Climate change is a really big topic right now, which isn’t all too surprising, given it is considered humanity’s greatest risk. Conversations around what we should do to resolve the climate crisis are heating up (pun intended!), but the cold and hard truth is: reducing our own carbon footprint by switching to oat milk and vegan sausage simply won’t cut it. Instead, we should to turn our attention to money and how we can utilise it to bring positive change for our planet.
Fortunately, there’s a wide range of sustainable investment options available today and investing money the correct way can lead to 27 times more impact in the reduction of our carbon footprint than becoming vegan and giving up flying combined!
But, as with a lot of things that rocket in popularity, real sustainable investing is surrounded in myth. In this post we will debunk the 5 most common misconceptions covering sustainable investing.
1. Traditional investments outperform sustainable investments
Sustainable investments have a much shorter track record in comparison to their traditional alternatives. However, evidence from several financial advisers suggest that a large proportion of these funds have performed better than their traditional counterparts. Of course, past performance is not a true indicator of future performance, but since sustainable funds are typically investing into companies that are well-positioned to take on future challenges and embrace new tech, they could continue to outperform over the long-term.
2. Sustainable investing is about screening out ‘bad’ companies
Whilst exclusion strategies (i.e. those that filter out the ‘bad’ companies, such as ones that dig for fossil fuel) do exist they are not the only method of investing sustainably. Actually, engagement strategies (i.e. those that further engage with companies to encourage them to operate in a more sustainable way) are increasingly becoming popular.
3. Sustainable investing costs more than traditional investing
It is true that sometimes sustainable investing is more expensive than traditional investing. This is due to money managers having to put in extra work to assess the Environmental, Social and Governance profile of companies, alongside the typical financial analysis they perform.
However, since the rising interest in this space is making money managers reduce their fees to compete, it is unlikely these fee premiums will last forever. Plus, it is worth noting that, as previously mentioned, sustainable investments can perform strongly over their traditional counterparts over the long-term, which could cover any additional fees.
4. Sustainable investments – just greenwashing
Before today, it may have been as simple as to stick to stick a green leaf icon on your marketing material and be done with it, but this just isn’t the case anymore. Today, people are far more aware of the impact of climate change and the roles that companies play in adding to it. As such, people now a have zero tolerance for ‘Greenwashing’ and heavily scrutinise it.
There are ever-growing regulations within the sustainable investing space and money managers are being forced to be much more transparent in regards to their investing practices (such as supplying details around the employment they have made with such companies on their behalf of investors).
5. Sustainable investments only focus on solving environmental challenges
Climate change is now considered humanity’s greatest threat. So it is quite understandable that a lot of the products available today are focused on investing into companies that either have a positive impact on the environment or are actively challenging those that aren’t.
A great thing you can do to protect the planet is to invest your money sustainably.