fund managers, including BT, AXA Investment Management and Dexia Asset Management, have now signed the United Nations Principles of Responsible Investment, (PRI) providing a framework for how businesses can incorporate environmental, social and management issues into their fund selection.  As an investor, you have the opportunity to shape your portfolio with sustainable investment options that mirror your personal concerns about how we manage the finite resources of our planet.

Top tips on sustainable investing

• Understand your own sustainability issues Would-be sustainable investors shaping their portfolio should start by working out their own view points and issues they consider to be non-negotiable. There are scores of sustainable or ethical funds to choose from, all with slightly different criteria. Some funds screen out businesses involved in tobacco, gaming or animal testing and if you’re an investor with strong views on these, they might prove a good choice for you. But what if you’re an environmentalist? Do you view nuclear energy as a solution to global warming or a disaster for the planet? It’s up to you.
• Do your own research Taking time to understand the ‘sustainable approach’ driving investment decisions and screening processes can help you make good choices. The blurring between ethical, socially responsible and sustainable investment definitions doesn’t make it easy, but there are a few different approaches to how professional fund managers invest sustainably.
• Positive screening Using this approach a fund manager actively looks for companies practicing socially or environmentally friendly activities and builds a portfolio of these stocks.

Tara McKnight is head of corporate responsibility and sustainability at BT Financial Group.